Grounds for Excitement

Innovative products are bringing higher margins—and shoppers—to the coffee and tea aisle. Tired of the same old grind? Take a stroll down the coffee and tea aisle. A department that once had the freshness of a 12-hour old pot of coffee has been jolted awake with scores of eye-catching single-serve cup-boxes and exotic teas in intoxicating flavors. “Specialty coffee was almost unknown 25 years ago,” says Henry Stein, senior vice president, sales, at Distant Lands Coffee, a Renton, Wash.-based specialty coffee roaster and major private label supplier. “The growth of coffee shops has introduced specialty coffee to the masses that had been used to cans of ground coffee. The consumer has moved quite a bit. Cans are declining significantly and very quickly. A generational shift has occurred. The canned buyer is older. Packaged and single-cup formats are now the mainstay of the category.” Those single-serve cups are expanding the overall category; not cannibalizing it, says Dennis Crawford, senior marketing manager at Massimo Zanetti Beverage USA, the Portsmouth, Va.-based manufacturer of Chock full o’Nuts, Hills Bros., Kauai Coffee, MJB, Chase & Sanborn, Krispy Kreme and other brands. “Research shows that those retailers that have embraced the expansion and allocated additional shelf space to the total ‘coffee’ section have experienced exceptional growth across the coffee category,” Crawford says. “But retailers that cut the canned and bagged sections alienated many consumers that had to go elsewhere to purchase their needs. Retailers need to reallocate the grocery section, take space from declining categories and allocate it to the exceptional growth across all coffee segments.” Industry observers estimate that single-serve is growing at a 20% annual clip. “Retailers need the right space allocation to take advantage of the high dollar ring and margin that this category provides,” says Ed Mitchell, vice president of sales at Melitta USA, based in Clearwater, Fla. “However, the majority of volume is still in ground cans and bags. Space for the entire category should be based on a space to sales ratio.” Innovation will continue to drive coffee category growth, observers say. Melitta, for example, will begin shipping a new range of single-serve coffee capsules in September to complement its existing Café de Europa line. “The new capsules will mirror the best-selling varieties of Melitta’s core coffee range—Classic, Colombian, European Dark Roast and Hazelnut Crème,” says Chris Hillman, vice president of marketing. Melitta uses a proprietary filter design, Hillman says, adding that, “The capsule is designed to extract more coffee flavor, while allowing coffee lovers to see and smell the coffee before brewing.” One concern regarding the single-serve plastic cups is the impact on the environment. Massimo Zanetti is seeking to change that by introducing a pod format that has no plastic cup and 30% less plastic. “We will have a 100% compostable pod on the way before the end of the year,” says Crawford. “Switching to this format is a great way to enjoy the convenience of single-serve coffee and keep billions of plastic cups from the landfill.” Manufacturers are also turning to variety as a means to set themselves apart. Distant Lands only roasts Arabica beans, which Stein says are a higher quality than the more common Robusta because they are grown at higher elevations closer to the equator. “That is the beginning of the differentiation between specialty and non-specialty,” he says. “Then growing, milling and other factors come into play.” EnjoyBetterCoffee.com is using Douwe Egberts to carve out its niche. “Douwe Egberts is a leading brand in Europe and has been in business for more than 260 years,” says Victor Borsukevich, manager, for Worthington, Ohio-based EnjoyBetterCoffee.com. “They are fuller flavor coffees and it is the No. 1 brand in Europe. We are now bringing these products to the U.S.” Chock full o’Nuts has launched Heavenly Hazelnut and Salted Caramel to broaden its portfolio. “These two flavors are right on trend to match the ever increasing demand from younger consumers for flavored coffee,” Crawford says. “In January, Kauai Coffee launched the island inspired flavors of Vanilla Macadamia Nut and Coconut Caramel Crunch. Both are selling well in current distribution.” This spring, Massimo Zanetti’s Hills Bros. brand launched single-serve Cappuccinos in French Vanilla, Double Mocha, English Toffee and Salted Caramel. “Consumers prefer the flavor of Hills Bros. since the brand does not use the artificial sweeteners which can leave an unpleasant after-taste,” Crawford says. In addition to its flagship Brooklyn Bean brand, Two Rivers Coffee seeks out licensing agreements that include Tootsie Roll, Charleston Chew, Junior Mints, Sugar Babies, Cella’s Cherries, Andes Mints, Friendly’s ice cream and even Donald Trump. “We set ourselves apart, not only with a great product, but with innovative packaging,” says Sam Blaney, chief marketing officer for Two Rivers Coffee, based in South Plainfield, N.J. “Once consumers try it they will keep coming back, but for them to first pick up a box… you have to grab them, and our packaging, which mimics the licensed product, does that.” A Perfect Matcha Tea manufacturers are grabbing consumers with new blends and flavors. “The big trend is matcha,” a powdered green tea, says Kristina Richens, minister of commerce at The Republic of Tea, based in Novato, Calif. “People like the idea of consuming all of the tea leaf to get more nutrients and oxidants. We have several matcha offerings including Matchia, which is matcha and chia seeds.” Other new Republic of Tea products include 100% white tea in Cucumber Mint and Honey Mango varieties, Holiday Cheer in the Downton Abbey line and the novel Sonoma Tea line, made from dried wine grape skins available in Chardonnay, Cabernet, Rosé and soon Milled Zin varieties.   “Sonoma Tea is a wonderful sustainability story,” Richens says. “Think of all the love that went into making wine, but afterwards the skins were just left to compost or get discarded. We created an innovative partnership with Whole Vine to secure these wine grape skins and turn them into elegant, sophisticated, calorie-, caffeine- and alcohol-free beverages.” Turmeric and chocolate are two other big trends in the tea industry and Numi Organic Tea has latched onto both of them. Numi has introduced a turmeric tea collection in four blends—Golden Tonic, Three Roots (turmeric, ginger, licorice), Fields of Gold and Amber Sun. “Each boasts organic Fair Trade Certified turmeric from Madagascar as the main ingredient,” says Michelle Debruyn, digital marketing coordinator for the Oakland, Calif.-based company. Chocolate teas are part of Numi’s Indulgent line and available in four varieties. “The first ingredient is organic raw cacao from Peru,” says Debruyn. Brands of Britain is seeking to improve the quality of the ubiquitous 100-count box. “We are launching 100-count Taylor’s of Harrogate Yorkshire Tea,” says Natalie Nazarov, senior brand manager, Brands of Britain, based in San Ramon, Calif. “We want to bring a tea that is of a much better quality at the same low price point.” The Tea Brewery is bringing its high-end loose teas to the U.S. “We have 16 different blends of tea and also a private label program,” says Gwen Smith, owner of The Tea Brewery, based in Mahone Bay, N.S., Canada. The Tea Brewery’s teas are merchandised in tall square tins intended to evoke a sleek, modern feel, and specialized shippers are available. Astute retailers can promote loose tea and sell ancillary products, like tea balls and disposable infuser bags. “Stores can cross merchandise them to generate extra sales,” she says. “Tea is so much more flavorful when made from loose leaves.” Geoplant, based in Tbillsi, Georgia, is seeking to bring Georgia-grown tea to the U.S. under the Gurieli Export Black Tea brand. “This is a very unique product because Georgia tea has more than 300 years of history, but after the Soviet Union took over the industry was dead,” says Nino Martinenko, spokeswoman. “The climate in Georgia is really great for tea. They don’t use any fertilizers or pesticides because the ground is very rich there.” Stash Tea Co. has several new products, including Sunny Orange Ginger, Power Breakfast black tea with matcha and Organic Gold Cup Chai herbal tea with turmeric. “Our biggest challenge is the K-Cup and other single-cup products,” says Kai C. Larsen, vice president, sales for the Stash Tea Co., based in Tigard, Ore. “What retailers are doing is taking space away from tea to give to the K-Cups, and that has been a struggle for everybody in the tea category.” It is especially frustrating because Larsen views them as copycats. “When it comes to single cup, tea is already in a single cup delivery system. Making coffee in one of those machines is so stressful. Steeping a cup of tea is a nice relaxing thing to do,” he says.