Cash-strapped coffee lovers are heading to the supermarket aisle for premium coffee they can brew at home
Retailers are beginning to wake up and smell the aroma of freshly brewed coffeehouse brands wafting from consumers' kitchens.
As packaged varieties of Starbucks, Dunkin' Donuts, Seattle's Best and Caribou Coffee gain wider supermarket distribution, brand-loyal shoppers are finding it easy to pinch pennies by brewing their favorite brands of coffee at home.
“People aren't eating out as much, but they're also not ready to give up their habits, so what they're doing is buying the equivalent to have at home,” said Marcia Mogelonsky, a senior research analyst with Mintel, Chicago.
She observed that sales of premium packaged coffee are growing. Sales of Starbucks ground coffee rose 1.5% in food, drug and mass channels (excluding Wal-Mart) during the 52-week period ending Sept. 7, according to Information Resources Inc. During the same time period, as a result of greater availability, Dunkin' Donuts bagged coffee sales jumped 725% to $87.8 million. Packages of Peet's ground coffee in food, drug and mass channels grew 27.7%, and Seattle's Best coffee rose 1.8%.
A&P, based in Montvale, N.J., is noticing a lift in sales.
“We sell both Dunkin' Donuts and Starbucks coffee in bags, and our customers have responded very favorably to these brands,” A&P spokeswoman Lauren La Bruno told SN.
The retailer also began appealing to Starbucks fans last September when it forged a licensing agreement with the coffee maker and established Starbucks cafes in select locations. Today it operates kiosks in eight A&P stores and two Waldbaum's locations. Each serves a full beverage menu offering espresso drinks, brewed coffee, Frappuccino blended beverages and Tazo tea.
“Our Starbucks cafes have a very steady business, and we've received positive feedback from our customers,” La Bruno said. “They enjoy the convenience and product selection of these cafes.” She would not comment on the economy's effect on sales at Starbucks kiosks, but did say that premium bagged coffee sales have been growing across the board.
As consumers dig deeper into their pockets for food and fuel, Starbucks seems to be especially hard hit. In July it announced plans to close some 600 locations nationwide by mid-2009. The upscale coffeehouse has not only lost sales to consumers who've “traded down” to brewing coffee at home, but on-the-go shoppers are also seeking less expensive options.
“We see a shift from the Starbucks $4 lattes to other foodservice outlets that offer coffee at more reasonable prices,” said Mogelonsky. “McDonald's, for instance, is doing very well with its premium coffee.”
Although budget-friendly foodservice outlets are benefiting from the poor economy, retail outlets will be the biggest beneficiary of the change in coffee consumption habits, according to David Lummis, project manager of “Coffee in the U.S.: Retail, Foodservice and Consumer Trends,” a Packaged Facts report.
“For the past five years, sales growth at the foodservice level significantly outpaced that at the retail level, but we're predicting a shift,” he said. “Foodservice will come down quite a bit, and retail will rise to the point where it's going to slightly surpass foodservice in terms of growth over the next five years.”
Although sales of premium packaged coffee are growing at Big Y, Bill Eichorn, grocery category manager for the Springfield, Mass.-based retailer, does not attribute the rise to the weak economy.
“I think consumers just want a better cup of coffee,” he said. “We have expanded our premium bagged coffee set to help give the consumer more of a choice in this category, from flavored and organic to bulk-size bags of coffee from various manufacturers.”
Eichorn characterized Starbucks and Caribou Coffee sales at Big Y as stable and said that Dunkin' Donuts, Eight O'Clock Coffee and New England Coffee are its best sellers. When it comes to ready-to-drink varieties, Starbucks' bottled Frappuccino is most popular.
Big Y shoppers are also becoming interested in single-serve pods, which require the consumer to purchase a special machine for brewing the pods, according to Eichorn.
Keurig K-Cups sell well at Big Y, he said.
“Sales of the individual pods are going up because they tie into the whole spirit of the coffeehouse, where you get a cup of coffee brewed just for you, and it won't be sitting in a pot all day long getting gross,” said Mogelonsky.
Many of these pods only fit one type of machine.
“We just introduced Keurig K-Cups and Tassimo T Discs in a number of stores,” said A&P's La Bruno. “These products are upscale and machine-specific. We also sell [Sara Lee] Senseo pods, which fit several different machines and are selling fairly well.”
An increasing number of Balducci's shoppers are relying on the Bethesda, Md.-based retailer's corporate brand of coffee when it's time to get their caffeine fix.
“Our sales of private-label coffee are up, and people seem to like the little boutique roasters we bring in as well, so we're looking to expand that more,” said John Coleman, wine, cheese, coffee and tea buyer for Balducci's.
Balducci's has partnered with a roaster to develop a private-label line of fine coffees. The roaster has responsibility for selecting the beans at their points of origin, thus achieving the quality in their roasts that upscale buyers seek.
“I count on my roasters to spend a lot of time visiting facilities and verifying the quality there,” said Coleman.
Balducci's also markets coffee from various local boutique roasters in its locations.
“People want quality first and the value, so it's a balance you walk,” said Coleman. “We offer both.”
Additional reporting by