We the People of the United States…are a very caffeinated nation. According to the National Coffee Association, 64 percent of Americans have at least one cup of coffee every day. That equates to a U.S. retail coffee market of $14.4 billion.
Even more impressive than coffee’s 3% CAGR is the fact that the online portion of that number is estimated to be growing four to five times faster. Add that to the rapid growth of online grocery in general, and it’s obvious why today’s coffee brands must have a serious e-commerce strategy.
As with other CPG categories, however, the low barrier to entry for e-commerce has given rise to a number of smaller, digitally native startup brands that are beginning to pose a significant threat to incumbents. Here’s what big-name coffee manufacturers such as Keurig Dr. Pepper, Nestlé and The J.M. Smucker Company can do to beat these competitors and win online.
E-commerce provides a new frontier for digitally-native startup brands and retailers’ private labels to compete against market leaders. Current trends show that big-name CPG brands are not guaranteed the same dominant market share online as they are in stores. For this reason, it’s imperative for established brands to solidify their position on the digital shelf now in order to ensure their success in the future.
In Q2 2018, for example, Amazon launched its own private-label coffee pods under the Solimo brand. According to a recent report from One Click Retail (cited by Supermarket News), the product already ranks among the top 25 coffee pods and averages an estimated $60,000 in weekly sales, comparable to established brands like Caza Trail, Peet’s and Eight O’ Clock.
“Because this product only launched in Q2 and is technically still in its initial growth phase, these numbers do not properly illustrate Solimo’s potential as a coffee brand,” Jacob Porter, director of global marketing at One Click, said in the report.
This rapid increase in competition and the resulting market fragmentation across the coffee category is forcing established brands to consider the question of “when” and not “if” when it comes to launching an aggressive e-commerce strategy. The answer? Right now.
Start with Amazon
E-commerce now accounts for about 6% of the total U.S. grocery market. Despite that small percentage, most analysts predict that e-commerce will account for 20% of grocery sales by 2025. The leader of this digital shift is undeniably Amazon, which owns 30% of the total e-commerce grocery market, double the market share of its closest competitor.
According to One Click Retail (as cited by eMarketer), beverages have dominated Amazon’s share of grocery sales. In Q2 2018, coffee sales grew 40% year over year to reach around $135 million. Of Amazon’s top five best-selling grocery products in this quarter, four were coffee:
- The Original Donut Shop Regular Medium Roast Coffee (pack of 72 single-serve K-Cup pods) by Keurig Dr. Pepper
- Soylent Meal Replacement Shake (cacao, 14 oz. 12-pack) by Soylent
- McCafé Premium Roast Coffee K-Cup Pods (100 count) by McDonald’s & The Kraft Heinz Company
- Nespresso Variety Pack Capsules (50 count) by Nestlé
- Dunkin’ Donuts Original Blend Medium Roast Coffee K-Cup Pods (60 count) by The J.M. Smucker Company
“Since the very beginning, coffee has been at the top of Amazon’s food chain,” said Jacob Porter. “Not only does it sell much more than any other single product type in the grocery group, but it continues to grow by 40%-plus annually.”
Additionally, OneSpace’s proprietary search data indicates that Amazon is consumers’ primary destination for coffee-related searches, accounting for over 60% of the search volume across 12 top retailers.
Consider Bigger Pack Sizes
When it comes to e-commerce, not all pack sizes are created equal. Larger-quantity packages reign supreme in the coffee category. Amazon’s four best-selling coffee products, for example, range in pack size from 50 K-Cups to 100, while most packages sold in stores contain 16 to 18 cups.
Big-name brands should consider increasing their normal brick-and-mortar pack sizes to meet the demands of the online coffee shopper. They should also consider offering a wider variety of flavors within the same package, as variety packs are becoming increasing popular online.
Focus on Convenience
The ready-to-drink format is currently the fastest-growing segment in the coffee market. The convenience offered by this format is a major driver of its success with consumers, especially Millennials glorifying a “busy” lifestyle. According to a recent report published by Transparency Market Research (cited by Business Insider), the fastest-growing distribution channel in ready-to-drink coffee is projected to be e-commerce platforms, expected to grow at a CAGR of 9.1% with a market share of 20.5%.
Similarly, single-serve coffee pods, another convenient format, continue to be popular despite recent negative sentiment in the market regarding their environmental impacts. Recent search engine data from OneSpace shows that single-serve coffee pods account for two-thirds of the searches related to coffee formats. Additionally, all four of Amazon’s best-selling coffee products in Q2 2018 were K-Cup pods.
"OneSpace shows that single-serve coffee pods account for two-thirds of the searches related to coffee formats."
Target Innovations to Millennials
With Millennials leading the shift to digital commerce, coffee brands should consider tailoring new innovations to the largest living generation. A major trend that is disrupting big-name CPG brands is the need to provide healthier products without sacrificing taste. This trend is contributing to the emergence of functional innovations like mushroom-infused coffee and coffee with added protein and extra caffeine. Millennials are also pushing for more artisanal, gourmet and premium coffee options, with 59 percent of coffee consumed daily now being classified as “gourmet,” according to a National Coffee Drinking Trends report.
Don’t Forget about Packaging
When it comes to designing CPG packaging for e-commerce, tackling supply chain challenges is paramount, but brands must also account for the fact that consumers cannot see, taste or (more importantly) smell the product before purchasing it. Areas to consider include:
- Creatively designing packaging with pops of color to stand out on the digital shelf
- Using high-quality photography or renderings to simulate “grabbing to read the label” behavior
- Ensuring the packaging can survive the final mile of logistics by using flexible yet durable materials
- Sourcing compostable or recyclable packaging, especially for single-serving coffee pods
Optimize for Search
Many of today’s consumers start their product discovery process online even if they end up making their purchases in stores. For this reason, it’s crucial for your products to have maximum search visibility on retailer websites. This means that when consumers search for keywords related to your product, your products appear as close to the top of the search results as possible.
Start by compiling a list of relevant keywords you want your products to rank for. These should include both broad and specific terms, and they must be relevant to the products.
Next, optimize your product page content to include these keywords. Incorporate these terms in a natural way, avoiding “keyword stuffing” that can negatively impact customer experience.
Once you’ve optimized your listings, monitor your products’ rankings for target keywords across retailer websites to see how your efforts impacted your search visibility. Continuously optimize content for the best results.
Invest in High-quality Content
Once a customer has found your product via site search, the content on the product page allows them to research the item and determine if it is a good fit for them. First and foremost, this content must be accurate, and it should provide everything the customer needs to know. Take advantage of all of the available content options, including photos, titles, bullet points, descriptions and enhanced content. Expand on the information on the product packaging, further demonstrating how the product will benefit the customer. Use this opportunity to answer any common questions or concerns consumers have, as well as to explain how the product compares to its competitors.
A perfect storm is brewing for coffee brands wanting to win online. Millennials are leading the digital commerce shift in CPG categories. They are also proving to be highly engaged in the coffee category due to needing more energy to accommodate busier lifestyles. Coffee brands that can offer a range of products that focus on convenience and added functionality – without sacrificing taste and quality – will position themselves to win on the digital shelf. To guarantee e-commerce success, these brands must also invest in search engine optimization and high-quality product content, both on Amazon and other online retailers.
Joshua Schall, MBA has an 11-year background in the emerging and intersecting CPG/FMCG categories of functional food and beverage and nutritional products.
He currently is the owner of J. Schall Consulting, an Austin, TX-based boutique management consulting company that focuses on digital growth strategies for CPG/FMCG brands that range from pre-launch to portfolio companies with $500M in yearly revenue.
Joshua enjoys an active healthy lifestyle but still finds himself spending way too much time scanning social media and digital grocery aisles for new consumable brands.