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Instant Coffee Fights Back Against the Growing Challenge from Fresh

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While instant coffee is a growth market worldwide, much of that growth is coming from developing markets, especially in Asia, where non-coffee drinkers are entering the category for the first time by way of instant.

In the developed markets of North America, Australasia and Europe (both Eastern and Western), the category is struggling. It is forecast to shrink in North America, Australasia and Western Europe outside of Turkey, while growing only tepidly in Eastern Europe.

However, instant coffee brands are not letting the US$10 billion market of these four regions slip away without a fight. New, value-added strategies are being developed to hold off the threat, focusing on shaking the low-quality stigma that plagues the category in developed markets. They face an uphill task though, as third-wave coffee culture and the spread of fresh pod machines pose major impediments to any instant coffee revival.

Comparative regional instant coffee volume growth

Regional Instant Coffee Growth

Source: Euromonitor International

The nature of the threat

The first major threat to instant coffee comes from the on-trade channel. For one thing, the increasing numbers of coffee shops have made it a great deal easier to get a cup of coffee on the go than it once was. But the real threat is not really the convenience trade-off, so much as the culture they bring in their wake.

Consider Russia, long a dominant player in the world instant coffee market (on aggregate, Russians drink more instant coffee than anyone else on earth). While older Russians are set in their ways and largely stick to instant, younger Russians like to spend time in coffee shops, where they are developing a taste for fresh coffee. During the review period, coffee shop outlets increased by about 10% annually, continuing to grow even after recession set in. At the same time, fresh coffee also grew in retail (6% annually), while instant coffee stayed largely stagnant (0% annually).

Comparative coffee growth in Russia

Russian comparative Growth

Source: Euromonitor International

This phenomenon is considerably more advanced elsewhere. In the US, where Starbucks has been bringing barista-style coffee to the masses for decades, instant coffee is viewed with disdain by many consumers and now makes up only 7% of retail sales. Even in the UK, historically instant’s strongest foothold in Western Europe, retail sales of fresh coffee are forecast to surpass those of instant by 2020. The reason for this is usually attributed to younger Britons, used to coffee shop coffee, deviating from the habits of their parents.

The other issue is fresh coffee pods. From the moment it was first developed, a large part of the appeal of instant coffee has always been how easy it is to make at home. Now that a large number of households own machines that require no more effort than placing a pod into a machine and pressing a button, instant is struggling to find a place now that its major selling point has been co-opted. As pod growth has overwhelmingly been in North America and Western Europe (the two regions saw 85% of global unit sales in 2015), these are the areas where instant finds itself under the most pressure.

Global sales of coffee pod machines occur nearly entirely in North America and Western Europe

Pod machine sales growth

Source: Euromonitor International

So what are instant coffee brands to do?

Option One: Blurring the lines

One popular option is to try to remove the barrier between instant and fresh and create a coffee that features both. This allows it to be brewed like instant coffee but with more of the taste and aroma of fresh. Starbucks VIA was the first major brand to do this, followed soon after by Mondelez and Nestlé. Such blends are now available in countries from Brazil to Ukraine. This movement has even attracted Lavazza, which now sells a micro-ground coffee called Prontissimo, despite a long-time reluctance to enter the instant category.

Option Two: Replicating the coffee shop experience at home

As much of the threat to instant is coming from on-trade fresh coffee, a major focus of product launches worldwide has been on trying to recreate that experience at home. A large number of new launches focus on using instant mixes to recreate drinks normally served in the on-trade, like cappuccinos. Nescafé in particular has been putting a lot of effort into recreating the foam commonly found on café drinks but previously unavailable with instant coffee.

Option Three: Co-opt the third wave

Not entirely distinct from the second option, some instant coffee producers are trying to integrate the ideals of the third wave into their products, which has previously largely passed instant by. This means paying attention to factors like coffee origins and, above all, trying to make instant coffee blends that can compete with fresh on taste. Also important is leveraging the simplicity and convenience of instant coffee.

An example of how this might look comes from the US, where San Francisco-based Sudden Coffee is trying to convince high-end American coffee drinkers to give instant another chance. Developed by freeze-drying brewed coffee using a proprietary method, each 8-oz tube currently sells for a premium and claims to be the best-tasting instant coffee on the market. Still made like regular instant (by mixing with hot water), Sudden Coffee makes at-home third-wave coffee accessible for those who don’t want to deal with complex and time-consuming brewing methods.

Option Four: Adding value in unexpected ways

One of the most intriguing launches in recent years came out of Israel, where the Strauss Group introduced an instant coffee that has a dairy flavour but contains no actual dairy products. This allows observant Orthodox Jews to enjoy an after-dinner coffee with milk for the first time. This is a good example of using instant coffee to target a consumer need that had previously been overlooked.

Another interesting approach is being taken in the UK, where a brand called Truestart has produced an instant coffee marketed as a “performance coffee”. The idea is that while there is strong evidence that caffeine improves athletic performance, caffeine levels in brewed tea and coffee tend to vary too much to be ideal for athletes, while energy drinks tend to contain sugar and other additives. Truestart makes it easy to select the precise amount of caffeine required, allowing for customised caffeine levels tailored to individual needs in a way that is difficult to do with any other product.

Can anything stop the slide of instant coffee in the developed world?

There is reason, though, to be sceptical that these strategies will succeed. Many of them seem to be at best defensive responses to the threats from fresh coffee in both the off-trade and the on-trade. Mixing fresh and instant, for example, may be enough to retain some instant drinkers looking to trade up, but it is unlikely to win anyone back who has already bought a pod machine and has gotten used to convenient single-serve fresh coffee.

The coffee shop at home route seems particularly problematic. A large part of the problem is that coffee shops are generally not just places to get coffee. They are also places to socialise, work, study, and learn about coffee. Even if these instant varieties tasted just as good as their on-trade equivalents (which they generally don’t), “creating a coffee shop experience at home” remains fundamentally impossible. Starbucks, which is as responsible as anyone for promoting the barista experience in the first place, tried to get in on the trend with the VIA line, instant coffee varieties modelled on its on-premise offerings. This has not caught on and sales have been declining for years.

VIA sales in the United States

Starbucks Via Sales

Source: Euromonitor International

Adding value in ways like Truestart is a more promising track, but that requires finding underserved populations in crowded modern coffee markets. While by no means impossible, it is at the very least a difficult task. The most promising strategy is probably embracing simplicity. In complicated modern societies there is a lot to be said for something that is easy and uncomplicated. Not everyone is going to want to deal with fancy brewing equipment or even a pod machine. With tastes becoming more refined, there is even potential for a premium segment of consumers who appreciate both ease and quality that was not previously available. The best defence, as the saying goes, is a good offense. Rather than try to beat fresh coffee at things at which it is inherently at a disadvantage, instant coffee’s best chance is to embrace what sets it apart.

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