Coffee - US - September 2010

Market Drivers
Key points

● Demand for coffee is strong among Americans aged 45+. The over-55
segment—where demand is particularly high—is growing at a faster pace than
any other age segment and this is likely to help drive sales of coffee between
2010 and 2015.
● Demand for coffee is also especially high among Hispanics, and demand for
instant coffee is very high among Spanish-speaking Latinos. Hispanics
represent a population that is growing much faster than the general
population, which should help to drive sales growth between 2010 and 2015.
● Most Americans (about 52%) are currently “watching” their diet. Some
consumers are clearly becoming more health conscious and this is another
factor that could impact sales growth. The data suggest that marketers may
want to consider developing low calorie RTD products that include coffee as
well as protein or other nutritional supplements that, taken together, are
appropriate as a better-for-you snack and/or breakfast substitute.
● The economy continues to struggle and this is likely to drive demand for
roasted coffee and other varieties that can be used to brew coffee at home or
work. However, if the economy enters another state of contraction, panic
could set in and this would likely drive even stronger demand for brands like
Folgers and Maxwell House that are trusted and priced at or below most
competitors.

High demand 55+ segment growing quickly

As discussed in the Incidence and Frequency of Use section of this report, over-45s
are considerably more likely to drink coffee on a daily basis and there is a very high
concentration of daily users in the over-55 segment. The research presented in that
section indicates that more than 80% of respondents aged 55+ drink coffee on a
daily basis and, therefore, this is a key segment for coffee marketers. Moreover, as
shown in the Figure below, this segment of the population is growing faster than any
other age segment.

However, it is also evident that since only 27% of respondents aged 18-24 reported
drinking coffee on a daily basis, demand is likely to wane in the years to come as
younger consumers turn to energy drinks and shots to get that extra boost of energy
when needed. Clearly, coffee marketers will need to refine and optimize their efforts
to appeal to young adults in order to sustain the current level of growth in the long
term. However, it is also apparent that companies currently need to maximize appeal
among the high-demand Baby Boomer segment to maximize profits in the near
term.

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FIGURE 4: Population, by age, 2005-15

2005 2010 2015 % %

change change
Age 000 % 000 % 000 % 2005- 2010-
10 15

<5 20,301 6.9 21,100 6.8 22,076 6.8 3.9 4.6

5-14 40,329 13.6 41,282 13.3 43,365 13.3 2.4 5.0
15-24 41,882 14.2 43,549 14.0 43,550 13.4 4.0 0.0
25-34 39,817 13.5 41,818 13.5 44,499 13.7 5.0 6.4
35-44 43,714 14.8 41,277 13.3 41,301 12.7 -5.6 0.1
45-54 42,432 14.4 44,705 14.4 43,367 13.3 5.4 -3.0
55-64 30,334 10.3 36,275 11.7 40,544 12.5 19.6 11.8
65-74 18,640 6.3 21,463 6.9 26,967 8.3 15.1 25.6
75+ 18,112 6.1 18,766 6.0 19,870 6.1 3.6 5.9

Total 295,561 100.0 310,235 100.0 325,539 100.0 5.0 4.9

Data may not equal totals due to rounding.

SOURCE: Mintel/U.S. Census Bureau, interim population projections released 2008
(population in 2010 and 2015) and annual July 1 population estimates (population in
2005)

Rapid growth of Hispanic segment could help drive growth

As noted in the Race and Hispanic Origin section of this report, Hispanics are
considerably more likely than those in other major racial or ethnic groups to drink
instant coffee. Spanish-speaking Hispanics are considerably more likely than those
who speak only English to use instant coffee and are, therefore, a particularly
important segment for most marketers of instant coffee, particularly those that sell
brands like Nescafé and Maxwell House that are well-established in the marketplace
and closely associated with value.

As shown in the following Figure, Hispanics are also among the fastest growing
segments of the U.S. population. Indeed, the population is growing at a rate that is
roughly three times that of the general population. The rate of growth that is
expected between 2010 and 2015 is slightly slower than that which was observed
between 2005 and 2010.

Growth is driven in part by a higher-than-average birth rate and partly by

immigration. Clearly, instant coffee marketers should target Hispanics with bilingual
packaging and perhaps ads in Spanish language newspapers. Such messaging is
particularly important when operating in trade areas such as Los Angeles that have a
high concentration of Spanish-speaking Hispanics. Roasted coffee marketers will also
want to consider targeting the more acculturated segments of the Hispanic
population with multicultural advertising and messaging that includes
representations of Latinos.

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FIGURE 5: Population, by race and Hispanic origin, 2005-15

2005 2010 2015 % %

change change
000 % 000 % 000 % 2005- 2010-
10 15

Race:
Asian 12,512 4.2 14,415 4.6 16,527 5.1 15.2 14.7
Black 37,732 12.8 39,909 12.9 42,137 12.9 5.8 5.6
White 237,204 80.3 246,630 79.5 256,306 78.7 4.0 3.9
Other* 8,113 2.7 9,279 3.0 10,570 3.2 14.4 13.9

Hispanic
origin:
Hispanic 42,529 14.4 49,726 16.0 57,711 17.7 16.9 16.1
Non- 253,032 85.6 260,507 84.0 267,829 82.3 3.0 2.8
Hispanic

Total 295,56 100.0 310,23 100.0 325,540 100.0 5.0 4.9

1 3

* includes American Indian/Alaska native, native Hawaiian/other Pacific Islander, and

two or more races.
Data may not equal totals because of rounding. Hispanics can be of any race.
SOURCE: Mintel/U.S. Census Bureau, interim population projections released 2008
(population in 2010 and 2015) and annual July 1 population estimates (population in
2005)

Most Americans watching their diet

A primary lifestyle driver impacting the coffee market is the wellness trend. As
shown in the following Figure, about half of consumers in the U.S. are presently
watching their diet.

While the fact that the population is growing older acts to drive up the incidence of
watching one’s diet, it is also evident that the economic downturn in some cases
acted to drive consumers to choose the least expensive food and beverage options
while paying less attention to ingredients. These factors help to explain why the
incidence of watching diet trended down slightly between the 2007 and 2009 surveys
yet remains relatively high.

FIGURE 6: Incidence of presently watching/controlling diet, May 2004-June 2009

“Do you agree or disagree with the following...?”

By agree May 2004- May 2006- April 2007- February

May 2005 June 2007 June 2008 2008-March
2009
Base: adults 18+ 24,136 25,375 25,581 25,110
% % % %

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Presently 46 53 55 52
watching/controlling
diet

SOURCE: Mintel/Experian Simmons NCS/NHCS: Spring 2004, Spring 2005, Spring

2007, Spring 2008 Adult Full Year—POP

As shown in the following Figure, the desire to lose weight is the reason consumers
most frequently cite when asked why they are watching their diet. Mintel expects
that weight loss and maintenance will continue to be the primary reason that
consumers watch their diet for many years to come.

As discussed in Mintel’s Attitudes toward Sodium and High Fructose Corn Syrup—
U.S., August 2010, weight loss is an especially common goal among those aged 45+.
As discussed above and in subsequent sections of this report, there is relatively high
demand for coffee within this age segment as well. These findings may help to
explain why sales of syrups and additives—many of which are high in sugar—have
declined in recent years while sales of roasted coffee have continued to grow. These
factors suggest that manufacturers may want to work to create “better-for-you”
syrups and additives that are low in calories yet can be used to create fancy, sweet,
and creamy coffee beverages like those that are commonly found in cafés and
coffeehouses.

The findings also suggest that when developing new prepared coffee drinks,
manufacturers should consider the sugar content and calorie counts. Ready-to-Drink
(RTD) options with less than 100 calories in a 10-12 ounce serving would seem ideal,
provided that there is widespread flavor acceptance.

FIGURE 7: Reasons for watching/controlling diet, 2006 and 2009

“Why are you watching/controlling your diet?”

May 2006- February 2008-

June 2007 March 2009
Base: adults 18+ who are 13,060 12,924
watching/controlling diet
% %

To lose weight 59 58
Cholesterol level 36 36
To maintain weight 24 26
Fat intake 26 25
Blood sugar level 22 23
Hypertension 18 19
Diabetes 14 15
Salt intake 12 15
Heart disease 11 11
Calcium intake 8 8
Lactose intolerance 4 4
Food allergy 3 3
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To gain weight 2 2
Other 7 9

SOURCE: Mintel/Experian Simmons NCS/NHCS: Spring 2007 Adult Full Year—POP,

Winter 2009 Adult Full Year—POP

Health-related concerns could have greater impact on demand in the future

One key finding in Mintel’s research is that young adults are somewhat more likely
than over-55s to associate negative health consequences with coffee consumption.
This suggests that manufacturers will want to take steps, where appropriate, to show
that drinking coffee in moderation does not have negative health consequence (with
the exception of those who suffer from specific ailments such as a stomach ulcer or
heart condition). Some may also want to consider developing products similar to the
protein coffee beverage developed by Bolthouse Farms that is discussed in the Brand
Share—Ready to Drink (RTD) section of this report, as such beverages provide health
benefits along with the benefits of coffee and caffeine.

Given the fact that young adults are also somewhat more likely to state that coffee
improves their concentration, this is a theme that advertisers may want to consider
when marketing coffee within the segment. Sharpened concentration has obvious
appeal to college students who are studying for exams as well as young professionals
who are assimilating to a new workplace culture.

FIGURE 8: Attitudes towards coffee, by age, June 2010

“Please indicate which of the following statements about coffee you agree with.”

All 18- 25- 35- 45- 55- 65+

24 34 44 54 64
Base: internet users 18+ who 1,449 149 272 248 272 236 272
drink coffee
% % % % % % %

Coffee improves my 35 40 43 36 34 39 22
concentration
Drinking coffee is a bad habit 13 23 21 16 12 6 6
I would like to cut down on the 11 19 21 12 7 8 4
amount of coffee I drink
I am addicted to coffee 22 24 24 29 22 17 14
Coffee has more beneficial 29 17 28 24 27 33 37
effects than harmful effects
I spend too much money on 10 12 15 13 8 6 4
coffee
I’d feel better if I drank less 7 12 11 9 4 5 3
coffee

SOURCE: Mintel

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High unemployment may undermine demand

As discussed in Mintel’s Coffee—U.S., December 2009, sales of coffee continued to

grow in 2009, despite the recession and the tendency of many consumers to reduce
discretionary spending during times of economic hardship. Clearly, millions of
consumers have integrated coffee into their lifestyles and use the beverage as a kind
of social lubricant during gatherings at home, work and elsewhere.

However, it is also evident that recessionary pressures can drive some to seek less
expensive options such as private label products, bulk coffee or relatively
inexpensive brands of ground coffee such as Folgers and Maxwell House. Indeed,
FDMx sales of these latter two brands showed impressive growth during the 2009
review period in part because they represent very well-known brands that are
typically sold at a very competitive price point.

As shown in the following Figure, as of August 2010, unemployment has remained

above 9.5% for well over a year. The government recently called for dramatic
reductions in spending at the Pentagon, which will result in more job losses. State
and local agencies are also likely to continue cutting jobs and many managers in the
private sector remain hesitant to add significant numbers to their payrolls. As a
result, the number of Americans receiving government assistance remained at a very
high level and this, along with a host of other factors, is driving many to embrace
frugality while spending more time looking for exceptional prices and bargains. Thus,
while demand for coffee remains strong, manufacturers and retailers will want to
consider price and price elasticity carefully as they work to optimize the positioning
of their brands and maximize profits from coffee sales.

FIGURE 9: U.S. unemployment rate, January 2007-July 2010

SOURCE: Mintel/BLS—Employment Level and Alternative Measures of Labor

Underutilization

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Low consumer confidence may undermine willingness to purchase premium
products

As shown in the following Figure, consumer confidence has remained at a historically

low level throughout the review period. While this lack of confidence appears to have
little if any impact on usage, it is reasonable to conclude it is one key factor driving
consumers to purchase products that are sale priced or others such as Maxwell
House and Folgers that are always priced at or below the price of most competitors.

It should also be noted that the Fed’s August 2010 announcement to purchase U.S.
debt is one of several indications that the U.S. economy continues to struggle and
could enter another period of contraction or stagnant growth. A recent housing
report showing that sales of existing homes had plummeted in July 2010 is another
factor likely to undermine consumer confidence among the millions of Americans who
have rationally viewed their home as a kind of “nest egg.” If the economy continues
to grow at a stagnant pace or enters another period of contraction, confidence is
likely to fall again and could reach the lows observed in the first quarter of 2008.

These findings underscore the importance of pricing as well as in-store signage and
collateral that communicate value. Premium products such as fair trade coffees
should be merchandised with collateral that explains why the products are priced at
a premium and, where appropriate, why they are superior to less expensive options.
Indeed, such messaging could become critical in the future, as consumers continue
to embrace frugality while saving larger portions of their discretionary income for the
proverbial “rainy day.”

FIGURE 10: Consumer Sentiment, January 2007-July 2010

SOURCE: Mintel/University of Michigan Consumer Sentiment Index

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