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Premium Instant Coffee Takes Share in UK, Reflecting Strong Potential in Tea-Drinking Markets

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The British are well known as tea lovers. UK residents consumed 153 litres of brewed tea on a per capita basis in retail channels in 2014, well above the global average of 33 litres. It may come as a surprise that the UK, ranked fifth in per cap tea consumption, also drinks a lot of instant coffee. UK consumers drank 25 litres of brewed instant coffee on a per capita basis, higher than the global average of 7 litres. However, UK consumers overwhelmingly prefer to drink instant coffee instead of standard fresh ground coffee (13 brewed litres) or fresh ground coffee pods (2 brewed litres) on a per capita basis. As tea drinkers, most UK residents own a kettle to boil water for tea and can use the same kettle to make instant coffee instead of investing in an electric coffee machine to prepare the occasional cup of coffee. The UK offers an example of how coffee producers can succeed in the world’s largest tea-drinking markets such as India, Pakistan and Turkey through instant coffee. As coffee shops expand in these countries and take share from tea, instant coffee producers can attract consumers looking for high-quality coffee by introducing more premium offerings.

Micro-ground instant coffee takes off

Though UK consumers have grown up drinking tea, those residing in big cities have become very familiar with speciality coffee shops and their gourmet coffee drinks. These coffee shop patrons now appreciate the aroma and taste of coffee brewed with fresh coffee beans and want to drink better quality coffee at home.

Number of outlets
2009 2010 2011 2012 2013 2014
3,504 3,591 3,788 4,064 4,170 4,457

Source: Euromonitor International

At the same time, UK residents want to prepare their coffee quickly. Some higher-income consumers are turning to fresh coffee pods, whose retail volume sales grew by 215% between 2009 and 2014. For the majority of UK consumers who still prefer hot tea to coffee, they do not want to buy a coffee pod or filter machine that they will use only occasionally. Premium instant coffee answers the call for better taste and richer aroma quickly and with no special equipment. The rise of super-premium instant coffee - micro-ground (that combine instant coffee and finely ground roasted coffee beans) varieties, such as Nestlé SA’s Nescafé Azera Barista Style Instant Coffee, Jacobs Douwe Egberts’ Kenco Millicano WholeBean Instant and Starbucks Via have boosted retail volume sales and unit prices. These super-premium micro-ground coffees can help reduce consumer migration to coffee pod machines which tout convenience and taste. Retail volume sales of instant coffee grew by 20% between 2009 and 2014 in the UK, while unit prices grew by 6% between 2009 and 2014 in constant 2014 prices. In contrast, the unit price for standard fresh ground coffee declined by 2% over the same time period.

2009 2014 % growth 2009-2014
Fresh coffee beans 752 891 18.6
Fresh ground coffee pods 855 2,696 215.4
Instant coffee 39,979 47,959 20
Standard fresh ground coffee 16,443 23,361 42.1

Source: Euromonitor International

Premium instant coffee to boost forecast unit prices in the UK

Newer premium products such as Nescafé Original Smooth Roast, launched in August 2014, and Beanies The Flavour Co’s three flavoured instant coffees in amaretto, Irish cream and cinder toffee, introduced in July 2013, are expected to continue boosting demand for instant coffee in the UK. Retailers are also recognising the opportunity with Sainsbury’s and The Co-op Group introducing their own private label micro-ground instant coffees in May 2014. Consumers have become more familiar with gourmet coffee drinks from specialist coffee shops and want to replicate the coffee shop quality even if they have to pay a higher price. The growing addition of premium varieties is expected to boost instant coffee’s unit prices by 9% over the forecast period, much higher than the projected 1% price gain for standard fresh ground coffee which is not expected to see a rise in premiumisation. Though instant coffee is the largest coffee category in the UK with 2014 retail value sales of US$1.8 billion, it is still expected to grow by 24% in constant retail value terms and by 14% in retail volume terms between 2014 and 2019. Standard fresh ground coffee with 2014 retail value sales of US450 million is projected to show 36% and 34% constant retail value and retail volume growth, respectively, over the same time period.

Instant coffee has good potential in other tea-drinking countries

Makers of instant coffee have the opportunity to grow strongly in many markets where tea is the favoured hot drink. As Starbucks and other international and local players expand the number of specialist coffee shops in tea-drinking markets, consumers, especially younger ones in urban areas, are likely to develop a taste for coffee. Higher-income consumers in tea-drinking markets will be able to purchase pod coffee or filter machines to prepare good quality coffee. Middle-income consumers are more likely to turn to instant coffee to replicate the coffee house experience at home with no investment in a coffee machine. Morocco is an example of a tea-drinking market that has excellent opportunities for instant coffee. The expansion of small independent cafés, along with the increasing popularity of going out among Moroccans, has helped to increase the popularity of coffee in Morocco. Retail volume sales of instant coffee, the most popular coffee format by value, are expected to grow by 107% over 2014-2019 in Morocco, while those of standard fresh ground coffee will grow by 26%. Coffee culture is also growing in the tea-drinking nations of India, Pakistan and Turkey due to the growth of coffee shops. The rising popularity of drinking coffee among younger consumers in these countries as well as the convenience offered by instant coffee is expected to benefit instant coffee, thereby growing faster than standard fresh ground coffee over 2014-2019. Premium instant coffee varieties such as Nescafé Gold Blend with golden roasted Arabica and Robusta beans are likely to do well in these tea-loving countries as they serve to appeal to consumers learning to appreciate fine coffee while still being easy to prepare at home.

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