RTD COFFEE IN THE US - ANALYSIS

Country Report | Dec 2020

KEY DATA FINDINGS Market Sizes

RTD coffee sees a slowdown in off-trade volume and current value growth due to Sales of RTD Coffee
the loss of on-the-go occasions amidst the COVID-19 pandemic in 2020, whilst on- Off-trade Volume - million litres - 2006-2025
trade sales plummet due to temporary outlet closures and restrictions on reopening
In 2020, RTD coffee sees 3% off-trade current value growth and a 2% off-trade
volume increase, to reach USD3.6 billion and 634 million litres
634 Forecast
1000
On-trade volumes see a significant decline of 44% in 2020, falling to 25 million units,
whilst off-trade sales are not quite able to offset this, with total volume sales
800
therefore also seeing a 1% decline
The North American Coffee Partnership (Starbucks Corp) maintains its dominance
within RTD coffee in 2020, with a 61% off-trade value share, with Monster Beverage 600
Corp the only other player holding a double-digit share, at 16%
In the forecast period 2020-2025, RTD coffee is expected to see an off-trade current 400
value CAGR of 8% (6% 2020 constant value CAGR), and off-trade volume sales are
expected to see a 6% CAGR, to reach USD5.4 billion and 828 million litres
200
2020 IMPACT
0
RTD coffee especially affected by loss of on-the-go consumption 2006 2020 2025
occasions
RTD coffee has seen a slight total volume decline in 2020, due to COVID-19. Although
Sales Performance of RTD Coffee
the off-trade channel has continued to see growth, it is at a lower level than in any
% Y-O-Y Off-trade Volume Growth 2006-2025
other year of the review period, as this channel relies heavily on on-the-go occasions.
These were greatly reduced as Americans practiced social distancing and abided by
shelter-in-place orders implemented to limit the spread of the virus, leading to lower
footfall in impulse distribution channels. Most off-trade sales of RTD coffee take place
2.0% Forecast
25%
in convenience stores and forecourt retailers, where consumers most often grab a
single can or bottle whilst on the way to work or the gym. RTD coffee also relies on
impulse occasions, and with less consumer visibility from reduced foot traffic, the 20%
category has suffered. Meanwhile, although on-trade sales remain very low compared
with off-trade, they have seen a significant decline in 2020 due to outlet closures,
restrictions on capacity and consumers’ reluctance to leave the home and potentially 15%
contract the virus. The off-trade slowdown, in combination with the significant on-
trade decline, has led to a slight decline in total volume sales in 2020.
10%
The category continues to see innovation, promising a quick rebound
Despite the total volume decline in 2020, innovation has not paused within RTD coffee. 5%
The category saw a rapid rise in popularity in the last few years, and coffee shop-
inspired trends have made their way to retail shelves in the form of cold brews, flash
brews, nitro coffee and others. Cold coffee formats in particular have seen fast growth, 0%
as they appeal to health trends and often focus on their higher-quality taste. In 2020, a 2006 2020 2025
shortage of consumption occasions, as well as the premium pricing of many RTD coffee
brands, has led to a sales decline. However, one indication of the likely endurance of
the category is continuing innovation, which implies sustained consumer interest and
opportunities for growth. New cold brew SKUs are continuing to hit the market, both
from smaller companies as well as giants such as PepsiCo. Molson Coors has also
entered the coffee space through a distribution partnership with La Colombe. Hard RTD
coffee launches also indicate rising interest in the space, with PBR, Kahlua and
Jägermeister all announcing new brands.

Smaller brands outpace big brands in terms of growth

The larger players and brands within RTD coffee have seen falling off-trade value
shares in 2020. Various Starbucks brands from The North American Coffee Partnership
still account for a dominant share within RTD coffee, but whilst the Starbucks
Frappuccino brand has seen modest value growth and a static value share, Starbucks
DoubleShot has experienced a strong decline. The Coca-Cola Co, which distributes the
Dunkin’ Donuts brand, has also seen a declining value share. Both Dunkin’ Donuts and
Starbucks branded coffees skew towards sugary lattes, the positioning of which
conflicts with the health and wellness trend, which has gained greater importance in
2020 due to COVID-19. Instead, growth has continued to be led by cold brew brands
such as Stok from WhiteWave Foods and Califia Farms from the company of the same
name, as well as by a high-caffeine offering from Monster Beverage Corp, Java

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Monster. Monster owes its success to energy drinks consumers. The brand can draw in Competitive Landscape
these consumers because of its strong presence in convenience stores and forecourt
retailers, and its recognisable branding lets it stride category boundaries. Meanwhile,
newer and smaller brands are also growing in the category. Brands with cold brew, Company Shares of RTD Coffee
sparkling and plant-based offerings have comparatively smaller shares of sales and % Share (NBO) - Off-trade Volume - 2020
these segments are highly fragmented, but they have a strong influence on the market
North American Coffee Pa... 62.6%
and lead in terms of trends. The value share held by the smallest players, included
under “others” has therefore continued to rise strongly in 2020. Monster Beverage Corp 13.5%

WhiteWave Foods Co 8.1%

RECOVERY AND OPPORTUNITIES
Coca-Cola Co, The 4.9%
On-trade expected to take time to fully recover but off-trade growth Califia Farms LP 1.5%
will be strong Bolthouse Farms Inc 0.4%
Sales of RTD coffee are expected to rebound quickly in the forecast period, with total High Brew Coffee Inc 0.3%
volume sales set to return to dynamic growth in 2021. This is partly because on-trade
Other Private Label 1.3%
volume sales are expected to rebound in 2021, as bars, restaurants and other venues
reopen and restrictions ease. However, the gains within this channel in 2021 will not be Others 7.3%
enough to make up for the losses incurred in 2020, with a return to the level of sales
seen in 2019, before the pandemic struck, not expected until 2024. On-trade sales
growth will be limited by some permanent closures of foodservice outlets, as well as
enduring consumer apprehension about the virus and rising price-consciousness due to
the economic impact of measures intended to stop its spread. Nevertheless, off-trade Brand Shares of RTD Coffee
sales are set to return to higher growth from 2021, as consumers return to on-the-go % Share (LBN) - Off-trade Volume - 2020
and impulse consumption. This is expected to lead total volume sales to return to pre-
COVID-19 levels as early as 2021. Starbucks Frappuccino 36.8%
Java Monster 12.3%
RTD coffee will need to rethink distribution and packaging mix in the
Starbucks DoubleShot 12.0%
forecast period
International Delight Ic... 5.3%
Convenience stores and forecourt retailers are expected to see a bounce-back in their
sales and shares of distribution in the forecast period, after seeing a negative impact in Dunkin' Donuts 4.6%
2020. However, as consumers’ concerns about the pandemic continue and as they are Stok 2.7%
likely to be slow to switch back, supermarkets and other large grocery retailers are still
expected to hold a higher share of sales than before COVID-19 hit. In order to adapt to Califia Farms 1.5%
changing trends, players in RTD coffee are likely to focus on the packaging mix. Bolthouse Farms 0.4%
Currently, most brands focus on single-serve cans and bottles, which are intended for
on-the-go consumption. However, shoppers in grocery channels skew towards High Brew 0.3%
multipacks. In order to remain competitive in these channels, RTD coffee brands will Other Private Label 1.3%
need to consider amending their packaging mix to offer both larger pack sizes and
Others 22.6%
multipacks. RTD coffee in larger multi-serve containers saw growth during the period of
stockpiling at the beginning of the pandemic in 2020. Given that coffee is a staple 5-Year Trend
beverage, with some of the highest consumption rates of all non-alcoholic drinks Increasing share Decreasing share No change
categories, RTD coffee could do well by also embracing at-home occasions, whereby
consumers could keep an RTD coffee multi-serve bottle at the breakfast table, or have
it in the fridge for an afternoon drink, which could replace the usual brewed coffee
occasion.

RTD coffee set to continue to expand through innovation

Part of RTD coffee’s growth potential lies in its consumer base, which comprises
younger consumers, who are increasingly migrating from other categories, seeking
coffee’s functional energy benefit and clean label. The functional RTD coffee segment
continues to grow, with brands such as Java Monster performing well, toeing the line
between the coffee and energy drinks categories. The success of such brands
exemplifies the importance that innovation has in growing sales. In addition, cold brew
coffee is set to continue to drive growth. Many of the new entrants in the category are
cold brew offerings, and the segment keeps drawing in new consumers through
innovation and better flavour.
Coffee has the advantage of being an inherently natural product, leaving it open to
other ingredient and functional innovations that can further drive consumer interest.
Small brands have already begun moving into the space. RTD offerings are expected to
continue to blur category lines, with products ranging from light sparkling coffees, to
coffees blended with fruit juice. Brands are also expected to incorporate emerging
functional trends, such as CBD, mushrooms and protein. Innovation will give brands
ample opportunity to stand out and continue exploring what attracts consumers.
Consumers are also likely to be willing to pay more for products that are organic,
ethically sourced, or non-GMO.

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