Starbucks Success Fuels Shift to High Grade Coffees

By Dominique Patton
Business Daily Africa

October 15, 2007

Success of coffee houses like Starbucks is fuelling a shift to premium coffee in the US.

The addictive ‘coffeehouse experience’ is increasingly persuading Americans to buy brands like Starbucks, Caribou and Peet’s instead of opting for traditional names like Maxwell House.

This shift also means that they are prepared to pay more for premium brands, according to a new report from consumer research firm Mintel.

Coffeehouse sales increased by 28 per cent in the two years to 2006. “

As a result of coffeehouse expansion and increased use, consumers have been exposed to a variety of coffees — raising the bar on consumer expectations on taste and quality, and creating the desire for taste experiences they wish to emulate at home,” say the authors.

Retail brands are seeking a share of the premium trend too. Folgers launched a gourmet selection in eight varieties last year, priced at $6.39 per pound.

Fair trade coffee is also seeing strong growth. Retail sales grew nearly tenfold from less than US$50m in 2000 to around $500m in 2005, shows the Mintel research.

This week’s announcement that food and beverage group Sara Lee is to double the amount of sustainable coffee used in its brands to 20,000 tonnes supports the long-term presence of this trend. There are also rumours that retail giant Wal-Mart is set to launch a fair trade brand.

But marketers should do more to promote the health benefits of the beverage, says Mintel. While premium brands have helped to increase coffee sales by 36 per cent since 2002 to $6.5 billion, overall volumes are actually declining.“

Without price increases, sales trends would be in serious trouble,” says the report.

Those consumers surveyed by the research firm who said they had stopped drinking coffee mainly cited health reasons. Proctor and Gamble has taken some steps to address this issue by introducing ‘stomach-friendly coffee’ based on research that some 40 million Americans cut back on their daily caffeine hit because of stomach problems.

But Mintel says: “There remains a lack of education from coffee marketers in communicating health benefits to consumers through marketing messages.”

There is also a rising challenge from other beverage segments, such as energy drinks, which have seen surging popularity in the US, especially among younger age-groups and blacks. “

Energy drinks share with coffee a core attribute —an energy boost —and are a fast-encroaching beverage segment very popular among younger consumers, as well as blacks and Hispanics.”

Over-55s are also significantly more likely than the average population to trade coffee for tea, “perhaps embracing tea for health-promoting properties, communicated heavily by tea marketers”.

Higher prices could also put some of these older consumers off.

Although they tend to drink more coffee than the younger generations, they are less likely to be familiar with the premium coffees offered by chains like Starbucks.