While the overall hot beverages category has been in a gradual decline for a number of years, many individual areas within the category are showing impressive growth. Consumers’ tastes and expectations have changed in recent years, particularly out of home, where they expect to pay a premium price for a premium product.
In the coffee category Nestlé is the leader both in the retail and out of home sectors. Quentin Knowlson, commercial director at Nestlé Foodservices, says Nestlé is growing the coffee category and is growing its market share. He identifies a number of factors responsible for this, such as responding to changing consumer tastes and developing new products, but the company’s promotional strategy is also important, he says.
“Bogofs do not work in this category. On the consumer side if they have more chocolate at home or lager in the fridge we know they are going to consume more, but with coffee it just doesn’t work like that. If they have more in the cupboard they won’t consume any more cups of coffee.
“We’ve recognised that and we’ve adopted a strategy that rewards customers’ loyalty. For instance, the unlock a mini promotion last year generated a 25% sales lift, and we’ve continued with similar themes such as the current ‘Two flights Every Day with Nescafé’ offering caterers the chance to win free flights.” This strategy is also good for wholesalers, he adds, as it means they are getting full value sales.
On the retail side of the business style experts Trinny and Susannah have been involved in a pound;4m promotion across Nescafé Original, Nescafé Gold Blend and Nescafé Specialities offering customers the opportunity to win pound;10,000 makeovers.
Another of NestléFoodservices strengths, says Knowlson, is that it has a product to suit every requirement, from soluble products that are almost indistinguishable from freshly ground coffee to coffee beans. For instance, he says, a hotel can have a roast and ground offering for its front of house, pour over for large-scale banquets, and small packs in the rooms, all from Nestlé.
With consumers becoming more sophisticated, caterers are facing a problem because many do not have the necessary staff expertise to produce premium coffees, so NestléFoodservices is helping with products such as instant cappuccino.
Another product growing in popularity is decaffeinated coffee. Some consumers tended to reject these products because they did not taste much like coffee, but Knowlson says Nestlé’s naturally decaffeinated and half-caffeinated products now taste just like the real thing.
Kraft Foods has also just updated the taste of its Kenco Decaffeinated instant coffee. Its jar features a special label to communicate the new enriched aroma of the product and its launch is being supported by a direct mail campaign to consumers, with free trial samples and money-off coupons.
Sarah Petts, channel and communications manager for Kraft Foods, comments: “Health, wellness and pleasure mega trends are here to stay, so retailers should stock lines that cater for these needs. By improving the blend, Kenco Decaffeinated allows consumers to indulge in a great tasting coffee, while enabling them to reduce their caffeine intake.” The new formulation is being being backed by packs price-marked at pound;2.89.
In the catering sector Kenco has launched a new blend, Café 25, after a study of consumers’ taste preferences when drinking out of home. Claire Parkes, senior trade sector manager of The Kenco Coffee Company, says: “As a result of our research we have launched Café 25, a medium to dark roasted coffee blend that out-performed all other coffees in our research. Today’s mainstream coffee consumer is looking for a palatable yet authentic coffee experience, and Café 25 firmly delivers against these expectations without polarising those consumers who like a stronger-hitting coffee taste. So, for those operators who want to offer a speciality coffee menu, Café 25 is the perfect blend and is ideal for everyday drinking.”
Another growing niche within both the retail and out-of home sectors is Fairtrade coffee. The cash and carry sector has tended to lag behind this trend but lately influential companies such as Booker and Parfetts have begun to stock Fairtrade products.
One of the brands most closely associated with Fairtrade is Cafédirect, which says its sales to the out of home market climbed 45% in the year to May 2006. It has begun turning its attention towards the wholesale, independent and convenience channels and claims sales are up 48% year on year.
“This year we’re determined to make considerable distribution gains in the independent and wholesale channels,” says SiobhÃ¡n Molloy, general sales manager at Cafédirect. “The wholesale channel is incredibly important to us in reaching smaller independents and foodservice outlets. Over the next few months we will be driving growth and building on our success with a dedicated campaign aimed specifically at this sector which will include tailor-made promotions.
“We will also look to bring new consumers to the Cafédirect brand by adding value to our products. We’re currently running a free mug offer on our 5065 Freeze Dried Coffee (standard and decaffeinated) and the response so far has been amazing. Our advice to the trade is to add a Fairtrade option such as Cafédirect or Teadirect and watch your rate of sale and profits grow.
Another company with a range of Fairtrade products is Percol, which has a range of four catering products and one retail product in cash and carries, and says it is planning to expand its offer. Percol managing director Brian Chapman says: “The products we sell through cash and carries are some of the most popular from our range. All outlets, be it retail or catering, are now taking on board that their customers are requesting ethical products and as Percol is a pioneer of Fairtrade coffee and tea we are finding the demand through cash and carries is growing. As a result we are planning to increase our offering through cash and carries.”
Another company looking to increase its representation in the wholesale sector is FFI The Coffee People. It already supplies own label instant and ground coffee to a number of foodservice and cash and carry companies, and marketing manager Ray Conway says he is looking to raise the profile of Fairtrade products with a sampling campaign and in-store tasting. It is also embarking on an advertising campaign supporting Fairtrade products until the end of the year. The campaign is focusing on the workplace environment, “where the kettle is Fairtrade’s best friend”. FFI says the UK has more than two million businesses with less than 30 workers and the vast majority will be drinking coffee and tea using a kettle as the main method of making the drink.
The overall tea market may be in decline but it is still worth pound;531m a year, and nine out of ten households regularly buy tea.
Tetley is the biggest tea brand in the convenience sector, according to ACNeilsen, with 36.8% volume share and 33.2% value share. The nearest contender to Tetley is PG Tips with 24.8% volume share and 27.1% value share.
Although mainstream tea is declining, Simon Attfield, customer marketing controller for Tetley, says there are growth areas such as decaffeinated tea, which was up 12.6% in the convenience sector year on year, and fruit and herbal teas up 10.6%. He says: “The increased interest in higher margin fruit and herbal teas presents real opportunities for cash and carry and wholesalers. By offering a wider choice of teas their customers can capitalise on this important growth area. Careful selection of the variants selected is essential to tempt trial.”
He adds: “Tetley’s product launches for this year are focused on providing consumers better tastes and a greater choice of flavours and blends both in hot beverages and ice teas.” New to the cash and carry and wholesale sector is Tetley Extra Strong, and Tetley’s new speciality teas and new Tetley decaf, are recent introductions.
Simon Whitehead, business manager at Unilever UK Foods, the manufacturer of PG Tips, believes wholesalers can play a role in helping retailers make the right decisions on what to stock. He says: “In this channel tea is a distress purchase for shoppers, therefore making it a staple for convenience stores. By stocking key lines such as PG Tips 40s and PG Tips 80s wholesalers can direct retailers to better meet the needs of their customers and at the same time get the most out of the tea category.”
He adds: “Availability and visibility are key in the wholesale channel. Retailers are time pressed and want to be able to find what they need quickly and easily. It is therefore vital that wholesalers use clear category signage, avoid cluttering the fixture – use less promotions but make them bigger and ensure that POS is simple and to the point.”
“In terms of availability 78% of cash and carry shoppers have stated that the reason they did not buy a certain item is because it was out of stock. As tea is such a staple for these retailers it is vital that wholesalers improve the availability of such a key line.”
Twinings is the leader in the growing speciality tea, infusions and green tea markets, and has recently carried out research into the out of home sector. It found speciality tea was worth pound;9.03m and was growing at 3% year on year, infusions was worth pound;1.94m and growing by 24%, and green tea was worth only pound;240,000, but was growing by 55%, with the latter two attracting health-conscious customers.
Andrea Stopher, senior trade marketing manager – foodservice, says: “Wholesale and cash and carry operators are key to our business and we work closely with them to ensure they offer the right range for their customer base. They are a valuable link between Twinings and the end user and as such we create bespoke activity and promotions for their customers.
“We also support their sales and telesales teams with a range of selling tools including core range product recommendations by channel. In cash and carries in particular, point of sale and promotions are great for attracting new customers and raising rate of sale. In delivered wholesale, price lists and customer magazines as well as mail-outs direct to their customer base are key vehicles to inform end users of our product range and any offers available.”
=== Buyer’s viewpoint ===
The category is in single digit growth with us, driven by new stores and strong promotions.
There has been no specific NPD recently although the performing areas are at the premium end of the category. Areas in decline are at the budget end of the category, as people are trading up and want the coffee shop taste at home.
When it comes to supplier support no single company stands out. They are all equal to their share of the category i.e. no supplier is over indexing versus their share. What I am really looking for from suppliers is strong promotions and innovation – something a bit different. As far as promotions go the PG Tea Bags plus World Cup Mug free offer is the strongest at this point in time.
=== Buyer’s viewpoint ===
Trading has been very good overall. Sales have been up almost 5% year on year at Budgens and just over 8% up within Londis stores. The warmer weather always creates a slight dip, although tea – always a great refresher – tends to hold its own in the heat.
There’s not a great deal of NPD but ‘café culture’ has definitely taken off and as a result we’re seeing development within café-style coffee products such as cappuccino and latté speciality mixes. Speciality teas are also seeing growth with green tea benefiting from positive press. Herbal infusions are a pretty established sector of the market now and are still growing.
Fairtrade and organic sectors are growing too, and sales are increasing across tea, coffee and premium chocolate drinks, with a growing base of loyal consumers. We sell a good choice in Budgens stores and have a core range in the Londis stores, where we’re seeing steady growth.
Nescafé has driven and developed the market and as a result continues to do well. Constant heavy price promotion has devalued the tea category, but the decline is now slowing down.
As far as support goes, Nestlé is the big player in coffee, while Tetley is the strongest supporter in tea. Both companies are authorities in their markets. They have good insight on the market and they bring the channel good all-round ranges and strong promotional packages.
Tetley’s 160-pack for pound;1.99 has been very successful for us and PG’s World Cuppa has been a great promotion. It’s different and topical without devaluing the product and the market.
=== hot chocolate ===
Competition in the hot chocolate market looks like it is about to intensify with the two biggest chocolate confectionery companies going head to head.
Sales and marketing responsibility for Cadbury branded hot drinks returned from Premier Foods to Cadbury Trebor Bassett in May, while Nestlé’s Aero instant hot chocolate has made significant inroads into the foodservice sector since its launch last October, and is now also available in the retail sector.
Mike Tipping, head of customer relations for Cadbury Trebor Bassett, says: “We see hot chocolate as a major growth area. We intend to reignite the category to make it more relevant to existing customers and to attract new customers.
“From October Cadbury hot beverages will be back on TV for the first time in years. Retailers should stock the key lines and be ready to reap the rewards.”
Nestlé’s Aero hot chocolate was launched last autumn into the foodservice sector with a high-profile promotional campaign, and according to Quentin Knowlson, commercial director at NestléFoodservices, it has been highly successful, achieving a market share of 15.3% in just eight months.
It has now made the transition into the retail sector and Warren Plaskett, Aero hot chocolate brand manager, says: “Aero hot chocolate has achieved outstanding taste preference in taste trials. The combination of the bubbles and creamy texture gives Aero instant hot chocolate a real point of difference compared to other chocolate drinks. We’re sure confectionery fans will be excited the brand is now available as a hot beverage.”
=== Buyer’s viewpoint ===
Hot Beverages is in growth with Bestway this year, and as a category has performed very well considering its maturity and how the category suffered compared to soft drinks over recent years.
We are seeing good performances in herbal teas and fruit infusions. Brands are key, and it is very difficult for even an established tea brand in mainstream to jump across to specialities or vice versa.
Traditional drinks such as drinking chocolate are doing well in our business. One overriding factor that drives most of the volume for us is the use of price marking. This applies to the premium brands and at the economy end.
The traditional brands are doing well for us and there is a resurgence in deals on bigger pack sizes – such as 160 tea bags – and at the right price it works well.
All major suppliers support the channel very well. If I had to name the best I would say the likes of Nescafé, Tetley, PG and Typhoo are all good.
As the sector is dominated by well-established brands they all have their promotional patterns established. A keen price mark with a short count pack works very well with us, but also attractive outer packaging that enables retailers to see what they are buying, and smaller case sizes,
We look to suppliers for a willingness to participate in our activities, such as promotional events, trade days etc. We would also urge them not to be afraid to trade up, either in size or moving consumers to a more premium product. As long as the deal for the consumer is competitive, suppliers may be pleasantly surprised to find the consumer buys a deal in convenience as well as the multiples.
Bestway’s own label Best In has seen an increase of 59% in its revamped classic rich roast coffee brand and is to mount a special promotion of the 100g jar with 100% extra free for the price of the 50g jar in September.