Dive Brief:
- Costa Coffee just launched its first new product since Coca-Cola acquired the brand in August: ready-to-drink coffee, according to a release.
- The cans will debut in the U.K. this month and then roll out in
Poland and China where the Costa Coffee has a significant market. - At its launch, the RTD line will come in 250 ml cans and be available in Classic Latte, Caramel Latte and Black Americano.
Dive Insight:
After Coca-Cola bought Costa Coffee for $5.1 billion last year, it
was expected that given Coke’s expertise, the next move for the brand
would be to expand Costa’s ready-to-drink coffee across markets
globally. Now, almost a year later, that prediction is true. The new
line of canned coffee is spreading across Europe, and while the company hasn’t yet committed to bringing the product stateside, there’s potential for it in the U.S. market.
More companies have been moving into the coffee category because it is trendy and a money maker for brands. Not only do Americans continue to rely on java
for an early morning jolt, but companies have found that it is a
lucrative market to get into as consumers increasingly search for more
premium options. Gourmet coffee now represents half of all consumption
for the first time in history, according to research from the National Coffee Association.
By choosing to enter the ready-to-drink category, Coca-Cola is
combining its enormous global distribution system with the growing
popularity of on-the-go gourmet coffee. Consumers crave convenience and this easy, on-the-go canned coffee line could satisfy that. Mordor Intelligence reports
that in 2018, the North American RTD coffee industry was valued at $2.5
billion and is expected to grow at a CAGR of 2.7% to about $2.65
billion by 2023.
However, this growth has come with fragmentation. With demand for
single-serve, ready-to-drink, premium and a whole host of other
experimental coffees like butter coffee, probiotic and protein-infused
CPG coffee products, growth in this industry is difficult to tap into.
More brands are launching ready-to-drink coffee, so Costa will have a fair share of competition. Nestlé purchased Starbucks’ retail products for $7.15 billion last May, which offers a variety of different RTD coffee beverages. And previously, Nestlé acquired Chameleon Cold-Brew and a majority stake in Blue Bottle Coffee. But it’s not only Big Food taking advantage of this trend. More startups are also launching these ready-to-drink products. Data from CB Insights shows that coffee startups were on pace to raise more than $1 billion by the end of 2018.
While generally promoting products with familiar labels gives Big
Food acquirers built-in product branding, Coca-Cola will not be able to
take advantage the lesser known coffee brand if it brings Costa to the
U.S. Instead, the Atlanta company may need to rely on the quality of the
product to tempt customers, which is becoming more difficult as small
startup coffee labels pull in consumers with their innovative takes on coffee, like cold brew.
Coca-Cola and Costa opted for a traditional, chilled double espresso
shot format, akin to what Starbucks already has on shelves. That format
has, however, proved successful. In the first quarter of 2019, Nestlé
saw its biggest jump from the Americas segment, where it reported 11.1%
growth. A large portion of that gain came from the previous year’s
acquisition of the license to sell branded Starbucks products.
So while Coca-Cola knows the format of launching flavored, chilled espresso shots from a beloved chain could work well for sales, the company will likely still test out the product for several quarters in a market that is familiar with the brand before it brings it to unfamiliar territory.
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