While hot beverages is a mature category with some of its main lines and many of its consumers beginning to flag due to their age, a number of factors are bringing growth, and younger consumers, into the category.
The growth in the popularity of coffee shops is one of the factors that has had a strong effect on the out of home market. Martin Lines, marketing director of Nestl eacute; Foodservices, says: “The total defined out of home hot beverages sector is currently worth pound;171m, with soluble coffee showing a 17.4% year-on-year year growth and leading the category with a pound;77.5m share – divided between cash and carries ( pound;32.5m) and delivered wholesale ( pound;45m).
“High street coffee trends are clearly exerting an influence on trends in the out of home market as a whole, with soluble coffee sales led by Nescaf eacute; in the caf eacute; style and premium sectors driving value growth. And let’s not forget the effect of last year’s weather. Hot beverage sales in the summer and in particular August, significantly increased compared to previous year’s figures.”
Promotions are an important way of driving sales in the category and Nestl eacute; will be following up the success of last year’s Nescaf eacute;’s Britain’s Favourite Events, with a bigger version this year. In addition to VIP tickets to sporting events, including the Golf Open, Ladies Wimbledon Final and British Grand Prix, the promotion has been extended to include film premieres and tickets to the O2 arena, and all entries will be placed into a monthly draw for the chance to win iPod Shuffles, Ticketmaster vouchers and HMV vouchers.
In retail, instant coffee remains the largest segment within hot beverages and Nestl eacute; has the number one brand in Nescaf eacute; instant and the fourth most popular in Nescaf eacute; Gold Blend. The value of retail instant coffee in wholesale accounts for pound;18.9m, the biggest value share being regular (73.4%), followed by premium (16.3%), decaff (4.7%), speciality (2.8%), connoisseur (0.4%) and economy (2.4%). While regular and premium are mature markets, the biggest growth areas for wholesale are connoisseur, speciality and decaff with growth of 22.1%, 10% and 9.7% respectively.
Graham Walker, Nestl eacute; UK trade communications manager, says: “Wholesalers continue to be a valued channel for product sales with Nestl eacute;’s share of retail remaining consistent. Its value share of retail instant coffee continues to exceed 75%. Focusing on the key growth areas in this category will attract new consumers resulting in incremental sales and profits.”
The influence of coffee shops is also being seen in the retail market with consumers who have got the taste for ground coffee looking to replicate it at home, and making roast and ground coffee a growth area. Percol has been encouraging consumers to become more discerning with coffee. It is working to align coffee with wine in terms of different varieties, and has launched coffee academies for consumers where they can taste different Percol varieties.
Twinings, which has a long heritage in the tea category, has also launched into the roast and ground category, with the launch of Twinings Coffee Blends, and has been backing it with TV adverts featuring Stephen Fry. Jon Jenkins UK sales director, comments: “Twinings Coffee Blends are already bringing new shoppers to the category with over 30% of sales attributed to consumers who have not bought roast and ground coffee in the previous 12 months.”
Fairtrade products and other ethical partnerships have also had a major impact on the coffee category, both in and out of the home, with many local authorities, educational establishments and church groups insisting on Fairtrade products. Caf eacute;direct was founded in 1991 and is the UK’s largest 100% Fairtrade hot drinks company. It has direct trading relationships with 39 grower organisations in 13 companies, and growers hold shares in the company and sit on the board of directors giving them a say in how the company is run.
It has a wide range of coffee products available in both the retail and foodservice sectors comprising instant coffee, fresh ground blends, and single origin fresh ground and coffee beans from areas such as Machu Picchu in Peru, and Kilimanjaro in Tanzania.
Percol is also keenly aware of the ethical dimension. Founder Brian Chapman says: “Fairtrade is a growing movement with total sales (not just coffee sales) in the UK now worth pound;290m – up 46% on 2006. It is a fast growing sector because it addresses important issues and consumers are becoming more and more aware of trading problems for people in developing countries. Consumers are also aware that Fairtrade does not mean inferior quality products – Percol’s Fairtrade and organic coffees have won 27 taste awards in the last few years.”
Where possible Percol always chooses to buy Fairtrade certified coffee and is just about to launch a new Fairtrade Americano Instant Coffee to replace its standard Americano. In addition, all Percol products support the Coffee Kids Charity, whether they are Fairtrade or not. Chapman adds: “Fairtrade is no longer a niche sector and is becoming more mainstream. Fairtrade is part of Percol’s DNA. We believe the way forward is to constantly strive for the best possible quality and find new and innovative ways of promoting premium ground coffee, such as the Percol New Harvest Guatemala.”
A Fairtrade coffee which also raises money for Save the Children was introduced by FFI last year. Booker and Makro are among wholesalers stocking Fair Instant, which comes in two retail and two foodservice packs, and Fair Ground, which is available in 227g retail and 500g foodservice packs.
Solely in the foodservice sector, Brakes has a range of Fairtrade coffee. Phil Smith, product marketing manager at Brakes, comments: “We have seen a continued interest in our branded Fairtrade products as consumers’ understanding of what it stands for increases. Research by the Fairtrade Foundation shows that sales are increasing by 40% a year in the UK and that one in two people now recognise the Fairtrade mark.”
Complementing Brakes’ Arriba range are two Fairtrade coffee products. Brakes Arriba Fairtrade Coffee Beans are made using 100% Arabica beans from farms in Colombia and Costa Rica, and are available in 16x500g packs, and Brakes Arriba Fairtrade Roast Ground Coffee is offered in 50x60g packs.
Like coffee, tea is seeing a lot of growth from new products, but standard teabags are still the mainstay of the category, with value up 2.8% in 2007 to a total of pound;558m. Tetley is the number one brand in the tea market with 29.5% volume share and 24.6% value share compared to PG Tips with 25.4% volume and 24.4% value share.
Tetley spent pound;8m on its marketing campaign last year and is starting this year with a new promotion. Called “Free Fun For Everyone” it involves tea bag points, carried on promotional packs of Tetley standard, Tetley decaf, Tetley Extra Strong and Tetley Organic, which can be exchanged for free offers, 2 for 1 deals, and discounts for days out, sports and leisure activities and holidays.
“This is an exciting promotion and the first time that we have run a promotion across all our everyday teas. The variety of good fun things on offer sits very well with our proposition of Tetley being ‘Everyone’s Cup Of Tea’,” says Simon Attfield, customer marketing controller for Tetley GB.
Typhoo is also looking to raise the profile of its products with a promotion linked to the Dr Seuss film Horton Hears a Who, which will be released in UK cinemas on March 21. In addition to consumer promotions, retailers who buy Typhoo from cash and carries will get the chance to win a home entertainment system, VIP tickets to the film premiere in London, family trips to a UK safari park and other Horton related prizes.
Caterers who buy a case of Typhoo 1100s, 250s or 100s string tag bags from wholesalers can claim a free cinema ticket, with those that claim tickets also entered into a prize draw to win an elephant safari holiday to India.
Typhoo is also aiming to raise its availability in cash and carries. Sue Jones-Smithson, customer marketing manager for Typhoo, says: “We are offering a range of POS items to help outlets to promote their full tea range and maximise sales, including vertical barkers, wobblers and bus stops in two sizes. All items are available with Typhoo and London Fruit Herb branding to cover the entire Typhoo range.”
New carton packaging is also being introduced to help cash and carries drive sales of tea. Jones-Smithson adds: “Packaging at the point of sale has become increasingly important as product choice has risen over recent years. Our new carton packaging, which replaces the existing soft pack format, offers not only protection and information but also a more attractive option on the shelf for cash and carries.” The new packaging is available with a continuation of Typhoo’s ‘6 for the price of 5′ promotion.
Attfield agrees that merchandising is important and advises: “Understand your customers’ preferences. Tea can be quite regional and you must ensure you are stocking the right brands. For example in Scotland Tetley sells over 50% of all tea volume. Also, blocking by brand will aid your customers in locating the products they need. A big block of the bright blue of Tetley will make it very clear for your retailers where the tea fixture is. And although the health trend is important, use your tea space wisely. Remember that normal teabags still deliver the vast majority of sales.”
Although it is growing from a low base Rooibos, or Redbush, tea has attracted consumers looking for a ‘healthier’ hot beverage that does not contain caffeine, and is now drunk by one million consumers every week. Attfield comments: “We had an exceptional launch last year with Tetley Redbush 40s. Tetley Redbush was launched at a time when sales of redbush were slowing, but the sector had a resurgence of popularity post launch (volume sales up 32%) with Tetley Redbush accounting for 70% of this growth. Today Tetley Redbush is the number one selling redbush SKU.”
Tea specialist Dragonfly Tea, which has been supplying its Tick Tock Rooibos tea to health food stores for a number of years, has seen its sales soar as the product has entered the mainstream. Sales increased 63% last year as it began to win distribution through the multiple grocers, and the company is now seeking to extend distribution through the wholesale channel to independent retailers and caterers.
Dragonfly chairman Bruce Ginsberg believes there is a strong opportunity for Tick Tock teas in foodservice. He says: “Many consumers now drink a range of teas, including the traditional, such as English Breakfast and Earl Grey and the healthier, such as decaffeinated, green teas, herb infusions and organic. Tick Tock Rooibos Tea offers customers all the healthy options in one delicious, healthy, caffeine-free option.
“Consumer interest in healthier options is growing exponentially, with brands that were once the preserve of health shops, now selling well in grocers. Tick Tock Green Tea is our latest introduction to meet this increasing consumer demand and with our stunning performance in the multiple grocers with Tick Tock Original, we know that Tick Tock Green teas will be another resounding success.”
Consumers’ ethical concerns are reflected in a number of ways in the tea market. Some of the main companies are members of the Ethical Tea partnership, an international alliance seeking to ensure the source is ethical, while a number of Fairtrade products are also offered, such as Teadirect’s standard and decaffeinated teabags, and its new launch, Teadirect Gold.
Unilever Foodsolutions’ largest tea brand, PG Tips, has teamed up with the Rainforest Alliance, an international, environmental organisation that protects ecosystems and the people and wildlife that depend on them, by transforming land-use practices, business practices and consumer behaviour.
Susan Gregory, category marketing director, Unilever Foodsolutions, comments: “As a major tea company, we’re taking the lead on how we can grow tea in a sustainable way by being the first tea supplier to team up with the Rainforest Alliance. We have already gained Rainforest Alliance certification at our Kericho tea estate in Kenya, helping us to provide a holistic approach to sustainability, and Unilever is now delighted to announce that the nation’s favourite hot beverage, PG tips, will be certified by the Rainforest Alliance.” PG Tips will be providing operators with POS kits to communicate the certification.
Chocolate and milk drinks
Hot chocolate is a pound;73m category and Cadbury Trebor Bassett claims to be the brand leader with more than half the market. Kate Harding, head of customer relations for Cadbury Trebor Bassett, comments: “This is a sizeable market. We drink more than 800 million cups of hot chocolate each year in this country, 85% of consumption is at home, and CTB brands are consumers’ number one choice.
“Through investment we aim to grow the number of people buying hot chocolate, frequency of purchase and spend per trip, to significantly grow the category.”
In addition to positioning hot chocolate with other hot drinks in depot, CTB advises that secondary siting with relevant categories such as confectionery and biscuits will encourage retailers to stock up.
Aimia Foods, which supplies Galaxy and Maltesers hot chocolate drinks, is investing in the opportunity offered by the wholesale channel. Charles Fitches, national account controller at Aimia Foods, comments: “There is a lot of potential in the wholesale sector, and it’s a very important channel for us as a company. Galaxy is the number two brand in the UK, and continues to grow in excess of 20% year on year. We will be increasing our support to the wholesale channel during 2008.
“We are planning activity with wholesalers in the second half of 2008. Promotions for wholesalers will include on-pack offers; dressed pallets; percentage off offers and price-marked packs to help push the products through the retail channels.
“We know that we need to get the right products for the sector, at the right price, at the right time of year. Listening to buyers and acting on their recommendations is crucial to our success in the channel, and as a result of this we will be looking at dedicated pack sizes in particular in 2008.
“We are keen to work in partnership with depots and depot managers to support them. To do this we want to work alongside the depot management teams to make sure they have all the information and help they need from us. By offering merchandising support for depots we will be able to help to get POS material and promotions up and running.”
The latest launch in the wholesale foodservice sector from Aimia is a 2kg pack of Galaxy Hot Chocolate Bliss. “There are a lot of hot chocolate products available in cash and carry but few feel really special enough to serve in premium catering establishments,” says brand manager Richard Cooper.
“Galaxy Bliss is a cut above. You can taste the real Galaxy Chocolate and that makes a super indulgent, enjoyable drink that will really hit the spot in pubs, cafes, restaurants or the office.”
Martin Lines, marketing director of Nestl eacute; FoodServices, also expects strong growth in out of home hot chocolate. He says: “Capitalising on indulgence, one of the key current trends in foodservice, the hot chocolate category is continuing to increase in value and is currently worth pound;18.1m, with latest figures showing 28.3% year-on-year growth in the past year. This growth is replicated in both the wholesale and cash and carry route to markets, with a year-on-year increase in market value of 32.6% and 14.3% respectively.
“Since its launch in 2005, Aero Bubbly Hot Chocolate is continuing to drive the category forward, with the brand experiencing a 106.6% increase in the past year, to secure a 16% stake in the category.
“To add value to the category and ‘drive’ hot chocolate sales, the current Aero Bubbly Hot Chocolate promotion offers end users the opportunity to win a VW Beetle.”
Horlicks is trying to shed its old image and engage younger consumers by providing convenient, contemporary products and formats. A key trend of 2007 was a rise in demand for convenience – and in January 2007 it launched single serve sachets – which are in tune with today’s on-the-go lifestyles. Single serve sachets account for nearly a fifth of the category (17%) in grocery multiples and a third (29%) of independent sales.
Horlicks consumer research found increasing demand for indulgent yet low calorie alternatives among young females. In August, Horlicks responded to this demand by launching Horlicks Extra Light, which comes in a range of flavours with less than 40 calories per serving.
In October, it underwent its biggest ever brand overhaul, with pound;4.2m marketing spend, and Horlicks value sales are up 6% versus the same period last year.
=== luxury topping ===
Complementing the growth in out of home coffee, Pritchitts has introduced Millac Cappuccino Milk to help caterers achieve the perfect cappuccino and latte. Added proteins in the milk help to produce a thicker, longer lasting foam, and as it produces more foam than fresh milk it means less volume is required, giving a cost saving.
Simon Muschamp, head of marketing at Pritchitts, comments: “As the nations love for speciality coffee continues to grow, it’s crucial to offer operators looking to cash in on the boom well-made, great tasting coffee products such as Millac Cappuccino Milk. With the minimal waste that comes from using Millac Cappuccino Milk, operators can further maximise their hot beverage potential.”
Pritchitts also offers Roselle Supreme, which is designed to have the same taste and texture as fresh cream, but as a topping for hot drinks will keep its shape for 15 minutes without melting or falling back.