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Decaf Marketing for Retail and Grocery
By Timothy J. Castle

A peculiar situation exists today for marketers of coffee through the grocery channel in the U.S. While it is most evident when it comes to decaffeinated coffee, it really applies to the entire category.

A few decades ago it was the canned coffee marketers who found themselves in the straightjacket of having to sell decaffeinated coffee for the same price as regular coffee, yet today they seem to have wriggled free of their bonds. Pre-ground canisters of decaffeinated Folgers and Maxwell House sell for premiums over their “regular” counterparts, while the “specialty” coffee roaster selling whole bean coffee now seems to be dealing with the brain twisting conundrum of having to sell decaffeinated coffee (that is, coffee with a value-added benefit) for the same price as their lowest priced blend. It’s understandable that whole bean coffee being sold in bins would suffer this fate, but even the 12 oz. valve bag (remember, the packaging that promised the coffee roaster the ability to deliver the peak coffee experience to the consumer in almost any retail situation?) reflects the same, silly situation.

What “line-pricing” means for the decaf category is that either all the regular coffee in a particular roaster’s grocery offerings will be slightly over-priced to offset the loss of selling decaf with no premium, or there will be pressure to lower the cost of the decaf selections offered. No matter what, an attempt will be made to ensure that the percentage of decaf sales is as low as possible. This may not be in the best interest of the category overall, over the long term, but on a month-to-month, quarter-to-quarter basis, it will certainly yield the best short-term financial result. And, it’s a vicious cycle; lower quality and fewer offerings are certainly not going to add to more sales. Will a continuously under-satisfied customer return again and again? The trend on the grocery store shelf is clear - across the U.S. the relative number of offerings on the grocery store shelf is lower than the actual consumption of decaffeinated coffee. Further, consumption figures also suggest that coffee drinkers who find themselves unable to expeditiously metabolize caffeine are leaving the coffee category altogether rather than exploring the decaf segment. What this means is that rather than retaining coffee drinkers who become intolerant of caffeine, the coffee industry is sending them to other beverages entirely. This, in turn, makes the decaf segment look less important than it really is - if those coffee drinkers stayed in the coffee “tent” then the decaf category would be growing, but even though the population is aging, the decaf category is not growing as rapidly as demographic trends indicate that it should.

The Typical Grocery Store Shelf:
With a large chunk of shelving dedicated to coffee in most North American supermarkets, finding the decaf sku’s is not always easy, they are generally less well-stocked and they represent far less of the variety than the regular offerings do. It’s good news to the specialty coffee business that the last several years have brought about significant differences in the brands, packaging and quality of coffees sold at grocery stores. The irony, though, is that even with the valve bag and its ability to offer coffee with a longer shelf life in a format that need not be line priced, most valve bag coffee is just that, the same as the whole bean bulk coffee that these bags were supposed to replace. Just a few years ago, the only options for coffee consumers besides canned coffee were one or two brands of bulk whole beans.

Yet, among the dizzying varieties of coffees now offered in grocery stores, very few of those are decaffeinated versions of regular coffees. Generally, each brand on display has one decaffeinated offering amongst their other coffees and it is usually a blend as opposed to a single-origin coffee. Among those offerings it is far more likely to see the decaf versions out of stock or mis-shelved - and this is not a situation particular to one brand.

As it’s estimated that decaffeinated coffee makes up somewhere between 15-20% of all coffee sales, it’s surprising to see a much lower percentage of the shelving space devoted to this decaffeinated products. Decaf is clearly a category that has room to grow at the retail and grocery level. (It is more often the case, in fact, to see more prominent merchandising devoted to “certified” coffees, which, by most estimates, comprise a much lower market share than decaf).

With little attention paid to the decaf category, and no one “minding the store,” so to speak, product quality, even product integrity, will suffer. Witness the continual reports of high caffeine levels found in “decaffeinated” coffee served in foodservice establishments. The “people” who hear these reports are either coffee drinkers or potential coffee drinkers. They learn not to trust the decaf category. When they see it line-priced with all the other coffee on a grocery store shelf they also learn that it has no added value and is probably not worth their consideration, much less their trust. Their physicians also hear the reports of lax standards when it comes to the “decaf” served in coffeehouses and these professionals figure they are better off simply telling their patients to “stop drinking coffee,” rather than “stop consuming caffeine.” The result? More “people” leaving the coffee category altogether. The problem (yes, it gets worse) is that these “people” are often women who are often also mothers and wives (even though they are frequently working full time) and are very influential in not only their own purchasing decisions but of those of their entire household. This influential group is especially well known for the strong, vibrant social networks its members maintain….and even though many of them may talk on the golf course just like their male counterparts, most of them sit down and talk to each other over a cup of coffee.

The coffee industry, then, has sprung a leak and it’s a leak that is not being mended, it is actually growing.

Another way to look at it is this: If decaf drinkers were somehow able to claim they were somehow “disabled” due to their inability to metabolize caffeine, they might be able to sue the grocery store for not providing a comparable choice of decaffeinated products to those offered in the regular version. Consider for a minute the number of shoppers one can normally observe in the grocery store who require wheelchair access and the easily justified accommodations that are made for them. They are forced to hunt and peck through a small offering of poorly stocked selections. Far more encouraging are the numerous displays of herbal teas, fruit beverages and specialty drinks.

These are customers that, once chased out of the coffee category, are not coming back. They are being sent, by those of us in the coffee industry, to find alternatives other than coffee to satisfy their need for decreased caffeine consumption. They are being told not to buy coffee in order so as not to depress the industry’s short-term numbers by reducing gross margins as a result of line pricing. The thought that, given that this demographic is rapidly growing and that they are affluent, brand loyal consumers, does not seem to play into the equation.

Lack of attention paid to this important share of coffee drinkers, and, as is argued above, former coffee drinkers means that we are not keeping the customers that we so desperately need to maintain and grow the potentially vibrant category that is coffee. Further, line pricing not only suppresses margins and quality, it also discourages, if not totally squelches any initiatives to offer higher priced, premium coffees under the same brand. Again, in a line-priced selection, you will always want the item with the cheapest cost to sell the most units and the most expensive to sell the least. This is true for decaf, but it is also true of many single origin coffees and other coffees that might have a higher cost.

Decaf may perhaps be the biggest single opportunity for growth in coffee sales on the grocery store shelf, but it is not the only one. All over the world, a growing but dynamic group of savvy coffee farmers are working hard to produce better coffees more efficiently in order to increase the premiums they can demand for their crops. All that stands in the way is line-pricing and the belief that the coffee industry has instilled in the mind of the coffee drinker that while their may be premium brands of coffee may be available, there are definitely limits to what value the industry can add to a pound of coffee.

A new cohort of specialty roasters, reminiscent of an earlier band are once again leading the way with higher priced “micro lots” and consistent single estate offerings - a few of these small roasters are even taking the time to find smaller lots of fine coffees and then having them decaffeinated! These coffees, both decaf and regular, provide inspiration for what may become possible on the shelf.

Tea & Coffee - March, 2008

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