The hottest thing in coffee now is the supermarket cold case.
Every major coffee maker from McDonald's Corp. to Blue Bottle Coffee Co. is piling onto the refrigerated shelves of grocery stores with bottled or canned frappés, iced mochas and cold brew, a drink made from steeping coffee grinds in cool water for several hours.
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U.S. retail sales of refrigerated ready-to-drink coffee rose 29% in the 52 weeks ended Sept. 10 to more than $289 million, according to market researcher IRI. The broader category of ready-to-drink coffee, which also includes beverages sold at room temperature but intended to be chilled after opening, is valued at nearly $2.7 billion, according to estimates from Mintel, which predicts sales will reach more than $4.4 billion in the next five years.
Ready-to-drink coffee in both cold and shelf-stable form is a bright spot in an industry that is facing slowing growth, and coffee-company executives see improving their market share in supermarkets and convenience stores as crucial.
Several factors are working in favor of the cold stuff.
Younger consumers say they view cold coffee as a healthier alternative to energy drinks and soda. It is often cheaper than a cup of specialty coffee at a coffee shop. And people are increasingly consuming on-the-go and have less patience to wait, as evidenced by the rise of e-commerce and mobile order apps.
Kris Hardaway, a 24-year-old receptionist in Little Rock, Ark., keeps a 32-ounce bottle of cold brew concentrate that she buys from Whole Foods for $10.99 in her refrigerator and pours herself a cup every morning to drink during her drive to work. She said one bottle lasts her about a week and a half.
"It's easier than waiting for my coffee maker to start," she said, and faster than waiting in line at a coffee shop.
Cold coffee is the beverage of choice among 18- to 35-year-olds, the demographic group driving coffee consumption in the U.S., according to industry analysts. Mintel found that 53% of millennials surveyed last month said they drank iced coffee in the last three months, up from 46% a year ago.
Nigel Travis, chief executive of Dunkin Brands Group Inc., said he is happy to be making inroads in a category that he said Starbucks has long dominated with its bottled Frappuccino drinks. Getting its bottled coffee in cities where Dunkin doesn't yet operate coffee shops allows it to introduce new consumers to the brand, he said, adding that the chain's bottled cold coffee has exceeded $100 million in retail sales since being rolled out in supermarkets and convenience stores early this year.
Starbucks said it plans next year to roll out new bottled Frappuccinos and coffee-and-fruit smoothies made with almond milk and bottled single-serve cold brew.
Making and distributing bottled coffee to grocery stores is a much more costly proposition than grinding beans and brewing coffee in a coffee shop, however.
Dave Burwick, chief executive of Peet's Coffee, said cold-brewed coffee is particularly challenging and expensive to produce because it requires twice the amount of coffee than regular iced coffee to extract flavor.
There are also multiple companies involved in the supply chain, each taking a cut of the profits, from the co-packers that make the concentrate to the bottling companies that package it to the refrigerated trucks that ship the cans or bottles to stores. Peet's, however, operates its own direct-to-store chilled delivery network.
Despite the cost, major coffee retailers say they need to capture sales wherever coffee drinkers are and offer more cold alternatives for younger consumers who eschew hot coffee.
"The ability to have something for on-the-go consumption is really important," Mr. Burwick said.
(END) Dow Jones Newswires
November 12, 2017 09:14 ET (14:14 GMT)