RTD coffee finds success in a highly competitive beverage marketplace

The Covid-19 pandemic positively impacted a number of categories in 2021, beverages being one of them. Yet, in the United States as in many countries, beverage market growth was soft in 2022 as a result of higher prices and low consumer confidence.

In the National Coffee Association’s (NCA) July webinar, RTD Coffee: Category Performance & Innovation, presenter Gary Hemphill of Beverage Marketing Corporation, said that the total U.S. beverage performance experienced strong dollar growth, although volume has increasingly softened due to inflation. However, niche categories like ready-to-drink (RTD) coffee continued to outpace traditional mass-market categories, although performance varies widely by segment.

Hemphill noted that most large mass market refreshment beverage categories have struggled while niche categories have experienced growth. RTD coffee is a good example of a niche category that has experienced strong growth. He explained that the coffee category is unique in that it is one of the large traditional beverage categories that has been experiencing growth in recent years but was slowed by the pandemic and now inflation. “Total coffee category growth in all formats has generally ranged from 1% to 2% through 2019 with the exception of a pandemic-driven dip in 2020 and a more sizeable dip in 2022 caused by higher prices.”

RTD coffee had experienced high accelerating volume growth until a slowdown in 2022. The partnership of Starbucks and Pepsi has dominated the RTD coffee category – in 2022, the Starbucks and Pepsi partnership accounted for just over half the category – but competition is heating up as the category continues to grow with many smaller players entering the market with unique products or new spins on existing ones.

RTD coffee innovations are plentiful, mainly the cold-brew process, but Hemphill noted they are also occurring in areas such as packaging, use of dairy alternatives, nitrogenation, extra caffeine and value-added ingredients like protein and MCT oil. “Meaningful innovation can have a significant impact on a category’s performance. Cold brew coffee has helped to spur growth in RTD coffee,” he said adding that cold brew RTD coffee share is likely to exceed 25% of the category by 2027.

Chilled format RTD coffee has been leading the category growth in recent years. And while the chilled grab ‘n go (single-serve) format continues to be a strong performer, Hemphill said multi-serve containers of chilled coffee sold through take-home channels have performed especially well.

Furthermore, although the RTD coffee category is dominated by single-serve bottles and cans, there is now a shift to multi-serve sizes. This trend was accelerated by the pandemic with more people at home in 2020 and 2021.

Curiously, once dominated by cans and glass, plastic has emerged as a key package for RTD coffee. Hemphill pointed out that glass is still the most popular package but has lost share in recent years.

Within the refreshment beverage category, Beverage Marketing Corp forecasts the strongest growth in 2023 for energy drinks with bottled water, carbonated soft drinks and RTD coffee likely to increase slightly.

Hemphill sees prospects for RTD coffee growth with products offering functional/health benefits and even in the no-alcohol shot category. “Energy shots still dominate the market but have experienced soft performance in recent years. It is an area to watch as the opportunity is there for coffee.”

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