Private Label Coffee: Making a Name for Itself
NuZee’s single-serve pour over
Faced with a steep decline in food service sales, coffee and tea manufacturers first embraced grocers in meeting unprecedented at-home demand. It is now apparent that this effort will fall short.
Global production is on the rise and is likely to set a new record at 176.1 million 60-kilo bags, but consumption of coffee in the US and Europe will decline significantly, according to the US Department of Agriculture (USDA). Tea less so.
USDA predicts a six-year high for stocks of coffee and an export decline of 3.4 million bags. The reason is that far too many coffee shops, cafes, and restaurants forced to close during the pandemic remain closed – many, forever. Workers in home offices may have slightly increased their daily coffee intake during lockdowns, but office coffee is free, Starbucks is fun, and delivery is just not the same experience as a late morning coffee run. Home consumption rose an estimated 13% during March but out-of-home accounts for 25% of consumption and a much lower dollar value per cup. Bloomberg reported in July that market research firm Marex Spectron “estimates globally more than 95% of the out-of-home market was shuttered at some point during the pandemic.”
Selling direct to consumers
Seeking to fill the huge gap in sales caused by food service closures, manufacturers are experimenting with selling direct. Direct-to-consumer sales, which bypass standard distribution through a retailer, wholesaler, or outlets, were rising before the pandemic. In 2019 D2C e-commerce sales in the US reached $14.3 billion and were projected to top $17.8 billion in 2020. Sales totals exclude food and drink services, travel and event tickets, online gaming, and gambling. Sales next year will reach $21.25 billion up from $6.85 billion in 2017, according to eMarketer.com.
D2C is the province of small ventures, for the most part. This is because when it comes to fast moving consumer goods (FMCG), sellers processing thousands — and for companies the size of Starbucks — millions of orders requires significant investment. Eyeglass maker Warby Parker, the Dollar Shave Club, and Casper mattress company invested enormous sums to reach scale.
Unilever found a practical solution in selling bundles of food and beverages online. The Unilever Store has done well in the Philippines and Sri Lanka. The company recently launched the U Shop in Canada. Dinner bundles include Knorr branded soup mixes, dry herbal, and Lipton teas and Tazo concentrates.
D2C does not easily scale, but that limitation has not prevented local roasters and tea blenders from benefitting by making it easy for loyal customers to restock online during the pandemic.
The pivot to D2C has led to clever innovations like a “freshly roasted” vending machine outside Melbourne’s Market Lane Coffee. The specialty roaster operates six cafes which are reopening but with limited hours. To meet off-hour demand, the roaster installed a vending machine outside its doors that is fully stocked with freshly roasted beans and filter papers for coffee drinkers at home.
New tea formulations
New formulations are now entering the market. Product lines emphasize health and wellness and for those with a well-established range, innovation is critical. Examples include Unilever-owned TAZO which introduced energy management teas and mocktail concentrates, and independent Bigelow Botanicals which launched a new range of cold infusions teas. New lines appeal to stay-at-home consumers and iced tea drinkers.