Coffee Rides Wave of Private Label Sales

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Features

By Dan Shryock

Private label products continue to extend their sales reach across the United States and both coffee producers and their retail partners are reaping the rewards.

Numbers provided by the Private Label Manufacturers Association show that coffee once again enjoyed strong sales in 2018. Overall, coffee sales across all categories rose 7.6% during the calendar year over the previous period. Sales totaled $1.49 billion.

Increases were found in practically every category, too. Specialty coffee, for example, climbed 11.6% and espresso grew 15.1% over the previous year. Only one category – coffee substitutes – showed a decline (-2.3%). The most eye-popping gains were in coffee concentrates (104.2%) and packaged coffee combination packs (78.9%).

The primary general coffee category, whole beans, and ground coffee, sold more than $1.43 billion. Its 7.4% growth matched overall numbers.

The data is in keeping with a new, larger study from the Food Marketing Institute and research firm IRI indicating 46% of American consumers consider private brands when deciding what they buy. That’s up from 35% of consumers surveyed three years ago. And, the study stated, private label products are appealing to a broader range of demographics and generations. “The solid growth of private brands reflects the success of retailers treating private brands as brands, rather than just following the lead of national and legacy brands,” Doug Baker, the institute’s v.p. of industry relations, said in the study summary released on Nov. 7, 2019. “The proof is in consumer satisfaction; shoppers surveyed shared most that they trust the quality of private brands and believe they get a good value.”

The numbers are not surprising to coffee producers in the private brand space who were contacted for this report. Nor is the conclusion that consumers believe private label products offer value.

“We’re primarily a private label company so most of our partners are in that space and we’re seeing very strong demand from them,” said Angelo Campanella, v.p. for channel development in the United States for Club Coffee, a Canada-based full-line roaster and co-manufacturer. “And, looking further ahead into Q4 (2019) and then into 2020 that seems like it’s continuing,” he said. Two of Club Coffee’s primary products, Keurig-compatible coffee pods, and Nespresso-compatible espresso capsules, are among the strong sellers in 2019, Campanella said.

Clay Dockery, Massimo Zanetti Beverage USA’s corporate brands division v.p., agrees: “We had a very good year in coffee, and we anticipate that continuing.”

Massimo Zanetti’s coffee portfolio includes well-known American coffee brands including Chock Full O’Nuts, MJB, and Hills Bros. The company’s international coffee products are led by Segafredo Zanetti but private label production represents a significant amount of Massimo Zanetti Beverage Group’s $1.2 billion coffee total.

Marketing quality

Both Dockery and Campanella say the success of private label coffee is centered on the retail consumer’s growing understanding that quality is attainable with a less expensive brand.

“I think there’s an economic difference for the shopper,” Campanella said. “And, I also think the private brand owners have gotten smarter and better with their marketing and communicating to their customers.”

Campanella pointed to The Kroger Co. as an example. Kroger rolled out new branding in November with the tagline “Fresh for Everyone.” In explaining the new brand, a Kroger official said in a statement that “Kroger believes that everyone deserves to have access to fresh, affordable, and delicious food, no matter who you are, how you shop or what you like to eat. Kroger’s winning combination of assets puts our team in a unique position to deliver fresh … for everyone.”

Efforts like this, Campanella said, make “buying private brand quite common for most baskets. We produce whole bean, ground and single service and we’re seeing that growth across all those segments.” Dockery sees the same trend as retailers put additional resources toward marketing their own private brand products. “They have recognized for some time that private brand is a differential advantage they have versus their competitive set,” Dockery said. “So, they’re highly motivated to offer the right assortment with an appropriate focus on innovation.”

Retailers increasingly are turning to manufacturing partners such as Club Coffee and Massimo Zanetti in search of new ways to appeal to consumers. As a result, the manufacturers are investing resources to better understand what consumers want – predictive capabilities – and then delivering those expectations to the marketplace.

“What you’re really seeing is a change in speed to market on items that are trending upward,” Dockery said. “There are some really interesting things that have come into the market We’re seeing an increase in some pour overs. We’re seeing an explosion of ready-to-drink products that is by no means an emerging trend, but the cold brew is relatively new, and it didn’t take any time at all for retailers to have cold brew offerings within their portfolio.”

A pre-recession sales bump?

Another IRI report, however, prompted differing reactions. The research firm’s Consumer Connect Survey, also released in November, indicated that overall private brand dollar sales grew 3.8% this year. That’s twice the rate of national brands.

Dockery and Campanella held different views of one conclusion in the report that stated while 57% of consumers say their financial health is good, concerns for a possible economic downturn or recession are prompting them to increase savings and spend wisely as a precaution.

The survey looked at shopping behaviors by income and generation. All income and generational groups strongly endorsed the concepts of buying private label and lower-priced brands to save money.

At the same time, consumer savings increased 4% in the third quarter compared to a year ago. That increase also fell across all income and generational groups. The IRI research is conducted at the end of each calendar quarter.

“While shoppers across generations and income groups in 2019 are undoubtedly more price-conscious, they are turning to private label because of their positive perceptions of the value,” said Joan Driggs, v.p. of content and thought leadership for IRI. “Shoppers are buying private brands because it makes them feel good to save money without sacrificing taste, selection or quality. The improved consumer perception of private label value is having a growing influence on store choice, with many leading retailers offering premium private label selections.”

Campanella agrees with the conclusion.

“I totally do, both as a consumer and as someone in the private label industry,” he said. “Our private label customers’ coffee is up year-on-year. Some are up quite a bit, others are up slightly. Some of the national brands are starting to suffer. I don’t know that it is recession-driven but things don’t feel as good as you read sometimes [in government economic reports]. The reports are strong, but I think consumers have become more sophisticated. There’s not much a national brand can do to make their single-ingredient product better.”

Dockery, on the other hand, says sales increases during a recession are common in the private label industry. He’s skeptical about linking recession fears to additional sales.

“We have never had a pre-recession bump,” he said. “We always have had a recession bump and post-recession we’ve seen a slight decline overall in private brand sales. After the last recession, we maintained the bump post-recession. So, I don’t put any credibility into an observation that consumers are tightening their belts by converting to private brand in anticipation of financial struggles ahead.”