Your new coffee habit is way too efficient for a reeling market
There has been volume erosion in the overall coffee category. It is clear that the development of the single serve business over the past years has had a definite impact on volumetric consumption of retail coffee.
NEW YORK: Call it the mostdisruptive development in the business since Starbucks Corp. began the coffee- shop boom in the late 1980s. It might even be the biggest thing since Luigi Bezzera patented the espresso machine in 1901.
Either way, single- serve brewing machines popularised by Keurig Green Mountain Inc. are now used by more than one in four Americans and are altering the way coffee is consumed. Almost every brand, from Folgers to Dunkin’ Donuts, is sold in disposable two-inch-bytwo-inch plastic pods that yield just one serving. They’re more efficient than drip-brewing pots capable of making 10 cups, some of which isn’t consumed and gets dumped.
While Americans still drink more coffee than any beverage except water, expanded use of single- serve machines has slowed demand growth for a US$ 52 billion ( RM192 billion) market in the United States, the world’s biggest consumer. That’s hurt sales at a time when ample inventories of the commodity have sent prices tumbling.
“The coffee market has lost its best consumer: the kitchen sink,” said Hernando de la Roche, a senior vice president at INTL FCStone Inc. in Miami. “Roasters are telling us that single- cup coffee has been reducing demand.”
Consumption growth in the 12 months through September
John Boyle, chief operating officer at Portsmouth, Virginia-based Massimo Zanetti Beverage Group USA
probably will slow to 1.8 per cent in the US and Canada, down from a four per cent gain a year earlier, said Kona Haque, head of commodities research at ED& F Man in London.
“There has been volume erosion in the overall coffee category,” said John Boyle, chief operating officer at Portsmouth, Virginia-based Massimo Zanetti Beverage Group USA, which makes Hills Bros., Chock full o’Nuts and Kauai coffees. “It is clear that the development of the single serve business over the past years has had a definite impact on volumetric consumption of retail coffee,” he said in an e-mail.
About 27 per cent of consumers own single- serve brewers, the most ever, the New York-based National Coffee Association estimates, based on survey data. An additional 12 per cent of respondents said they have “definite” or “probable” plans to buy the machines.
Waterbury, Vermont-based Keurig Green Mountain, which estimates 20 million of its brewers are in use across the US, says spending on coffee per buyer is up more than any other beverage since 2010, and that its brewed packs are up more than three times as much as energy drinks.
Single- cup pods account for 12 per cent of coffee sold by US retailers, but they represent 36 per cent of total sales, according to data from IRI, a Chicago-based researcher. That’s because they cost more per pound than beans or grounds.
The product has drawn criticism from environmental groups because the plastic packs and used grounds end up in landfills and can’t be recycled. Keurig estimates 9.8 billion KCup packs were sold in the year ended Sept 27, up 13 per cent. In a statement on its website, the company said it is “committed to making 100 per cent of all K- Cup packs recyclable by 2020.”
By some measures, demand is dropping.
Sales at supermarkets, drug stores and other retail outlets, excluding restaurants and coffee houses, fell 1.4 per cent in the 52 weeks through Mar 22, IRI estimates. Except for singleserve,
coffee sales declined in every category, from ground and instant coffees to whole beans, the data show.
The percentage of Americans who drink coffee daily fell in the 12 months through March to 59 per cent from 63 per cent two years earlier, according to an annual survey conducted by the National Coffee Association.
A demand slowdown in the biggest consuming country comes as rains improve the production outlook in Brazil, the largest grower and exporter, after two seasons of sub-par production that included an unprecedented drought in 2014.
Arabica coffee tumbled 15 per cent this year through Wednesday to US$ 1.415 a pound on ICE Futures US in New York, even before Brazilian farmers start harvesting the crop in May.
Volcafe, the coffee unit of ED& F Man, said last February that Brazil will boost output this year to 49.5 million bags from 47 million in 2014. A bag weighs 60 kilogrammes, or 132 pounds. — WPBloomberg