The continued growth of the UK coffee market represents an opportunity for wholesalers to drive sales.
However, in both grocery and out of home, consumers have come to expect high quality coffee in a variety of formats, meaning the wholesale sector should look to wider trends to ensure they are meeting the needs of consumers in this growing category.
A number of coffee sub-sectors are currently seeing growth, most notably whole bean, decaf and RTD cold coffee.
“While consumers now expect high quality coffee, increasingly they are demanding a broader range both in and out of home and it’s therefore vital that wholesalers can cater to these trends,” comments Richard Milner, Category Insight Manager, Lincoln & York.
The most rapidly growing sub-sector is whole beans, with a market value of £71.2m in retail, having grown 14.3% since last year (NIQ).
This is being driven at a consumer level, by more people than ever before owning bean to cup coffee machines as they seek to replicate their out of home coffee experience at home.
“Within the out of home channel, quality is also key, with independent research commissioned by Lincoln & York placing quality factors such as the taste of the coffee and whether the coffee is freshly ground within the top considerations for consumers when choosing where to go for their coffee fix,” adds Milner. ”Operators should look to ensure their coffee delivers the quality that consumers have come to expect across all channels, and wholesalers will need to ensure they’re supplying a range of options.”
It’s not only the coffee being consumed which is changing, but also the pack format and pack sizes being purchased.
“As consumers look to create café quality coffees and reap the benefits of bulk buying, we’ve seen 1kg beans’ share of sales almost double in retail within the last 2 years (NIQ),” says Milner. “We expect to see increased demand for 1kg bags as consumers join wholesalers and out of home operators in realising the convenience and value for money they provide.”
Buying in larger quantities does, however, pose the question of how to store coffee without compromising its all-important freshness. According to Lincoln & York’s research, only 23.1% of bean buyers store their coffee in the retail bag, whilst the majority opt for airtight containers and even refrigeration to maintain freshness. This indicates just how seriously consumers are taking their coffee at home, and the quality and level of freshness they expect to see across all channels.
“When working with coffee suppliers, wholesalers should ensure their coffee is packaged for optimum freshness to maintain the high standards coffee drinkers have become accustomed to,” suggests Milner. “In addition to sourcing packaged coffee from roasters with the best packaging and valve technology, wholesalers could also consider offering airtight storage solutions alongside their coffee to further enhance their coffee credentials, and to help their customers maintain the freshness of their coffee for longer.”
As well as growth in whole bean sales, we are also seeing rapid growth in the decaf market. More than half of consumers are now making proactive health and wellness choices on a regular basis, and many are actively reducing their caffeine intake (Nielsen). In addition to this, thanks to developments in coffee extraction techniques, we’re now seeing the emergence of some high-quality decaf coffee options which are just as delicious as their caffeinated counterparts.
“The result is that out of home, decaf coffee sales are now valued at £99.95m, increasing by 14.6% over the past year, a trend we expect to see replicated in wholesale (Kantar),” continues Milner.
“With decaf growing in popularity and now able to stand up as a fantastic alternative to caffeinated coffee, wholesalers need to ensure they offer a range of great quality decaf options to showcase the variety now on offer within this sub-sector.”
Another continuing trend Lincoln & York expects to see replicated across wholesale is the increasing popularity of RTD cold coffee options. A firm favourite with younger audiences and meeting broader consumer demand for sweet milkier drinks, the RTD cold coffee market has seen growth of 10.1% in the last year to reach £279.3m (NIQ) and shows no signs of cooling off.
“With so many formats, flavours and consumer trends to take advantage of, wholesalers should look for a coffee partner who can offer the market knowledge and expertise to support their business,” adds Milner. “The right partner will be able to share valuable market and category insight alongside in-depth coffee knowledge to help wholesalers select the right range and NPD solutions in line with consumer trends. In turn, wholesalers can build on this expertise through excellent in store execution to showcase their range to its full potential.”
As we’ve seen first-hand over the past few years, global, political, and economic changes can have a dramatic and rapid effect on consumer spending patterns. To help navigate this, wholesalers need to be able to rely on an agile coffee partner who can recognise changing habits and adapt operations accordingly, therefore maximising sales.
Lincoln & York, with an in-house team of market and coffee experts, stays close to changing demands and new consumer trends, allowing it to adapt quickly and help its customers to adapt quickly too. The brand has a strong track record of regular investment in the business, with more planned for 2024 including a brand-new website, featuring a learning and development hub and a specific wholesale sales portal. Lincoln & York is keen to continue working in partnership with wholesalers, enabling them to optimise their coffee offering and make the most of a thriving market.
“Lattes, Cappuccinos and Mochas are growing in popularity, and the humble Hot Chocolate is enjoying a resurgence, currently ahead of the flat white (Allegra),” comments a MONIN spokesperson. “Chains and artisan coffee shops have created the next generation of the Hot Chocolate beverage, offering different serve options and flavour variations such as praline or cookie. This offers an opportunity for wholesalers to consider their chocolate offering in all formats including syrups, to ensure that coffee operators have plenty of options to choose from.”
Whilst hot drinks are naturally more popular in the colder months, operators can still make them appealing in the summer by considering the use of alternate milks to highlight health benefits, reduced calorie options, reduced sugar variations and the use of flavours that are associated with summer, such as strawberry, watermelon and coconut.
With 46.3% of consumers keen to try new beverage products in coffee shops (Allegra) and the younger demographic especially open to trying new and exciting serves, there is a great opportunity for the sector to get creative with their menu offering.
A key trend shaping the industry at the moment are also high visual concepts – no doubt driven by the Instagrammable nature and ‘I want one of those’ appeal.
Sustainability is also nothing new, but it’s not a fad either. It’s becoming an increasingly important part of consumers’ purchasing decisions. Gen Z more than any other generation are increasingly aware of our impact on the planet with 45% ceasing to purchase certain brands because of ethical or sustainability concerns (Deloitte). Therefore, it’s essential that outlets showcase their sustainable credentials and shout about any ways they are trying to reduce waste. Recipes that show they limit waste will remain popular as will drinks that show they are ethically sourced or use local ingredients.
MONIN is launching two NPDs in April – Cinnamon Roll syrup and Ginger Concentrate.
MONIN is the leading syrup brand by performance and market share in the out-of-home market in the UK (Allegra). This is bolstered by the brand’s ongoing support of operators, baristas and bartenders all over the country, releasing innovative products to the market.
With the cost-of-living crisis hitting homes hard, consumers are looking for affordable permissible treats, providing the coffee sector with a huge opportunity. Wholesalers should be stocking up on the unusual syrup flavours that their coffee shop customers can use to add excitement to beverages.
More flavour combinations such as banoffee and spicy mango are expected to be seen, offering a more innovative aspect of indulgence. MONIN’s portfolio offers a range of syrup flavours which are versatile with the seasons and can be used all year round to add an indulgent twist to drinks menus.
MONIN provides various support to their partners and customers: product training, digital tools, social media assets, POS kits, menu development support and much more.
Consumers are seeking new and interesting options (CGA & Fentimans) and there are many coffee shop trend predictions to capitalise on. For example, white chocolate fits perfectly into the indulgence trend, whilst having a more summery feel, and with new techniques such as frozen hot chocolates and the rise in iced chocolates across the market, MONIN expects this trend to explode in summer 2024.
With iced coffee shop beverages leading the trend in non-dairy milks, MONIN is certain that oat milk will overtake skimmed milk to be the 3rd most popular milk in coffee shop beverages in 2024. Whilst consumers may be resistant to non-dairy milks being used as default, they can be used to create delicious flavour pairings in seasonal LTOs.
Core hot drinks will always play an important role on menus so wholesalers need to get their core range right, ensuring they’re stocked up on favourite brands and flavours. 55.2% of consumers add syrup to their drink with caramel remaining the firm favourite, closely followed by vanilla (Allegra).
Wholesalers should also consider their digital presence and invest the time and effort needed to optimise these channels. In the last eight years, there has been a 36% rise in independent foodservice operators embracing online ordering as their primary method of procurement (HIM). These online orders amount to an average spend of £153 per order – outpacing phone order (HIM). From enhancing the shopper experience to providing added value for customers, having a solid digital presence is a huge opportunity for wholesalers.
MONIN works closely with wholesalers adding value to their business: undisrupted supply, exclusive insights, staff training and development, category management support, on-boarding new customers, investment in promotions and trade shows, and providing personalised assets (social media, POS kits etc).
Adam Hacking, Head of Beverages at Arla, comments: “Despite RTD Coffee being a relatively new UK concept, the pace of category growth has been exceptional, and the sub-category has more than earned its place within all chilled soft drink fixtures. The category has experienced a significant step forward in terms of household penetration, average basket sizes and consumption growth.”
One of the most exciting things about this category is the speed at which it is evolving. Innovative NPDs are continuously hitting the shelves keeping this sub-category fresh and relevant as it progresses at pace to match ever-changing consumer consumption habits.
“For Starbucks® chilled coffee, we respond to consumer consumption habits and harness trends to feed our innovation and attract shopper interest,” adds Hacking. “The last few years of exponential growth in at-home convenience driven by the pandemic is a perfect example of this. In fact, such is its significance, at-home convenience is no longer a trend but a new, permanent, consumption habit and has been the driving force behind Starbucks’ product innovation.”
In March 2023 Arla extended the award-winning, large-format Starbucks® Multiserve chilled coffee range to include Starbucks® Multiserve Skinny Latte chilled coffee. The NPD also tapped into the consumer trend for less sugar in favourite products, a movement which also inspired the launch of the Starbucks® Doubleshot Espresso No Added Sugar Multipack, giving loyal shoppers a more convenient and accessible way to enjoy the signature Arabica espresso coffee with smooth creamy milk for a quick uplift at home.
These continual innovations and range increases have led to Starbucks® chilled coffee being the fastest growing brand in the Multiserve format, increasing 138% year on year (or an equivalent £19m YoY, Kantar/Nielsen) and Starbucks® multipacks have grown by 6% value and 16% volume (Kantar/Nielsen).
Chilled coffee as a proposition meets a number of consumer needs; indulgence, hydration, mental stimulation and as a food alternative. Consumers are therefore buying into the category for a range of different reasons. Part of this consumer need also includes a range of varying flavours, with the top three chilled coffee flavours being caramel, mocha and vanilla.
Arla has extended its range of no-added sugar chilled coffee drinks with the launch of Starbucks® Frappuccino Caramel No Added Sugar (RRP £2.10).
The NPD offers a delicious blend of Starbucks’ signature espresso roast coffee, creamy milk and buttery caramel – providing the same great taste as Starbucks® Frappuccino Caramel, minus the sugar.
The line extension taps into consumer demand for greater choice to increase frequency, attract more consumers and enhance Starbucks’ point of difference.
“We know our customers are looking for beverages that meet their evolving needs, so we’re constantly developing our product portfolio to offer more options that work for them,” says Hacking.
Reduced sugar innovations have driven 13% year-on-year growth in global food and drink NPDs (Onnoca). The new Starbucks® Frappuccino Caramel No Added Sugar will build on this to quench the thirst for lighter enjoyment and fill the Frappuccino gap in the Starbucks range of skinny and no added sugar SKUs.
Frappuccino saw 11% organic UK growth in 2023 making it the number one most important platform across in-store locations. Caramel meanwhile enjoys the highest rate of sale in multiple grocers, with the flavour variation taking 40% of Frappuccino sales.
Starbucks® chilled coffee remains the leading player within the Ready to Drink (RTD) category, worth £145m within a total category worth £297m (Kantar/Nielsen). The brand has continued to grow with an 18% value and 25% volume increase in the last 12 months (Kantar/Nielsen). Gaining a 3.3% value market share in the past year (Kantar/Nielsen), which is more than any other brand in the category, Starbucks® chilled coffee is larger than the next four brands and own-label combined.
This significant growth has been driven by innovative product launches that cater to the ever-evolving consumer need states. For instance, Multiserve is the fastest-growing segment in RTD coffee as shoppers look to new consumption occasions and use the product more as a take-home drink. In 2022, the Starbucks® chilled coffee Multiserve range was launched, 750ml sharing size formats in three flavour variants – Caffe Latte, Caramel Macchiato and Skinny Latte – allowing coffee lovers to enjoy their favourite chilled coffee at home. These continual innovations and range increases have led to Starbucks® chilled coffee being the fastest growing brand in these formats, increasing 138% year on year or an equivalent £19m YoY (Kantar/Nielsen).
Based on the above, retailers trust that the brand can and will deliver growth, and this confidence is validated by the fact that there have been considerable gains in both grocery multiples, +31% and convenience, +7% (Kantar/Nielsen).
For retailers looking to maximise seasonal sales, whilst keeping interest up during the rest of the year Hacking says: “Stock recognisable brands with demonstrably high cash rates of sales. Offer a range of flavours and pack formats to best meet varying consumer needs; indulgence, hydration, mental stimulation and as a food alternative. Take advantage of opportunities to highlight the category (e.g. POS, promotions and off shelf features).”
Amy Burgess, Senior Trade Communications Manager at Coca-Cola Europacific Partners (CCEP), comments: “Ready-to-drink (RTD) chilled coffee is becoming an increasingly popular choice – it’s a key driver of growth within soft drinks, up 10.3% in value over the past year (Nielsen).
“This growth is being driven by Costa Coffee RTD, now worth £24.4m, up 31.7% (Nielsen). This success can be put down to the widespread popularity of the Costa Coffee brand, the nation’s favourite coffee shop for the last 13 years (Allegra). It is also one of the only full ranges in the segment to be 100% HFSS-compliant.”
RTD chilled coffee is incredibly diverse. Featuring Lattes, Flat Whites and Frappés, Costa’s range caters to a broad variety of different tastes and occasions, offering shoppers a choice of low, medium and high intensity caffeine options as well as different coffee flavours and levels of sweetness to have on its own or alongside meals and snacks.
“And so far in 2024, to help drive incremental sales, we have launched PMP versions of the Costa Coffee Latte and Caramel Latte RTD ranges, offering a unique selling point exclusive to convenience retailers to help enhance their competitive edge when it comes to the RTD chilled coffee segment,” adds Burgess.
Across the hot chocolate category, brands account for over 80% of category value (Kantar).
The brands within the Mars Chocolate Drinks and Treats portfolio such as Galaxy and Maltesers now contribute £27 million to the category, with a year-on-year growth rate of 13% (Kantar).
With brands contributing significant value to the overall category, it is important for wholesalers to stock leading brands like Galaxy and Maltesers in a variety of formats.
The hot milky drink category is worth £205 million with instant hot chocolate remaining the most popular format contributing 24% to the overall category value (Kantar).
Michelle Frost, General Manager at Mars Chocolate Drinks and Treats, says: “We are aiming to help retailers attract shoppers to the hot chocolate aisle with the strength of our brands.
“To cater for demand for variety within our range we offer a selection of formats including jars, sachets, kits and pods.”
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