Instant is Coffee, Too!
The phenomenon of the dual user is something which was identified within the decaffeinated coffee market several years ago (by research done on the Swiss Water brand in 1995) and extends to the instant coffee market as well. It was previously assumed that decaf drinkers were not concerned about a better quality cup of coffee because the had already “given up” in that they were drinking decaf, known to be, so coffee marketers thought, of lower quality. What the Swiss Water research revealed, however, was that many decaf drinkers were also regular drinkers and they based their decaf choice on which coffee most closely tasted like the regular coffee they drank. In the same sense, there might be a group of regular coffee drinkers who would like to have a cup of coffee at times, but find it inconvenient. A good quality instant coffee might fill this need, except that, in the U.S. at least, it substantially does not exist, at least on the radar screens of most coffee consumers. What we end up with in the U.S., then, is a much smaller group of exclusive instant coffee drinkers, those that have grown used to a cup of coffee that tastes unlike coffee brewed from roast and ground. It is much more difficult for this group, acclimated to the taste of the type of instant coffee typically found in the U.S. retail market, to switch back and forth between instant and regular.
The interplay between convenience and a desire for a certain minimal level of quality is not well understood, and this, in itself, is telling. “We know that there is a certain stable amount of people looking for the convenience of instant coffee, but this is hard to nail down in terms of numbers.” The problem may be that this pool grows and shrinks along a quality axis with far more elasticity than has previously been suspected or acknowledged.
In describing the operations and scope of DEK, Adamsons revealed some interesting statistics about the world wide market for instant coffee. “We have our niche, we operate world wide providing private label products for a tremendous variety of operations. In Japan we are the number one private label supplier. In Japan, in fact, instant consumption comprises 50% of the market, this came down from 75%.” Adamsons asserts that Starbucks’s presence (over 200 stores by his count) has diminished the share of the instant market. Other countries in the region, however, continue to be big users of instant coffee. Australians, for instance, still consumes 90% of their coffee from instant and in Korea, despite the seemingly immense popularity of specialty coffee houses, 93% of the coffee consumed there derives from instant. “In countries like Japan, particularly, people are used to boiling water and pouring it into a cup, as opposed to the more complicated process of brewing coffee. Instant coffee fits into this pattern pretty well.” Additionally, in markets such as Australia, the tradition came out of long transit times for freight and the lack, initially of a domestic manufacturing sector capable of producing fresh roasted coffee.
Adamsons observed that 1.5 million cups of DEK coffee, 36 million a day, are consumed worldwide. Despite this category-leading dominance, Adamsons also noted that the major brands are still the key factor in worldwide consumption. “We’re the largest private company in this business, but the fact is Nestlé does twenty times what we do.” The dominance of Nestlé and other, large multinational coffee marketers is a result of what was perceived as a shrinking of the instant coffee market a few years ago and their response to it. Bob Briante, a trader for Paragon Coffee Trading Company, LLC. with long experience in the instant coffee sector, recounted that during the last decade the largest coffee roasters believed that the specialty sector would necessarily encroach into the market for instant coffee. Perceived the need to maintain a certain minimal level of volume in order to maintain efficiencies of scale, the largest instant coffee manufacturers, Nestlé’s in particular, sought to step into the private label business and in this, according to Briante, they were very successful. Other manufacturers, Briante noted, had the same stated intention, but could not seem to overcome a certain discomfort with manufacturing product for what these other companies finally viewed as competitors. The net result, Briante concluded, was far fewer small manufacturers of instant coffee. DEK and a few other large producers, many located within origin countries, are the survivors of this rather rigorous culling.
The other area from which growth in instant coffee is coming, and of which even the world’s most quality-oriented brands are not above is the use of instant in ready-to-drink beverages. These drinks, the sort of if-you-can’t-beat’em-join’em acknowledgement that soft drinks arrived some time ago and are not going to be dethroned as the nation’s beverage of choice, are an effort to let coffee “pass” as a soft drink. Bottled and marketed as the soft drinks they’d like to be, a few such brands are blending in. In these products, actually sweetened milk drinks flavored with a hint of coffee, the flavor of the coffee is not of paramount concern, to the extent that it is detectable at all. Even the lowliest instant coffee can find gainful employment in making the color, if not the flavor, of these beverages more “coffee-like.” Similarly, instant coffee can also provide a stable and consistent source of flavor in frozen drinks such as granitas and which many coffee houses now sell. While many stores continue to brew coffees for these drinks, some even extract multiple espressos during off hours for this purpose, many large chains are looking at the possibility of utilizing an instant coffee.
Another application for which instant is lately finding itself handy is in the much-maligned coffee bag. For years coffee marketers have contemplated the tea bag with envy, yet never been able to adapt their product to the famously easy to use format. The current stage of development in which the nation’s hotel industry finds its in-room coffee service is providing an opportunity both for sellers of coffee bags and instant coffee. By spiking the few grounds found in a coffee bag of the same dimensions and content weight of a tea bag with a little instant coffee manufacturers can provide the illusion of brewing a cup of coffee from a roast and ground product with the convenience of the self-contained bag format. All the manufacturer needs to say is that the bag contains “coffee.”
Some coffee professionals are offended by the mere mention of instant coffee. They see their job as one of education and elevation of the coffee consumer to the point where the entire category of instant coffee will no longer exist. It is more likely, however, that Dieter Adamsons’ assertion that there will always be a certain group of consumers who will insist on the convenience of instant. If this is true, then, the real question is whether this group should be punished with an inferior quality product every time they make the instant coffee choice. The answer, in the U.S. market at least (and based on several anecdotal experiences overseas) is a resounding yes. Why this should be the answer, especially given the current supply and demand situation in the world’s coffee market, is less clear. Generally, across the coffee market as a whole, it has been shown again and again that improved coffee quality leads to increased consumption. Lowering quality leads to an increase in short term margins but an overall decrease in sales over time. The experience of Adamsons in Germany, where his improved quality product doubled in volume and quickly became the nation’s favorite, indicated that the dynamics of the instant coffee market are not different than that of the coffee market in general.
There is no sense in pretending that instant coffee will ever be comparable to regular coffee brewed from roast and ground, but why can’t it be better? Could the risk involved in marketing a better quality instant, given the current market conditions ever be lower? And given the current market, could the risk in not trying to increase consumption, in every sector, ever be higher?
Tea & Coffee - October/November 2001
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