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Coffee wars rage on despite consumption drop.

Coffee wars rage on despite consumption drop

The drive to be No. 1 makes the big names in coffee behave like cola warriors. Maxwell House, Folgers and Hills Bros. spend a king's ransom on image-building and price promotions just to stand still. But coffee doesn't deliver to the bottom line like soft drinks do, writes Laura Bird in a recent issue of Adweek's Marketing Week. Americans have turned lukewarm on hot coffee. Consumption continues to drop. And a flood of brand extensions, innovative packaging and rising media budgets from Kraft General Foods Inc., Procter & Gamble Co. and Nestle/Hills Bros. has done little to boost coffee beyond its commodity status, Bird says.

Coffee lovers still exist. They just don't drink mass-marketed brands. Instead, many have developed fierce loyalties to regional gourmet labels, sold by only specialty retailers for years. Now these brands are elbowing their way into supermarkets. On a regional level, such gourmet labels have taken big bites out of mass-marketed brands. Millstone Coffee of Everett, Wash. is the top brand in the state, with a local market share of 35%, says company president Phil Johnson. In Northern California, Hillside Coffee jumps to No. 1 whenever Folgers isn't price-promoting. When Kraft General Foods tried to replicate the success of regional roasters with its Private Collection brand, Hillside outsold it three to one.

"Major companies have fought the coffee wars based on the premise that price was more important than quality," says Millstone's Johnson. In the early 80's, when gourmet coffee accounted for less than 2% of the market, it posed a limited threat to mass-marketed brands. But as specialty roasters have expanded their supermarket presence, they've also increased their share - to nearly 12% of the $6.6 billion coffee market. By mid-decade, they expect to exceed 20%.

To Steve Schulman, Hillside's president, the mass market for coffee is "grossly under-qualified." That lack of quality, along with the pricing and freshness drawbacks inherent in small boutique channels, gave him the idea 15 years ago to market gourmet coffee beans to supermarkets. Not that big players haven't tried, they just haven't gone far enough. After acquiring Sark's, a gourmet roaster in Los Angeles, Hills Bros. promptly folded the brand into its grocery-warehouse delivery system. And Kraft General Foods has kept whole-bean varieties of Maxwell House and Yuban in test market for two years, Bird writes.

"The most difficult phase of our growth has been convincing small retailers that they need a specialty section," Mr. Schulman says. "Although they were aware of the market, they'd been used to looking at tonnage and not the high end." But now the momentum has shifted to the supermarket. And regional roasters, including Hillside and Millstone, have helped it along by investing in extensive delivery and merchandising programs. They include free-standing displays that stock and grind beans, and in-store representatives to prepare and serve coffee samples and service inventory.

Hillside's four-foot, end-of-aisle display stocks 40 varieties of coffee, which ordinary supermarket shelves could not possibly accommodate. Newer displays showcase the company's latest extensions. Single-pot coffee bricks are priced at less than $1 to encourage trial purchases. And 10 oz. cans of iced coffee are stocked in seven flavors. Schulman believes consumers can be convinced good coffee is worth the price. He has the beans, but could use some added clout. Hillside is widely believed to be for sale, Bird says. Says Schulman, "We're looking forward to larger roasters being able to educate consumers."
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Title Annotation:International Report; competition in the coffee market
Publication:Tea & Coffee Trade Journal
Date:Jun 1, 1991
Words:577
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