Starbucks has done the coffee market a favour. Consumers now want the same standard of coffee at home and are rushing out to buy pod coffee machines such as Nescafé's Dolce Gusto, Douwe Egberts' Senseo and Kenco's Tassimo.As a result roast and ground coffee sales are up 13.3%.
"Consumers are becoming more passionate and educated about coffee, actively seeking out premium products," says David Rogers, sales and marketing director at Lavazza UK. "Coffee pods are an easy step up from instant to a more premium proposition. This sector has experienced good volume and value growth over the past year, which demonstrates greater consumer understanding of quality roast and ground coffee."
Marcel Hayden, category buyer hot beverages at Somerfield, agrees. "Primary growth is driven by increased usage of coffee machines as consumers want to experience real coffee flavour in the home."
Consumers also want to vary their hot beverage options throughout the day and are prepared to pay more for premium offerings. "Customers are more choosy and do not drink six cups of the same beverage every day," says Michael Simpson-Jones, Waitrose's hot beverages buyer.
Paul Murphy, general manager UK, North America and Australia, Twinings, agrees that the consumer trend is to move into the premium sector.
Posh coffee and standard tea are the main growth areas in the £1.35bn hot beverages market, which has increased by 2.1% in value [TNS 52 w/e 17 June 2007]. By contrast, sales of instant coffee have decreased in volume by 2.5% and value by 0.6%. "The buying pattern of instant coffee has changed considerably with a greater percentage being purchased on deal - so filling up store cupboards," says Simpson-Jones.
Even so, instant coffee remains a hugely important sector holding a 42% share of the hot beverages market [IRI, 52 w/e 14 July 2007] and premium ranges within instant are doing well. "People want to treat themselves - our Connoisseur range is up 10.4% within the instant coffee sector [IRI 52 w/e 14 July 2007]," says Graham Walker, UK trade communications manager for Nestlé
While hot chocolate may be up by 5.4%, the malted drinks sector is suffering. Its failure to attract younger consumers to the category has resulted in a 17.1% fall in sales.
Other key trends in the hot beverage market include health and wellness, environment and sustainability.
Growth in standard tea meanwhile has been partly down to promotional activity.
"Growth has been due to PG Tips' added- value promotions such as Wallace & Gromit and World Cuppa and the promotional pack with the free cloth monkey that customers really like - the silliness captured people's imagination," says Mark Suddaby, Tesco's senior buying manager for hot beverages. "We sold one million monkeys in March and April this year. We sold the same amount of tea with this promotion that we would have done on a bogof - that put tea in growth generally."
Within the tea market, speciality teas, which include fruit, herbal and green teas, is a key growth area. "Tea is driven by health, especially in the premium sector," says Murphy. Twinings will be investing in the speciality tea category with a £1.2m TV campaign from October for its Earl Grey and Lady Grey blends.
Consumers are now enjoying a repertoire of different teas. "Customers have told us tea is linked with health and they drink a range of fruit and herbal teas for different occasions," says Andrew Jones, sales and
marketing director, Taylors of Harrogate.
The fruit and herbal sector is also attracting younger consumers to the category, according to Sue Jones-Smithson, channel marketing manager for Typhoo. To cater for this demand, Typhoo has recently launched Fruit Creations, a new range of fruit and herbal teas.
In a bid to capitalise on the popularity of green tea, several manufacturers have launched new varieties such as delicate green tea and green tea with passionfruit. Meanwhile, Rooibos (Redbush) is a new emerging sector, with the bigger players such as Tetley moving in to this sector.
"We drink half the amount of tea we did 30 years ago when there wasn't a lot of choice," says Simon Attfield, customer marketing controller, Tetley. "People have a much wider choice of teas now so we have to make sure people understand there's a tea for all their needs. But people still love black tea - it's important to the retailer. You can see that through the amount of sales coming through."
Tetley plans to spend £8m over the year across all brands with TV advertising, sampling and print adverts.
The Fairtrade and ethical area is one of the fastest-growing sectors and this is likely to continue. While smaller beverage companies have been playing on green issues such as carbon-neutral and recycling, the bigger players are promoting their wider ethical stance. For example, Unilever (PG Tips) has announced it will purchase all its tea from sustainable, ethical sources and has asked the Rainforest Alliance to audit its suppliers.
"It's a powerful trend that's going to continue - environmental issues have hit the political scene," says Murphy. "Whether or not smaller brands will be able to survive on just that position remains to be seen. These concerns are being addressed by the mainstream brands."
Another question is whether on-demand machines could make the same sort of difference in the tea market as the coffee market. Tefal has brought out the Quickcup, which claims to boil hot water in three seconds as well as filter the water and uses 65% less energy. "It's a great idea, but it's a premium item - I'm not sure how many people would want a three-second cup of tea," says Simon Attfield, customer marketing controller, Tetley. n