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The ready to drink (RTD) coffee category is set to become the next major battleground for The Coca-Cola Company and its perennial rival PepsiCo, after Coke announced a global partnership with Italian coffee specialist illycaffé in October.

The move came just a couple of weeks after Pepsi revealed that its partnership with US coffee company Starbucks is soon to expand into select international markets.

Coke and illy have signed a memorandum of understanding to form a global joint venture focused on premium RTD coffee. Although details of the deal have not yet been finalised, the two companies said their aim will be to “leverage illy’s world class expertise in the art of the espresso to capture opportunities in this high growth, profitable beverage category with new brands and products.”

The RTD coffee market has been developing strongly around the world in recent years and is currently valued at almost $10 billion. Excluding Japan, world sales have grown at an average annual rate of more than 10% since 2002.

Coca-Cola has been trying to establish a strong position in the RTD coffee category for some years – particularly since noting the success of the Pepsi/Starbucks partnership, under which Pepsi has been distributing Starbucks branded bottled Frappuccino across North America for the last decade.

Although Coke owns the bestselling Georgia canned coffee brand in Japan and has experimented in North America and Europe with various coffee-flavoured drinks such as the 'fusion beverage' Coca-Cola Blak, results have been inconclusive.

In 2001, major bottler Coca-Cola Enterprises (CCE) bought PJ Bean Co of Long Island, New York, producer of a small line of RTD coffees under the Planet Java brand. But the acquisition was not a success and Planet Java was quietly dropped two years later.

In September last year, Coca-Cola launched a surprising new attempt to cash in on coffee – focusing on the fresh brewed rather than RTD beverage. The company unveiled Far Coast, a range of premium ground coffees in capsules, to be used in conjunction with specially designed coffee making machines.

The Far Coast system (right) is not intended for domestic use, however, but for upmarket hotels, restaurants and bars.

A similar system was simultaneously launched under the CHAQWA brand, to produce fresh brewed coffee and tea in less exclusive catering locations such as snack bars and convenience stores.

The new systems were introduced at a chic 'concept store' in Toronto. Other Far Coast stores have subsequently opened in Oslo and Singapore as well as in the recently revamped World of Coca-Cola museum in Coke’s home town, Atlanta.

A further significant but less widely reported development came at the beginning of this year, when Coke and Nestlé of Switzerland announced they had revised their international joint venture Beverage Partners Worldwide (BPW), which produces and distributes Nestea iced black tea. Crucially, the revised joint venture agreement left both companies free to market their own RTD coffees and non-black tea products.

This August, Coca-Cola North America (CCNA) teamed up with Caribou Coffee – second biggest US coffee house chain after Starbucks – to launch of a new line of premium RTD iced coffees under the Caribou brand (see below, centre). Packaged in a unique 12oz (35cl) resealable Alumi-Tek aluminium bottle from Ball Corp, the Caribou drinks are initially being distributed in three flavours (regular, espresso, vanilla) in major US cities in the Midwest and Southeast.

Since Coke has not yet revealed its long term plans, it is not clear whether the company would consider launching any illy RTD coffee line in markets such as Japan and the US, where it is already represented in the category. But there are still many other markets to conquer – and Coke evidently hopes it has finally found a winning formula for coffee.

“illy is a proven leader with an uncompromising commitment to high quality espresso coffee and a strong history of innovation, with whom we are proud to partner,” said Coca-Cola President and Chief Operating officer Muhtar Kent. “We will be able to bring our brand building and distribution expertise together with illy’s premium brand reputation.”

Said Andrea Illy (above), Chairman and CEO of illycaffé: “We are proud to partner with the top brand name in sparkling beverages to offer the illy taste to a new range of consumers, as well as those who love our traditional espresso tastes, to meet new consumption moments. Our R&D and product know-how will join The Coca-Cola Company’s industrial and distribution infrastructure to develop a high quality ready to drink coffee.”

It is expected that the final joint venture agreements between Coke and illy will be signed by the end of this year.