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Market Opportunity Analysis: Cold Brew and Iced Coffee in Brazil

Matthew Barry Profile Picture
Matthew Barry Bio
Angélica Salado Profile Picture
Angélica Salado Bio

Ready-to-drink (RTD) coffee is the leading growth format for coffee at retail in the United States. This is highly unusual and has inspired companies globally to ask if the success of the American RTD segment can be replicated in their own countries.

Historically RTD coffee has taken very different forms around the world. In Japan it was traditionally canned, inexpensive, and very focused on functionality, while in Europe it was strongly shaped by the dairy industry; milky and usually found in plastic containers.

North American RTD coffee arose in the 1990s when PepsiCo began working with Starbucks to make popular Starbucks beverages available in retail channels.

This idea of making RTD coffee an extension of the coffee shop in retail is still the core of the North American approach to coffee, accepted both by PepsiCo and its major rivals. But a few additional factors were still needed to create the explosive growth rates seen in the last few years.

The keys to success for RTD Coffee in the US

Three trends, all which occurred at the same time, pushed the rapid growth of U.S. RTD coffee. Coffee shops aggressively pushing cold options, changing health trends which harmed many other soft drink categories, and major investment from local companies. These three trends combined turned RTD into the critical component of the country´s coffee we see today.

The industry shifted its focus from opening coffee shop locations to getting consumers to come more often to existing ones. How did they do this? They focused on getting people to come to coffee shops during the time they were least likely to do it: during warm weather.

Iced coffee had been popular for a long time in coffee shops in the U.S., but it was joined by cold brew and, most recently, nitro, to give consumers a constant stream of new and innovative approaches to cold coffee. This worked so well that many consumers now drink cold coffee year-round and there are few shops that don´t offer at least one cold option.

Consumers were also buying fewer carbonated soft drinks for health reasons. They did not want to stop drinking sugar entirely, but they did want to cut down on their consumption. RTD coffee was an ideal solution. In its iced form, it was the kind of occasional indulgence consumers were still willing to drink, while in its cold brew form it was a healthy alternative to carbonates or energy drinks that still provided a good source of energy.

The major beverage companies recognized this. They also noticed that PepsiCo and Starbucks had dominated the market for decades with little competition and that there was room for new products. Pepsi’s major rival Coca-Cola moved heavily into this area, launching products with well-known brand names from foodservice like Dunkin’ Donuts and McCafé as well as from its own brands like Far Coast, targeting a wide variety of possible coffee occasions.

The number three U.S. soft drinks Dr Pepper merged with Keurig Green Mountain to create a company with expertise in both coffee and cold beverages. Keurig Dr. Pepper has been exploring new areas like coffee shots to further develop this segment.

The increased availability of cold beverages at coffee shops reduced the need to educate consumers about these products. They already knew what they liked about cold coffee and which kinds. All the major players needed to do was make it available to consumers in a way they would find appealing. That, of course, is exactly what they did.

Is this success replicable to the Brazilian market?

Compared to the U.S. market, the Brazilian RTD market is still small. It accounts for less than 1% of the U.S. market, is highly concentrated and is dominated by core-coffee companies. Their products are much more like European versions, dairy shaped and with limited distribution to major retail outlets.

While the Brazilian market fully meets the first success condition from the U.S. market – a change towards new soft drinks categories and consumers moving away from sugared beverages – little investment has been made in the foodservice channel, which accounts for more than 32% of total coffee consumption in the country, according to Euromonitor International.

The rare cases of cafeterias which have invested in a cold coffee version have positioned it with affluent unit prices, making it inhibitive for most consumers. The lack of familiarity with the concept doesn´t contribute to a positive performance during the few occasions in which it has reached retailers’ shelves, leading to an infinite loop of negative outcomes.

Similar to what happened with beans, pods and instant coffee, RTD is not expected to replace the traditional roast and ground coffee, preferred among Brazilians. Instead, it is much more likely to create new consumption occasions and contribute to increase the penetration of coffee throughout Brazilian households.

This opportunity might not be obvious now but will be highly disputed when the potential arises – maybe not only among coffee manufacturers, but also soft drinks companies. Early adopters will undoubtedly have an advantage in creating brand awareness and even becoming category synonyms.

Whether or not the U.S. RTD coffee success is replicable in Brazil is hard to determine, especially as cultural preferences and behaviors play a key role in democratizing a new product. The same cultural preferences and behaviors, however, have already proven that Brazilians love coffee and appreciate most of its variations.

There is enough potential to create a whole new market for RTD coffee which does not need to resemble any other country. The question now is who will take the lead in making this happen. Will it be big soft drinks manufacturers or traditional coffee producers? If the Brazilian coffee market will remain mostly coffee-oriented is something we will only know with time. The potential is there.

To learn more about the coffee market  and cold brew coffee, please visit: Cold brew at an inflection point.


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