Americans are trading up to higher priced coffees in the U.S. hot drinks market.

The previously flat U.S. hot drinks market is now expanding rapidly due to the increased consumption of premium coffee and tea.

According to Datamonitor, the U.S. hot drinks market is currently worth $11.5 billion, representing a growth rate of 11.4% since 1992. In Datamonitor's new report, "U.S. Hot Drinks 1997," some of the other key points revealed include: growth of whole bean and flavored coffee is slightly outpacing roast and ground and instant; on-premises sales are increasing consumer interest in high-priced specialty coffees; and herbal tea is posting strong growth due to consumer education, as the functional properties of certain herbs is disseminated.

Whole bean and flavored coffee sales, while only making up 16% of total coffee sales, are growing dramatically. According to Datamonitor's consumer goods research department, much of this growth is at the expense of instant coffee, which lags significantly behind overall growth.

The switch from instant coffee to whole bean is a reflection of the maturing tastes of the U.S. consumer. Datamonitor analyst John Gilmore commented, "The relative strength of the economy is enabling consumers to indulge in affordable luxuries - upscale varieties of staple products in consumer's lifestyles. This trend has been present in a number of different markets, such as the explosion of micro-brewed beer, and in the growth of specialty retailers such as the Body Shop."

Affordable luxuries are being well-exploited by supermarket retailers in particular, who have increased shelf space for upscale whole bean varieties annually over the last five years. Many retailers are also investing in private label whole bean varieties, imitating the success of A&P's enormously successful Eight O'Clock brand coffee.

The trend toward greater variety in coffee consumption is the product of a potent issue in the U.S. coffee market: new types of retail formats, (e.g., Starbuck's coffee shops). These new franchise coffee-shops are both partially responsible for, and a symptom of, the rampant growth of coffee sales in recent years. The principal benefit that these outlets bring to retail coffee sales is that they function to educate consumers about a wider diversity of coffee styles, and effectively broaden consumer tastes.

The increase in this type of specialty foodservice is contributing to the success of coffee in traditional retail outlets. Consumers are becoming educated in the new outlets about different types of prepared coffee, such as espresso and cappuccino as well as different types of coffee regions. This, according to Datamonitor, translates into high growth of whole bean coffee sales, as well as upper-priced varieties of roast and ground brands. The successful establishment of these coffee bar outlets indicates that consumption of coffee is set to increase in the future.

Due to consumer education, Datamonitor also predicts strong growth for herbal tea. Certain teas, often referred to as medicinal teas, are herb-based teas. They are distinguished by their healthy properties rather than their specific flavor or brand. These types of products, despite having been present in various cultures for centuries, are seeing explosive growth due to word of mouth as well as from published articles which have verified the health benefits of specific roots and herbs.

Datamonitor writes reports and conducts consultancy in the areas of food, drink, cosmetics, toiletries, markets, plus private label, retailing strategies, and technology in the retail sector. If you would like additional information about Datamonitor's U.S. Hot Drinks 1997 report, please contact Tara Rummell at One Park Avenue, 14th Floor, New York, New York 10016-5896. Tel: [phone], Fax: [phone].