Why Ready-to-Drink Coffee Is Gaining Popularity with US Consumers

Coffee lovers in the United States are boosting ready-to-drink coffee volumes. The demand for on-the-go, convenient coffee beverages is working in favor of the US ready-to-drink coffee market. Ready-to-drink coffee is the smallest category of the US liquid refreshment beverage market in terms of volumes. However, the category has been recording stronger volume growth than other nonalcoholic beverage categories like ready-to-drink tea and sports drinks.

According to Beverage Marketing Corporation, the ready-to-drink coffee category posted volume growth of 10.7% in 2014. Bottled water, energy drinks, and ready-to-drink tea recorded volume growth of 7.3%, 6.4%, and 3.7%, respectively, in 2014. Though the volume growth for ready-to-drink coffee was slower in 2013, it was still better than other nonalcoholic beverage categories.

Through the North American Coffee Partnership formed in 1994, PepsiCo (PEP) sells Starbucks’ (SBUX) ready-to-drink coffee brands in the United States. According to Euromonitor, the North American Coffee Partnership held about a 97% market share in the ready-to-drink coffee space in 2014 (Source: PepsiCo press release). In July 2015, PepsiCo signed a new agreement with Starbucks to sell ready-to-drink coffee in some Latin American markets.

Coca-Cola (KO) sells its Georgia Coffee ready-to-drink beverage in Japan, China, South Korea, Singapore, and India.

Consumers now want further enhancements to their coffee. According to a survey by Mintel, 44% of US consumers want healthy ingredients in their coffee and tea-based drinks. In 2015, Kraft Foods launched a protein-packed iced coffee with almond milk under its Gevalia brand.

Within the ready-to-drink coffee market, cold-brew coffee is gaining traction. Cold-brew coffee is coffee brewed without any heat. The cold brewing method imparts a richer coffee taste and a naturally sweet flavor. In January 2016, KonaRed Corporation (KRED) announced its ready-to-drink cold-brew coffees in two new flavors—Original Signature Blend and Hawaiian Vanilla. On March 2016, Starbucks announced its plans to launch Starbucks’ ready-to-drink cold-brew coffee in the United States through its partnership with PepsiCo. Starbucks and PepsiCo together account for 2.3% of the iShares Russell 1000 Growth ETF (IWF) and 1.2% of the iShares Russell 1000 ETF (IWB).

We’ll discuss the energy drink category in the next part of this series.