BEAT THE SQUEEZE
What next for RTD coffee in North America?
Words: Art LopezImage: G. Mazzarini
The US RTD coffee market reaching maturity is driving competition. In turn, this is leading to innovation. Private label will be the next beneficiary of this category, but RTD coffee category managers should be cautious if they want to avoid price degradation.
Ready-to-drink (RTD) coffee has consistently been the fastest-growing beverage category over the past 25 years. If you’re a beverage category manager who invested in RTD coffee during this time, congratulations on your promotion!
Consumers in North America first began adopting RTD coffee in the 1990s. Starbucks released its Frappuccino product in the summer of 1995. The product was an instant hit. This demand created a new sub-category, RTD coffee. Imitators followed and drove the category from non-existent in 1995 to over $850m by 2005*. Another wave of premiumization influenced the category with introductions of cold brew, single origin, and specialty coffees that tripled the category size to $2.6bn by 2019**.
Up to this point, RTD coffee thrived on single-serve offerings. Covid-19 changed this overnight. Suddenly, store visits became risky. Consumers sought to maximize their cart size per outing to reduce the number of trips away from home. This necessitated a quick pivot to multi-serve coffee, where a week’s worth of coffee was delivered in one package. The larger packaging drove volume and price per unit upwards. By 2023, the RTD coffee category had ballooned to $3.8 billion***.
The size and sustained growth has attracted investments now pouring into the category by way of brands and operators, who are making more RTD coffee, more efficiently. This efficiency is leading to pricing competition in the category for the first time, signaling a peak in category maturity. Now is the perfect time for private label brands to enter the marketplace to get quality products for lower prices. Millennial and younger generations show more openness to private label brands than their predecessors. This shift to private label, downward trend on price, and generational openness to private label should fuel consumption of RTD coffee.
RTD coffee category managers should tread lightly in prematurely reaching for innovation. Recent developments make the idea of an ambient, shelf-stable, and non-perishable RTD coffee something that is no longer a dream. While there’s a temptation to move immediately, it’s important to exercise caution. Look at the adjacent category of RTD tea to see how a refrigerated product performs when moved in-line at the grocery store.
Tea was once the fast-growing category until it became commoditized as shelf-stable where it now sells for one third the price of RTD coffee****. Moving RTD coffee from the refrigerated space to in-line will only speed up price degradation.
The RTD coffee category is becoming more competitive, but competition opens opportunity. Private label will be the next beneficiary of this market in the USA. Beyond this border lies future opportunity in markets such as Europe, Central, and South America, which are primed to experience the same category trajectory that was witnessed in the USA a decade ago.
The RTD coffee category is becoming more competitive, but competition opens opportunity.
The sustained growth in the RTD coffee category proves that consumers love the taste and convenience of RTD coffee. Regardless of what is next, one thing remains constant. RTD coffee has solidified itself as a global beverage category that is here to stay.
Art Lopez
VP Marketing Arthur.Lopez@Finlays.net
Now is the perfect time for private label brands to enter the marketplace to get quality products for lower prices.
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Sources
*Source: Market size of canned and bottled ready-to-drink (RTD) coffee from 2001-2015. Statista.com**Source: Nielsen Scan Data, 2023 ***Source: Nielsen Scan Data, 2023 ****Source: Euromonitor 2023, Nielsen EPOS Scan Data 2024
