Coffee market propped up by growth of pods, says Mintel
Research from Mintel showed that the growth of pods made up for the struggling dominant segment of instant coffee.
The UK retail coffee market has been gathering speed in recent years in volume terms. However, this masks a story of two halves. While instant coffee, the dominant segment, continues to struggle, the rapid growth of pods has propped up the market as a whole, partly helped by the higher volume per serving.
Average prices have been pushed down in recent years by the supermarket price wars, slowing inflation and the entry of new operators to the pod market have, among others. This has led to a more subdued value performance.
These trends are expected to continue going forward, with volume growth of 15% and value growth of 11% predicted for the market over 2010-20.
Instant coffee, which still accounts almost three quarters of retail value sales of coffee in the UK, has seen a value decline of 3% off the back of a 2.4% decline in volume sales in 2014, with further value decline expected in 2015. The downward volume trend is expected to continue going forward.
The segment continues to lose drinkers, with overall usage of instant coffee down 6 percentage points to 64% in 2015. On top of this, people are drinking instant coffee less frequently, with the proportion of people drinking it more than once a day falling from 27% in 2014 to 21% in 2015.
The pods market continues to go from strength to strength, benefiting from more brands and own-label launching Nespresso-compatible pods, undercutting the leading brand’s price. Rising consumer incomes should support the segment going forward.
Ground coffee and coffee bean volume sales have stagnated for a number of years, with values dropping by 1.1% in 2014, impacted by the supermarket price war and falling food and drink inflation.
Instant coffee’s woes are primarily due to the fact that fewer people are drinking it. 64% of British consumers drank instant coffee in the four-week period to June 2015, down from 70% in April 2014. Frequency of usage is also down, with the proportion of people drinking instant coffee more than once a day falling by 6 percentage points compared to the previous year.
Although half of people in the UK drink ground coffee, only 15% do so once a day or more. This is significantly less than for instant coffee (35%) suggesting scope for volume growth among existing users. The low frequency of consumption of ground coffee suggests that it is still perceived as more of a treat, rather than an everyday goto option like instant. Price is also a barrier here, with ground coffee typically costing more, however as disposable income rises, the ground coffee segment should benefit.
The interest in artisan instant coffee from one in three coffee buyers suggests scope for brands in the struggling segment to slow the decline with craft-style products. The craft theme has permeated a wide range of food and drink categories in recent years, with brands in beverage categories such as cider and spirits seeking to replicate the success of the craft beer trend.
