When compared to other beverage categories such as sports drinks or iced tea, RTD coffee is still much smaller on an international scale. Nonetheless, the category recorded total worldwide volume sales of 3.8bn litres in 2010, not far behind total consumption of energy drinks.
Global consumption of RTD coffee is highly concentrated in Asia Pacific, with about 85% of all volume sales happening in that part of the world. No other major beverage category has such a level of concentration, with consumption usually being more widespread despite varying measures per person.
Take energy drinks for instance. Of the estimated 4.4bn litres sold in 2010 worldwide, North America recorded 1.5bn litres, Asia Pacific 1.5bn litres, West and East Europe a billion litres, and the remaining 0.4 scattered around the rest of the world, a much more balanced consumption across the regions than in RTD coffee’s case.
Growth in RTD coffee consumption on a global scale has been slow in recent years if compared to other categories. In 2005, volume sales reached 3.5bn litres with the figure growing about 8% in the five years to 2010. A poor performance if compared with 12% for sports drinks, 29% for iced tea and 59% for energy drinks, during the same period (2005-2010).
Something is clearly setting back iced coffee as a category in a world where most categories are developing across all regions.
With global RTD coffee sales still being so dependent on Asia Pacific, one has to wonder why the category still lags behind in other regions of the world.
Latin America is one of the powerhouses of coffee production worldwide and one of the regions with highest economic growth over the 2005-2010 period, factors that should have aided growth in RTD coffee sales.
Brazil is the undisputed largest producer of coffee in the world, with the USDA estimating total volume to reach 55.3m 60kg bags for 2010-2011. Production is expected to have jumped by 10m bags for the year, which in part is due to favourable climate conditions but also to investment and well directed agricultural policies.
Colombia is now the fourth largest producer in the world at 9m 60kg bags behind Brazil, Vietnam and Indonesia. Colombia has had severe climate imbalances over the last 16 months that have brought droughts followed by a severe rainy season, and this has caused disruptions to coffee production.
Nonetheless, Colombia still produces what is considered to be the best quality Arabica coffee in the world, demanding the highest price in international markets due to its soft flavour and wonderful aroma.
Mexico is the third largest producer in the region, with volume sales of 4.6m 60kg bags and expanding.
There is plenty of coffee to go around in Latin America, with other smaller countries such as Costa Rica and Ecuador also producing large amounts. However, RTD coffee is practically nonexistent in this part of the world, with total volume sales of just 37m litres and most of that happening in Mexico.
One of the reasons why the category has expanded in Mexico is the development of the vending channel. There are now an estimated 22,600 vending machines across the country, a figure still low compared to the 320,000 in Japan or the 381,000 in the US, but quite significant when compared to other Latin American nations.
RTD coffee does well in the vending channel, consumers often find in RTD coffee a healthier alternative to high sugar drinks and see it as a more natural source of energy, and this combines well with the drinking occasion that vending serves.
In Mexico, notable RTD coffee brands include Café Olé and Makiatto. Both have made an effort to target young consumers by presenting them with innovative packaging and advertising that aims to show a difference between RTD coffee and the coffee that their parents drink. And this has been the key message that has allowed RTD coffee to grow in Mexico, while it has lacked traction elsewhere in Latin America; targeting a younger audience and creating a new market for the product while making clear that this is not an addition to traditional coffee products.
Coffee is the cultural drink of choice in Latin America, with hot tea and other infusions lagging behind in most cases. However, coffee has always been drunk hot and preferably freshly brewed.
The concept of coffee as a refreshing drink is still absent in the consumer’s mind. Coffee is seen as a source of energy during the morning and throughout the day, but less so as a refreshment beverage. There are signs of change, though, that could favour the future development of RTD coffee in Latin America.
In Colombia, for example, the Juan Valdez franchise of stores (owned by Procafecol and the National Coffee Growers Association) now sells a wide range of iced coffees and coffee-based milkshakes at its stores, that are prepared from freshly brewed coffee with additions such as chocolate, whipped cream and caramel. These have proved popular, especially with younger consumers, and sales are growing rapidly.
Juan Valdez stores are now present in Chile and the US. Nonetheless, it is yet to be seen if these products can be moved into the mainstream as an RTD variant. The key selling point is the use of freshly brewed coffee. Whether consumers would get used to an RTD version remains to be seen.
With such a widespread culture for coffee drinking, growing economies and young populations, Latin American countries should be fertile ground for the development of the RTD coffee sector. It’s up to producers to target the right consumers, use the correct vending channels to reach them and present them with an innovative and sexy product that goes beyond the traditional coffee drinking occasion.
As seen in Mexico, it’s possible to create a new market for RTD coffee with some clever marketing and a good product mix.
Andres Padilla is Latin America director for Zenith International
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