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Coffee:
Slow Roast:
A Slow Return to Growth
By
John G. Rodwan, Jr.
Reprinted
from March 2005 issue of National Petroleum News.
Despite a sixth
straight year of volume growth, the U.S. coffee market has still not
recovered from a series of contractions in the mid-1990s. However,
certain segments of the market – particularly specialty coffee
– have been showing strong growth.
Between 1993 and
1996, total coffee volume in the United States dropped by 12.4 percent,
at least partially due to a frost in Brazil that killed large numbers
of coffee trees and sent prices rocketing. Although global production
started to increase in 1996, prices began to lower – 1997 saw
a continued volume loss of 1.3 percent compared to 1996. Starting
in 1998, volume began to recover, with three years of 1-percent-plus
growth. In 2000, coffee volume surpassed 6 billion gallons for the
first time since 1995. In 2001, volume increased by only 0.6 percent
to 6.1 billion gallons. Coffee volume grew by 1.8 percent to 6.2 billion
gallons in 2002 and by 1.3 percent to 6.3 billion gallons in 2003.
As late as 1993,
per capita coffee consumption stood at 26.4 gallons, but it dropped
to as low as 21.8 gallons in 1997 and 1998. In 1999, coffee per caps
rose to 22 gallons. They stayed there until 2001, when they moved
up to 22.1 gallons. In 2003, per capita consumption increased to 22.2
gallons.
The National
Coffee Association, whose members represent nearly 90 percent of the
U.S. coffee industry, suggests that coffee drinkers are consuming
larger servings than the traditional 8-ounce cup. In a survey, one-third
of respondents reported that they use bigger mugs. But the growth
of milk-like coffee drinks in the last decade is also lowering the
proportion of actual coffee in the beverage.
The U.S. coffee
market consists of three basic segments: roast/ground coffee, instant
coffee and ready-to-drink coffee. Roast/ground coffee accounted for
more than nine-tenths of all the coffee consumed in the United States
in 2003, and the segment’s share of total volume has been growing
in recent years. Instant coffee’s volume and market share, in
contrast, has been declining. RTD coffee remains a niche market, but
the small segment has seen the strongest growth of any coffee category.
Specialty
coffee is a broad category that includes coffee with flavorings such
as chocolate, mint or vanilla, coffee positioned as the highest quality
and/or roasted with the ideal techniques or even coffee from particular
plantations. Although the overall U.S. coffee market has been sluggish
lately, the specialty component has seen significant growth, with
retail dollar sales approaching $9 billion in 2003. The segment’s
sales in 2003 represented growth of 6.7 percent over 2002’s
$8.4 billion. In 2003, coffee cafes – the approximately 11,240
retail locations including seating, such as most Starbuck’s
outlets – generated $6.1 billion in retail sales, or 68.3 percent
of the segment’s total. Coffee bean roasters and retailers –
the 1,350 sites with on-premise roasting – accounted for 14
percent of sales with $1.3 billion. Coffee retailers without seating,
also known as kiosks, had sales of $810 million, which represented
9.0 percent of the total. There were approximately 2,700 coffee kiosks
operating in 2003. Mobile retailers (i.e., carts) accounted for an
additional 3.2 percent of sales, with all other channels responsible
for the rest.
John
G. Rodwan, Jr., is editorial director of New York-based research and
consulting firm Beverage Marketing Corporation.
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