15th annual flavor report: the changing of the flavored coffee market: the originator of our famous Flavor Survey returns with an apprising look into the flavored industry as she reveals the latest trends and what has remained the same in the flavor segment.

IN THE BEGINNING, THERE WAS AMARETTO, IRISH CREAM, BRANDY, VANILLA AND CHOCOLATE. This was in the early '80s, when coffee flavorings were less-than-desirable, and flavor manufacturers sold it in small quantities to local specialty roasters. The selection of flavors was limited and the aroma, which is crucial to the appeal of flavored coffees, was slightly medicinal. The flavor application left the surface of the bean dull and lifeless, and the taste was not that enjoyable. As for the quality of the bean, at the time, many in the industry would recommend to conserve money on good coffee and keep the roast light, since people who usually drink flavored coffee don't enjoy the taste of real coffee.

All this changed when nut flavors were introduced in the mid-to-late '80s. Hazelnut, vanilla nut, nut cream, southern pecan emerged, offering the sweet, creamy and above all aromatic alternatives. The introduction of nut flavors and other flavors with sweet and creamy profiles brought a whole new segment of coffee drinkers to the specialty industry, contributing to its overall success. These 'heady' nut-based flavor profiles attracted new customers for retailers, since they offered an aromatic blend. Flavors gave small regional roasters within the burgeoning specialty coffee industry a special competitive advantage over larger roasters who did not offer flavored coffees. Small coffee shops brewed and sold hot and cold variations of flavored coffees in an effort to give themselves a competitive edge. They found their sweet, creamy and aromatic coffee beverages attracted a consumer who didn't like regular brewed coffee, but still wanted to be part of the 'gang' when everyone went to a coffee house.

In the '90s, Starbucks geared up its marketing efforts and did an admirable job in educating the American consumer about coffee beverages. Starbucks produced a written and illustrated guide to the differences between lattes, cappuccinos, espresso, etc. After reading this simple and well-written piece, anyone could walk into Starbucks, order a latte, know what it was, how to pronounce it and would not feel embarrassed; they could also order a shot of flavored syrup to further cover the taste of the coffee, making the dairy-based beverage even sweeter. As a result, the people who "grew up" with Starbucks and loved their milk-based espresso beverages would prove open-minded to flavored coffees because the flavor profile they were seeking was creamy, rich and often times sweet to cover the taste of the coffee.

Currently, many things have changed. Starbucks is on almost every corner, and consumption of flavored coffees is so widespread that they are available on the supermarket shelves. Flavored coffees are now sold through foodservice operations and even convenience stores promote their great tasting coffees and wide-selection of flavored cappuccino beverages.

Even today, this is still mind blowing to me, because during the early '80s, I was involved in a small family-owned and operated wholesale roasting company in New Orleans, Louisiana. When we started the company in 1984, we had to have a point of difference in a coffee and chicory town, so we specialized in flavored coffee blends. In January 1988, I wrote an article for Tea and Coffee Trade Journal entitled "The Changing Flavored Coffee Market" based on my ongoing experience with flavored coffees. In 1988, shortly after writing that article I began writing this column, Grounds For Discussion, and each January for many years focused on the changing flavor market. One of the things I have noticed is while the flavor industry has changed, certain aspects of it seem to remain the same.

In 1988, the top sellers on the market were hazelnut, vanilla, chocolate, amaretto and irish creme. Currently, the top sellers are very similar--vanilla, chocolate, hazelnut and irish creme remain popular. Caramel is also popular within the U.S. and Amaretto continues to sell in Europe. Colleen Roberts, director of sales at Flavor Dynamics explains, "Hazelnut, Vanilla and Irish Creme have held their position as the most popular flavors in the industry ... other flavors that were popular 18 years ago continually resurface as more elaborate flavor profiles. The consumer looks for decadence and diversity." If a small roaster/retailer only wanted to buy five flavors per season, she would recommend the top three "Hazelnut, French Vanilla and Irish Creme. Then include a chocolate variation like a Chocolate Mousse, Chocolate Seduction, and Chocolate Truffle and finally Caramel variation like Caramel Creme or Caramel Pecan. Always offer the top three and select flavor profiles that might represent the season; (such as) chocolates in the first quarter and spice flavors throughout the fall."

"Vanilla, Irish Cream, Chocolate, Amaretto and Hazelnut" are the top sellers for Frey + Lau, according to Bernd Zimmer, sales manager. He recommends if a roaster wants to limit the number of flavorings they buy, they should be sure to purchase the top five. Flavor and Fragrance Specialties' top five coffee flavors represent a combination of the traditional and new, hazelnut, vanilla-french vanilla, vanilla nut cream, pumpkin spice and blueberry cobbler. According to Jeff Nichols, vice president of their coffee division, the blueberry cobbler is especially rich and aromatic.

When flavored coffees first appeared, the demand was so low that application methods for flavoring was extremely low tech. Small roasters could batch roast a good basic bean, divide the roast into 3-5 lb. individual batches, and then flavor each with a different flavoring, carefully stirring to ensure even distribution. Application methods varied from plastic squeeze bottles to wheel-barrel type application drums making flavored coffee easy for owner/operators to apply. The roaster's primary concern in introducing flavored coffee was the risk that minute amounts of the coffee flavorings would be carried through the air while was being applied to the roasted coffee and risked contaminating the green coffee beans, as well as other roasted coffee beans. Any small roaster could begin flavoring coffee with just basic equipment and at an average of 25-50 cents/lb., the cost of flavorings added minimally to the roaster's production cost. Roasters could sell flavored coffees to retailers at a profitable margin and many retailers marked their flavored coffees up a minimum of 100%.

Almost 20 years later, these simple application methods still apply and any small roaster/retailer can inexpensively begin flavoring coffees. Roberts stated "flavoring coffee remains relatively the same. A roaster/retailer can start this process with a small drum mixer similar to a cement mixer. Lining the mixer is really the only other expense to avoid cross contamination (of the flavors)." Zimmer also points out that contamination of green beans should not be a problem for the small roaster/retailer if the proper precautions are taken.

Roberts puts the price of the cost of flavoring at about 25-50 cents/lb, which is about what I paid in 1988. She explained, "The pricing of flavors in our industry has become very competitive. There are also more flavor houses offering this type of product. Therefore, the roaster and roaster/retailer has a greater opportunity to shop and compare quality and pricing. Knowing your regional flavor profiles and demographics certainly helps the roaster/retailer select the best options from our flavor listing. Some flavors have more popularity in specific regions."

Vanilla and hazelnut flavored coffees have been favorites with consumers for decades, and this solid year in and year out appeal is evidenced by their appearance on supermarket shelves. Large roasters have never claimed to be trendsetters and only introduce new products when there is a need demonstrated. This is especially true of a product that requires additional manufacturing steps beyond the basic roasting process. As flavored coffees have become so popular, the selection at supermarkets seem rather limited, which Zimmer thinks limits supermarket shelf space. "The problem in Europe is supermarkets have a defined area of shelves for each product. Additional shelf space is expensive, and for the average supermarket, we don't see a realistic chance for a widespread assortment of flavored coffees." Zimmer also believes the major roasters have limited selections because their size inhibits their ability to react quickly to the changing consumers' tastes. He comments, "the bigger the company, the longer the reaction time."

Roberts also thinks major roasters will continue to limit their selections. She believes major roasters "are selling flavored coffee because they have established market shelf-space and a loyal following. It makes sense to diversify a brand identity. For better movement on key flavors, I do not believe they will offer too many selections."

Jeff Nichols from Flavor and Fragrances thinks larger roasters are getting into the flavored coffee business and will stay in it because of growth and economics. "Each manufacturer is charged with the same objective of increasing sales and profitability. The high volumed roast & ground category has been essentially flat, whereas the specialty category continues to grow. For example, 20 years ago the Arabica coffee-based segment represented less than 5% of all coffee sold in the U.S., and now it represents around 25% of all coffee sold. Large manufactures can spend huge dollars trying to gobble up shares in a flat market or divert dollars toward a growth segment. If you consider that 30% of all specialty coffee sold is flavored, you can see that 7-9% of all coffee sold in America today is flavored coffee, and it continues to grow."

Nichols elaborates, "Flavored coffee functions by attracting users that typically don't like the taste of coffee due to its strong bitter, astringent notes. The added flavors help mask these notes and makes coffee appealing to an audience that normally would not drink it (about 30% in the specialty segment). Therefore, with very little capital expense, manufactures can expand sales to a broader audience. Major roasters recognize this and now offer flavored coffee forms in both the specialty and roast & ground categories, because it makes good business decision to grow sales at minimal expense."

As to the limited offerings of flavored coffees from major roasters, Nichols stated "The number of flavor offerings has declined significantly with the shift to larger manufacturers and increased supermarket sales. The traditional huge flavor list has shrunk to a much smaller, but stronger core flavor list that maintains flavor variety by using feature or seasonal flavor offerings. The most desired time for alternative flavored coffee offerings is around the winter holidays: Thanksgiving, Christmas and New Years."

I personally like that flavored coffees are mainstream now because in the early '80s specialty coffee was a small niche market within the huge overall coffee market: within that tiny niche of specialty coffee was a micro-market called flavored coffees. Now that the flavored coffee segment has grown along with the specialty industry, other specialized niches are appearing. Zimmer says that while it is not a traditional coffee category, instant coffee beverages are becoming more and more popular, and he credits this with the rise in popularity of flavored cog fees. Their top sellers in this category are chocolate, vanilla and amaretto. Roberts also considers instant coffee beverages a niche market. "This is a growing segment of our foodservice and retail industries. The top sellers within these categories are also hazelnut and vanilla type flavors."

In Roberts' opinion, instant coffee beverages are not the only niche market to evolve as a result of the flavored coffee industry. "The micro markets that have evolved from the flavored coffee niche are the flavored syrups and flavored teas. Syrups have additionally opened the beverage industry to many different flavored drinks. Retailers can now flavor many specialty beverages right at the point of sale. Tea has become a more popular option for the consumer, as they are more educated in the health aspect of this beverage. The growth of the ethnic markets in the U.S. has also had an affect on the diversity of offerings in the flavored specialty coffee segment."

Nichols thinks there is beginning to be less focus on the quantity of flavored coffees and more of the quality of the product. He said flavorings have to be constantly updated because of a more discriminating consumer. This would be particularly true if a consumer was going to drink flavored coffee, not just as an occasional treat, but as their preferred daily coffee. "The flavored coffee consumer has matured with heightened taste expectations. These taste expectations make them much more discriminating and tougher to please. Flavored coffee drinkers regularly drink dairy--based coffee drinks and a broader assortment of flavored coffees on a regular basis forcing the new target taste profile be sweeter, creamier, easier to recognize and more balanced."

Nichols continues, "as a consequence, flavor quality has had to evolve to keep up with the new taste expectations. Researchers are continually looking for new aroma chemicals and manufacturing techniques to enhance flavor quality. Starting with enhanced sheen, increasing aroma, added sweetness/creaminess, reduced palate fatigue, and ending in a nice aftertaste, are all attributes that make today's flavored coffee much more appealing. The goal from first point of exposure to the end of a full cup is enhancing the experience. The goal is full cup drinkability so that the flavored coffee consumer can enjoy multiple cups, just like regular coffee drinkers."

So what has changed about flavored coffee in the last 20 years? Very little, yet at the same time very much. However, overall, I think it has gotten better. If retailers are offering a narrower range of standard favorites and rotating in seasonal favorites, I think that it becomes a win-win situation all the way around. The retailer will be attracting a solid customer base with standards selections that can be kept flesh but an occasional "fun" flavor can be added seasonally.

It is also just as easy now as it was 20 years ago for a small roaster or roaster/retailer to venture into flavoring coffees without a lot of capital investment. There is a whole generation of consumers who drink both sweet, dairy-based coffee beverages, and flavored coffees as a part of their daily lives.

Flavored coffees are available at the supermarket and the quality is good. Accustomed to their usual Folgers or other brand, consumers are more willing to try a flavored coffee under the same brand name as their morning wake-up coffee. This is a whole different segment that likes their coffee but won't pay above a certain price point.

So what else has changed about flavored coffee in the last 20 years? The consumer is different. The same segment that drinks dairy based coffee beverages gravitates toward flavored coffees and they bring with them their taste preference for a darker roast that was cultivated over time with the consumption of many lattes. Today's flavored coffee consumer would absolutely not tolerate the light roasted, thin tasting flavored coffee with the medicinal aftertaste that could only be covered up by large amounts of after dinner liqueur of 20 years ago. Just as latte drinkers can enjoy more than one a day, today's flavored coffee drinkers can enjoy their 20 oz. mug of flavored coffee more than once a day. As someone who has followed this segment for over 20 years, I can live with that.

TOP 5 Selling Flavors in 2006

* Flavor Dynamics, Inc.

Hazelnut

French Vanilla

Irish Cream

Caramel Cream

Jamaican Me Crazy

* Flavor and Fragrance Specialties

Hazelnut

Vanilla--French Vanilla

Vanilla Nut Cream

Pumpkin Spice

Blueberry Cobbler

* Frey + Lau, Gmbh

Vanilla

Irish Cream

Chocolate

Amaretto

Hazelnut

Market Research Shows:

Special thanks to Willy Palmer and Jeff Nichols from Flavor and Fragrance Specialties for providing copies of the market research that they conducted in three phases over 2003, 2004 and 2005. The 2005 survey protocol consisted of dividing the U.S. into five regions, as defined by the U.S. Census Bureau. The top 25 roaster/retailers were surveyed in each region, information was gathered through a 20-30 minute phone survey conducted by MediaCross, and the research focused on gaining insight into taste preferences and consumption patterns of flavored coffee drinkers. Highlights of this report are included below.

* Coffee drinkers and flavored coffee drinkers have distinctly different taste preferences:

* Coffee drinkers are purists who love the taste of coffee and if they augment coffee, do it lightly with sugar or creamer.

* Flavored coffee drinkers typically do not drink coffee due to its bitter stringent notes. If they do drink coffee, they use cream and sugar to alter the taste. Flavors function much in the same way by masking the bitter coffee notes.

* Flavored coffee drinker demographics--75% of purchasers are between 20 and 49 years old, drink flavored coffee throughout the day and are predominantly female:

Purchasers by age:

10-19 years      4%
20-29 years     20%
30-39 years     32%

These 3 categories total 75%

40-49 years     23%
50-59 years     14%
60 plus years    7%

* Day part typical users drink Flavored Coffee (respondents surveyed could choose more than one day part):

Breakfast       61%
Mid-Morning     61%
Lunch           22%
Mid-Afternoon   44%
Dinner          53%
Evening         53%

Purchasers by sex:

Female          68%
Male            32%

* Flavored coffee drinkers are shifting to a darker roast preference for their flavored coffees; when asked what roast color they used for Flavored Coffees, roasters and roaster/retailers responded as follows:

Light Medium       5%   Agtron #65
Medium            31%   Agtron #55
Moderately Dark   46%   Agtron #45
Dark              14%   Agtron #35
Very Dark          5%   Agtron #25

Shea Sturdivant Terracin is the 1997 recipient of the Specialty Coffee Association of America's Distinguished Author Award.