Coffee, the beverage that helps Americans get up and get going in the morning, was first grown in Ethiopia prior to 1000 A.D. and moved further east by Arab traders, who boiled the beans and created a drink called “qahwa” (prevents sleep). By 1668, coffee had replaced beer as New York City’s favorite breakfast drink and from that point on has been helping Americans start their day.
Today, many consumers start their day with other beverages: colas, teas, energy beverages, smoothies, flavored milk and flavored water, among other). So coffee has a lot of competition.
The poster child for creating a brand/product experience is Starbucks. Its ability to charge $3-4 and more for a coffee beverage while recreating the “coffee house” environment has been well studied. Starbucks has had strong growth compared to other coffee brands, yet still must find ways to continue profitability and to increase consumption among consumers.
A recent effort is Rwanda Blue Bourbon, a coffee that mixes typical Starbucks quality with rare beans plus a social conscience. More than just a fair trade product, Rwanda Blue Bourbon is an effort to save the country of Rwanda, which was devastated by internal violence in 1994. Farmers there nearly stopped growing coffee altogether, but U.S. and international organizations not only convinced Rwandan farmers to continue coffee growing but upgraded the crop into a higher quality Arabica Bourbon variety.
While this coffee is only available (at the moment) at Starbucks stores, it provides lessons to all food processors on fair trade and a social mission … and the marketing opportunities inherent in those causes.
Coffee has a very high household penetration, with 78 percent of consumers reporting they drink it.
Understanding the marketplace
In 2005, coffee sales were $2.7 billion, a decrease of 15 percent from 1998. Still, coffee has a very high household penetration, with 78 percent of consumers reporting they drink it (according to Mintel International data, June 2005). Coffee has a stronger appeal for older consumers, with those over 55 years old drinking coffee 87 percent of the time while consumers 18-24 years old drink much less and on fewer occasions. Per capita consumption of coffee has dropped, driven by these younger consumers.
Coffee is sold as ground, instant, whole bean and ready to drink. Sales of ground coffee were $1.88 billion in 2005, followed by instant coffee at $510 million, whole bean at $280 million and ready-to-drink at $66 million.
While the price of commodity coffee beans hit a low in 2002 at $3.20 per pound, the subcategories that are growing since 1998 (whole bean and ready-to-drink) are those that have a significant price premium over ground coffee. This has helped to make up for the loss in coffee volume sold.
Starbucks may be top of mind for many, but the leader in overall coffee dollar sales is Procter & Gamble’s Folgers, followed by Kraft’s Maxwell House and then Starbucks, with private label fourth. In the category of whole beans, traditional brands such as Folgers, Millstone and even Dunkin’ Donuts are seeing declining sales, while specialty coffees, including organic and fair trade coffees, are growing.
In this growth category of specialty coffees, one of the key issues for any company is to justify the higher price based on more than just quality. Starbucks has reframed the “coffee experience” to include social responsibility. Starbucks not only is providing a market opportunity for Rwanda farmers but is funding projects that support their community, the environment and coffee sustainability. This moves the expectation of fair trade coffee beyond just ensuring an equitable price for beans and decreasing child labor to that of improving life for an entire society. And it redefines Starbucks as a company that delivers more than just a great cup of coffee. Starbucks delivers a chance to help save the world … one cup at a time.
This places Starbucks in a position to which its large corporate competitors will have a difficult time responding. Yes, P&G and Kraft do social good works, but these tend to be one-time events, certainly not programs aimed at improving a nation’s key industry. Smaller competitors such as Green Mountain and Peet’s are left with only local or domestically focused social projects.
Our Crave It and Drink It! Insights look at 30-35 conjoint studies to generate a database to understand the experience of foods. We find craveable coffee is about being fresh ground and brewed, usually 100 percent Columbian coffee. Drinkable coffee is about the aroma, warm and inviting. The aroma more than the taste is how consumers sense freshness and quality. The key attributes of coffee are taste, aroma, beverage temperature and mood.
Coffee is consumed most often (in order of hierarchy) first thing in the morning, at breakfast, midafternoon and finally midmorning. Consumers want different types of coffee at different day parts. They want just coffee first thing in the morning, but at the key snack occasions (mid-morning and mid-afternoon) they start looking for coffee as a treat. By evening, consumers are back to wanting just coffee.
The key trends are freshness, convenience and indulgence.
Freshness: Consumers link aroma, freshness and premium quality. Manufacturers have responded by changing packaging: Folgers produced the AromaSeal canister, a plastic container with a snap-tight lid that seals out air to keep the coffee fresh.
Convenience: Ready-to-drink coffees are available. Starbucks in a 1996 joint venture with Pepsico introduced Frappuccino and later DoubleShot espresso. Folgers responded with Jakada. Now Coca-Cola enters the fray with Blak. These are all shelved in the beverage aisle away from the coffee/tea area, thus giving consumers more opportunities to choose a coffee beverage and to consider them against other impulse beverages. Most retail coffee companies sell coffee “pods” to provide the coffee house experience at home.
Indulgence: The pleasure of coffee is still a strong factor. The varieties of premium coffee available (Frappuccino, latte, etc.) allow consumers to have a pleasurable experience. By reframing the premium pleasure experience to include giving to others, Starbucks allows consumers to indulge without feeling guilty.
Rwanda Blue Bourbon was the 10th coffee in Starbucks’ Black Apron Exclusives program, which was launched in April 2004 to bring rare coffees from around the world and to donate funds to the communities that grow them. Rwanda Blue Bourbon is available only as whole beans. The 8-oz. box is priced around $13.
Starbucks has had strong growth compared to other coffee brands, yet still must find ways to continue profitability and to increase consumption among consumers. A recent effort is Rwanda Blue Bourbon, a coffee that mixes typical Starbucks quality with rare beans plus a social conscience.
The idea of coffee with a social meaning had consumers in our taste panels interested. The back of the package speaks to the flavor of the coffee, the social orientation and the rare, exotic and cherished coffees included. The coffee is presented in a “gift box” that reflects exclusivity and premiumness.
Flavor (by aroma and mouth) and temperature are critical to the perception of coffee. The coffee has the distinctive bitter roasted note of Starbucks coffees. It is robust with a slightly acidic note and an herbal, spicy quality followed by a slight chocolate flavor.
At this price level, consumers must justify purchasing an expensive half-pound of coffee. The social good enabled many of our tasters to feel justified. The exquisite attention to detail reinforced the perception.
Does the product deliver?
The Starbucks brand is about trust, experience and now making the world a better place “one coffee cup at a time.” Rwanda Blue Bourbon obviously is high quality and it helps define premiumness and exclusivity while at the same time giving to others. The whole brand is now reframed from a premium coffee experience to a brand that also does sustained good for others.
How to make the idea bigger: This is a new strategic space that companies are beginning to move to. It is risky since the return from the consumer is not necessarily guaranteed.
Starbucks as a leader in understanding consumer shifts beyond just trends appears to be right on the mark. It’s using goodwill to allow consumers to feel good about paying $26 a pound for coffee.
Rating: The product does deliver on the Starbucks promise and takes the experience to a new level.
Market potential: Huge! This is a ground-shifting change for the industry. It’s a model that will be copied by many. Starbucks has an entire system in place to make this work, however, so few of the copy-cat will succeed.
Hollis Ashman is chief strategist and Jacqueline Beckley is president of the Understanding & Insight Group, a strategy, business and product development firm that connects with consumers using qualitative and quantitative approaches. See www.theuandigroup.com.