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Brewing Up the Future: Ready to Drink Coffee in 2017

November 2017

Ready-to-drink coffee is one of the best performing categories of soft drinks globally. A product that was for a long time concentrated in Japan has gone global, and brands in countries like China and the US are looking for new ways to balance functionality and indulgence to appeal to consumers in this increasingly lucrative market.

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Japan is the core of the category globally, but growth is a challenge

The RTD coffee category first became a major soft drinks category in Japan, and well over half of global sales still occur there. However, category maturity, demographic issues and changing coffee consumption patterns are all weighing the Japanese category down. Growth is minimal and Japan’s importance to the global category is falling with each passing year.

The maturing market in North America is now the centre of global growth

North America will see more value growth than any other region over the forecast period. For a long time, Starbucks’ Frappuccino dominated the market, but it has been joined by a wide range of alternatives, including cold brews, health-positioned functional drinks, and several new brands from Coca-Cola. The Frappuccino is still important, but the North American RTD coffee market of the future will be much more segmented than it is today.

Trends coming out of North America are shaping the category in other regions

While in some East Asian countries Japanese-style canned coffee predominates, in most other countries where there is a sizeable market, American-style bottled coffee is the most important format. This is in no small part thanks to the increasing presence of Starbucks in the category globally. Latin America and Western Europe have both been recent targets of Starbucks’ expansion in the category.

Functionality and indulgence are the category’s two key attributes

Japanese-style products have tended to skew towards inexpensive functionality, and American-style ones towards indulgence, but the lines are getting blurred. Consumers across the world want products that are enjoyable but they also want a range of new functionalities from their coffee. Energy remains the core functional attribute of RTD coffee, but other nutritional benefits are being experimented with and will be a key feature of many new product launches in the category.

Introduction

Scope
Key findings

Strategic Overview

There are four major styles of RTD coffee globally
Pack type preferences show where the four types predominate
American-style is winning out over Japanese-style globally
RTD coffee is now a leading growth category worldwide
When it comes to growth, China and the US are the keys
Market is highly immature still in most of the world
Role of habit persistence makes growth prospects stable
Key takeaways

Japan: Past, Present and Future

RTD Coffee in Japan: Inexpensive and aimed at workers
Demographic trends bode negatively for the category
The popularity of vending helped make RTD the key form of coffee
Shifts in working culture will change coffee consumption
Brewed foodservice coffee is making inroads on RTD formats
Could “Abenomics” turn things around?
Conclusions: Reasons for category stagnation in Japan
Foreign coffee chains move in on domestic brands
Suntory rethinks what it means to appeal to Japanese workers
Why the shift to indulgence is happening in Japan
Conclusions: Could Japan be a model for growth elsewhere?

The Rise of North America

North America has long been shaped by the Frappuccino
The market is splintering into various sub-types
Java Monster and the blurry line with energy drinks
Protein-enhanced coffees appeal to functional users
What other functionalities might have potential?
Dunkin’ moves in on Frappuccino's turf
Cold brew: How big is it and how far can it go?
Conclusion: Key trends in North America

Growth Outside the Core

Building the category in non-core markets: Common tactics
Growth is global, but uneven in geographical distribution
High prices remain a large part of the problem
China is the critical market outside of Japan and North America
Large pack sizes and sweet coffee sets Australasia apart
Korea may be the market with the strongest cold brew potential
Entering new distribution channels in the Philippines
Battling brands bring prices down in Malaysia
Starbucks shakes up category in Western Europe
Decline of carbonates opens up opportunities in France
Well-known brands build up a nascent market in the UAE
PepsiCo and Starbucks try to build the category in Latin America
Summary: RTD coffee outside of North America and Japan

Future Outlook

The global RTD coffee market in 2021
Bottles are the future of the RTD format
The category may be able to siphon off energy drinks growth
New ways to be functional will appear globally
Category blurring is intensifying
Coca-Cola makes a major investment in non-Japanese markets
The looming shadow of JAB Holdings
Linkage of major markets creates a macroeconomic risk
Final conclusions: RTD coffee’s future by region
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