There was an explosion in coffee-related launches in milk drinks last year and it paid off: sales of coffee flavours again stormed ahead of the wider milk drinks category, with sales up 45% in value and 49% in volume against 9.3% and 6% respective growth for the total market [Kantar Worldpanel 52 w/e 9 June].
Granted, this is from a small base as coffee remains a comparatively niche part of the category - worth £5.9m, it accounts for roughly 5% of the £118.9m flavoured milks and milkshakes market - but it is nevertheless a remarkable success story in a category that has led the way in adding value to milk recently.
Having said this, growth rates for flavoured milks and RTD coffees - though still impressive - have eased in the past year: between June 2011 and June 2012, value sales for coffee drinks grew 49% compared with 45% in the most recent 12-month period, while value growth for flavoured milks overall has fallen from 16% in 2011/12 to 9.3%.
“RTD coffee is growing fast from a small base, with no other major new trends”
Simon Reeves, Tesco
Is this a sign Brits’ love affair with coffee is reaching saturation point? And what new trends are emerging beyond coffee that could boost the category’s growth rates again?
There is little evidence to suggest suppliers and retailers are losing confidence. According to Mintel, the number of RTD coffee launches across Europe grew a third between 2011 and 2012, and analyst Caroline Roux expects them “to increase in the same proportion in 2013”.
Long dominated by brands, the RTD coffee market has started to see growing interest from own label. In July, Morrisons launched an iced latte and an iced cappuccino under its own-label range, and in April Tesco listed three coffee drinks in caramel, cappuccino and macchiato from German supplier Gropper and sold under the Caffionata name as an exclusive-to-Tesco brand like its successful Chokablok ice cream.
“RTD iced coffee products are proving to be particularly popular and we’ve seen strong year-on-year growth,” says Morrisons milk buyer John Morris. Tesco dairy category buying manager Simon Reeves adds: “It is still from a small base but it is growing fast - and there are no other major new trends currently.”
Gareth Turner, senior brand manager of dairy drinks at Arla - which makes Starbucks RTD coffee - says coffee drinks are well suited to adding value to the flavoured milk sector because they come in smaller packs and carry premium credentials. “There is still headroom for this premiumsation to continue, Turner says, as consumers learn not to see them as “coffee gone cold”.
Swiss brand Emmi - supplier of Caffè Latte - agrees, with marketing manager Laura Graham predicting continued double-digit growth for coffee-flavoured milk. “In mainland Europe, iced coffee is a huge market - in Switzerland, it makes up 30.6% of value of the whole flavoured milk market.”
To capitalise on this opportunity, suppliers and retailers know they must keep innovationin line with new, emerging coffeehouse trends, says Graham. “The introduction of new coffeehouse flavours such as vanilla and our most recent flavour, New York Caramel, is a fantastic way to engage people in iced coffee.”
Emmi is launching a decaff RTD in October and also plans winter sleeves for Caffè Latte.
Jim Cregan, founder of niche RTD coffee brand Jimmy’s, thinks syrups could be the next NPD step, creating “theatre” and customisation without the need to add extra SKUs to a crowded fixture. “We are looking at syrup shots, so you could pick up a vanilla or mocha shot to add to your Jimmy’s,” he says. “The consumer could have fun customising their drink, and there would be less waste and less need for space on shelf.”
Cregan is also interested in exploiting growing consumer interest in coffee house chocolate drinks by striking up partnerships with a speciality chocolate brand.
To date, the confectionery brand pushing hardest in the flavoured milks and milkshakes category is Mars. It has steadily added SKU after SKU to its portfolio - most recently a Snickers and a Skittles Shake, launched in
Morrisons and Tesco in May - and is now looking to tweak its Galaxy coffee RTD to appeal to more consumers. The product, launched in Tesco as Galaxy Café in a paper cup with plastic lid last year, will be relaunched in cartocans as Galaxy Iced Coffee Mocha Latte in mid-September “to better communicate that it is an iced coffee drink with chocolate, appealing to fans of both”.
Flavoured milk category leader Dairy Crest - which added a latte to its Frijj The Incredibles range a year ago - is also promising more innovation, with new flavours and a packaging redesign for the Incredibles range soon.
As for NPD beyond coffee, protein - already a major trend in other dairy categories (see Health Check p20) - is also shaping up to become increasingly important in flavoured milks. Reeves at Tesco believes this trend is a natural progression that could broaden the appeal of milk drinks. Gareth Turner at Arla agrees. “By looking beyond flavoured milk to see what categories such as snacks are doing, you can position products that happen to be made of dairy in a different way,” he says.
Arla is already dipping its toes in the high-protein market, having launched its WingCo high-protein milkshake earlier this year, which it hopes will help bring in slightly older male consumers. New SKUs - starting with a ‘light’ version containing 50% fewer carbs, which will go exclusively into Asda in October - are already in the pipeline.
Meanwhile, Guiston - which makes Dairystix single-serve UHT milk portions - says it’s keen to enter flavoured milk, with a focus on enriched milks for babyboomers. “The 55+ market is in the biggest growth position, so we’re looking to introduce a functional drink with health benefits such as calcium or vitamin D to help with osteoporosis,” says commercial assistant Steven Mills. Further opportunities could arise from the “healthy buzz” around ‘super’ berries such as blueberries, he adds.
Roux at Mintel agrees new fruit flavours could open up new growth opportunities for flavoured milk in the UK. In France a new generation of “smoothie yoghurts” - a milkshake/fruit juice hybrid - has started to take off. “Smoothie yoghurts offer the benefit of both fruit juices or smoothies and yoghurts - health, taste and indulgence.”
In the UK, McDonald’s recently launched two new dairy-based smoothies, and First Milk is now getting in on the act with a range of fresh milk drinks with real fruit under the name FruMoo this autumn.
Coffee may still be the fastest growing flavour for milk drinks at the moment, but it is likely to face a whole lot more competition in the future.