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Dispensing Strategies: Branded Coffee Has Its “Perks”

In a tight economy consumers will forgo branded coffee


October 2, 2008
By Michelle Brisebois

Topics

When Starbucks founder Howard
Shultz wrestled back the reins of the company he founded years ago, he
candidly announced that all wasn’t sunshine and roses in Baristaville.

When Starbucks founder Howard Shultz wrestled back the reins of the company he founded years ago, he candidly announced that all wasn’t sunshine and roses in Baristaville.

As Starbucks closes 600 locations and same-store sales and average transactions decrease, the pundits are quick to point out that coffee consumers simply can’t afford fancy branded coffees anymore.  After all, that Caramel Macchiato per day can cost as much as a pack-a-day cigarette habit.

In a tight economy consumers will quickly forgo the branded (implied more expensive) coffees in favour of something brewed at home or at a less expensive establishment. If consumers are trading down on their java jolt for economic reasons does this mean we’re back to sixty-cent swill? Is the bloom off of the coffee bean? Will branded coffee be the first causality of these tough economic times?

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Starbucks has been the media darling for several years now. It has been largely credited with turning a commodity such as coffee into a “snobbodity.” Its coffees are almost dessert-like. It also started to charge dessert-like prices, which enabled the company to expand rapidly in North America and abroad.

With North America facing tight economic times and Starbucks closing locations, the media has been quick to deliver the eulogy for premium coffee.

A recent research study conducted by Automatic Merchandiser entitled “State of the Coffee Service Industry” begs to differ. The 2008 study states that for the fourth consecutive year, OCS operators raised prices. The study also reports that the OCS share of the overall coffee market has increased 53 percentage points from 2002 – 2007 and is projected to grow another 36 points over the next five years.

The study goes on to state “This (growth) demonstrates the consumers appreciation for a good cup of coffee and willingness to pay for it.”

Though the survey is U.S.-based, Neil Madden, of ECS Coffee & Vending here in Canada, echoes these sentiments.

“The growth in branded coffee programs here has been phenomenal,” says Madden. “Brands such as Starbucks and Timothy’s are still very popular and can do great things for the morale in offices.”

While Canada isn’t struggling with a mortgage crises and instability in our financial institutions, many of the places we work are owned by U.S. parents and Canadian offices are being impacted. We may breathe a sigh of relief when we survive a round of cutbacks, but it usually means fewer people doing the same amount of work.

A gourmet branded cup of coffee in the morning may give cubicle warriors one less thing to glare at the boss over.

While offices may have fewer bodies rattling around their corridors, the good news appears to be that those left behind will pick up not only their missing comrades’ workload, they’ll also ingest their coffee quota.

North Americans are drinking more specialty coffee than ever before. Total coffee consumption reached 47 per cent of adults aged 25 to 39, which is an increase of three per cent from 2007 statistics. Daily consumption of specialty coffee amongst consumers aged 25 to 59 reached 19 per cent in 2008. This increased by six per cent from 2007 for the 25-39 year olds and four per cent for the 40-59 year olds. Lest we forget the over-60 crowd, their daily consumption of specialty coffee also increase by 4 per cent.

For the first time total coffee consumption outpaced soft drink consumption. So now that coffee has won “Beverage Idol,” what are the next emerging trends?

“Organic coffee and environmentally friendly ‘green’ coffee is fast becoming a huge opportunity,” says Madden.

“Single-cup systems leave a smaller carbon footprint. Fair trade coffee is an emerging trend too.”

As more companies begin to define and publish their corporate social responsibility practices they’ll naturally begin to look at everything they purchase through a green set of eyes. The AM report confirms that environmentally friendly coffees and systems are of more interest than the fair trade products right now. Fair trade is potentially gaining traction, especially with younger consumers.

“It’s important to keep in mind that today’s university student will be tomorrow’s decision maker at the office,” points out Madden.

It’s good advice. If we chase headlines without thinking of the future, the industry will no doubt miss out on some key growth. 

Starbucks let the genie out of the bottle when it taught us all that a good cup of coffee can bring a little joy into one’s day. There’s no going back – not completely. The company’s plan is to focus once again on making great coffee by getting back to basics in terms of how it’s made and how well its baristas understand the products.

Ignore the headlines and dig deeper for the subtext because if anything, premium branded coffee is poised to lead the growth. News of its demise is very premature.