With coffee, e-commerce is the way to go

Image credit: Four Sigmatic

While Covid-19 has decimated many industries, one that is flourishing because of the pandemic is e-commerce. And within e-commerce, coffee is among the top sellers, boasting a +38.6% CAGR.

During the recent “The Impact of Covid-19 on Coffee E-Commerce,” webinar presented by the National Coffee Association (NCA) of the United States, Kathy Cummins, head of analytics at Hinge Global, said that amid Covid-19, online retail purchases (including curbside pickup) increased but have dropped slightly. However, sales in pure-play e-commerce (e.g., Amazon, eBay, Chewy) have continued to grow.

Cummins explained that online revenue for traditional retailers (such as Walmart, Target and Kroger) grew in March and April, trended down in May, but are still higher than pre-Covid levels. “Brick ‘n mortar shopping can be frustrating at this time because of wait times to enter stores and out-of-stock problems, which are contributing to online shopping. Pure play e-commerce has grown steadily since April, a shift in behaviour that may stay for a while.”

She said that Amazon is and will continue to be dominant in coffee online sales, with an annual market size of $1.08 billion in the US, and +36.9% CAGR. Capsules constitute 86% of the coffee sales on Amazon.

Cummins noted that coffee on Amazon has grown steadily by ~32-38% CAGR — the dip was the result of the lack of ability to fulfill, not a drop in demand. The search for coffee online spiked and remains high since Covid-19 began. Searches for ground coffee peaked in March and have since dropped but are still higher than pre-Covid. She said searches for coffee pods spiked but searches for K-Cups remained consistent. Half as many consumers looking for Nespresso capsules versus K-Cups but search levels are high for both: 766,000 searches for K-Cups and 300,000+ for Nespresso capsules. “Keurig machines are more prevalent in US, but Nespresso capsules are harder to find in brick ‘n mortar stores,” said Cummins when explaining why capsule/pod searches rose.

Amazon has nearly 600 brands of coffee capsules and pods and the top ten brands within that subcategory of coffee have a 55% dollar share, according to Cummins. Although Nespresso and Starbucks have biggest dollar share, she said Bradford Coffee Roasters has the highest sales per ASIN (Amazon Standard Identification Numbers, which is Amazon’s version of a standard SKU number). “We are seeing brands that may not have a lot of SKUs, but each SKU is driving a lot of sales.”

She said Nespresso capsules are less common than K-Cups so brands that offer Nespresso format can benefit from less competition, adding, “there is further opportunity by increasing pack sizes — but make sure copy is clear and concise.”

There are more than 820 brands of ground coffee on Amazon, and the top ten brands make up a 52% dollar share. The leading brand is Starbucks followed by Café du Monde. Cummins shared that niche products do well on Amazon. For example, super-premium products are common in the top ranks for ground coffee, including Death Wish and Four Sigmatic. “In ground coffee, premium and unique positioning help differentiate items, the leading brand is Death Wish Coffee. Four Sigmatic [mushroom enhanced coffee] takes advantage of many keywords to drive search to its product — paleo, immune support, concentration, focus, etc., which is driving sales.”

And echoing the statement made by Fernando Serpa, vice president, Global Sourcing Latin America & Fresh Food, Walmart Inc that I referenced in a previous blog (see “Covid-19 and its effect on Consumer Behaviour”), Cummins said large pack sizes in both capsules/pods and ground coffee are common, and address foodservice and office needs, as well as large households. For example, Café du Monde is driving volume through large-count packs (4-packs of 6 cans = 24 cans).

Cummins also shared drivers of e-commerce success, the first being that if a company is just starting on e-commerce or can choose only one, Amazon best place because it has the best/easiest platform to use, “Amazon has the most sophisticated search — a lot of back end key words.” She also pointed out that consumers are looking for specific brands but emphasized that companies cannot use branded keywords in copywriting, but may can link with paid advertising/PPC (pay per click).

She reiterated that the coffee landscape is competitive (600+ brands in pods/capsules and more than 800+ in ground on Amazon alone) so the number one thing is to win on search — and search is free. To win on searches, and ultimately sales, Cummins advised companies to:

  • Make sure copywriting stands out and that the digital component is strong.
  • Few key words mean the item is not optimised for organic search (free marketing).
  • Sustainability is a big thing in optimising copywriting.
  • Brands should have product reviews.
  • Mobile-friendly digital content is absolutely critical as 66% of all e-commerce purchases is via mobile devices.
  • A+ Content sells the product and drives conversation.

Above all, Cummins stressed that products must not be out of stock. She further emphasized that analytics are crucial, “you can’t manage what you don’t measure.”

She also noted that brick ‘n mortar stores are more receptive to new business/companies/brands when they can first prove their success and the optimal way to do this is through successful e-commerce products.

E-commerce is growing and if a company is not taking advantage of this platform, it is missing a huge revenue-generating opportunity.

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