- US private labeller Westrock Coffee claims it will triple profits by 2026
- The company is banking its future on the RTD cold coffee market
- Brands must cover low, medium, and high intensity categories in they are to be successful
SCOTT FORD, the co-founder and CEO of Westrock Coffee, laid bare in April last year where he believed the future of the coffee industry would go.
“There’s a huge shift coming,” he told Yahoo Finance in a video call.
“Some of the trends that were taking place around the move to cold-based coffee and the desire to have it in a ready to drink format – in a can or a bottle – were really accelerated [during Covid-19]. It’s what’s driving our next investment cycle as we move to stay in front of our customers’ demand.”
The anticipated fruit of that next investment cycle came to light last week, when the Arkansas-based private labeller said it expected to “triple its profits over the next three years”. It claimed it would do this predominantly by focusing on its cold, RTD coffee formats and non-dairy milk products.
“The younger generation is drinking more coffee per capita than my generation,” Ford explained, adding that the vast majority of his generation prefers hot coffees, whereas about half of younger people “drink it cold”.
For Westrock Coffee, like many others around the world, the outbreak of Covid-19 was a turning point in the company’s trajectory.
As seated restaurants and cafés were forced to close to prevent the spread of the virus, there was a seismic shift from out-of-home to at-home coffee consumption. According to the National Coffee Association, Covid drove record coffee consumption at home, with 85% of US coffee consumers having at least one cup at home and average daily consumption at nearly two cups per capita.
And Westrock, which had made a name for itself by providing private label coffee and capsules, made the decision to focus its efforts on the RTD format. Shortly after going public through a multi-million dollar SPAC deal last year, it accelerated the building of its $300m RTD facility, which it claims will be the world’s largest.
“We are about to build the world’s largest roast to ready to drink facility where we will roast, grind, extract and then add milk, sugar, flavours, almond milk – whatever it might be – and put it in a can or bottle,” Ford said.
A trend in transition
Inflationary pressure and continued economic uncertainty have characterised the last twelve months. But consumers are yet to lower their coffee consumption – and, in some markets, such as China, the number of cups per capita has actually risen.
A key driving force has been the sale of RTD coffee. For example, in spite of price rises, Arla Foods, which manufactures and markets Starbucks ready to drink licensed coffees, recently reported a 12.4% growth in sales.
According to Pippa Collins, who works as associate director of commercial development at Coca-Cola Europe, the ready to drink coffee market in March was up nearly 40% in value to $280 million.
Yet the segment is still way off its full potential, which is a considerable part of why brands such as Westrock are banking their future on it. “RTD coffee only accounts for 2% of soft drinks sales, but 7% of the value growth” Pippa told The Grocer.
She explains that the market can be divided into three different segments: low, medium, and high intensity. The defining factors are the level of the caffeine, the coffee flavour, and the sweetness. For example, a low intensity drink will have less caffeine and less sugar than a high intensity drink. “Low caffeine intensity is attractive to younger adults,” Pippa says.
This is clearly important. A survey conducted by the National Coffee Association found that the largest demographic of RTD coffee drinkers is young adults aged 18-24, with 62% of respondents in this age group reporting that they have consumed RTD coffee in the past day.
However, the low-intensity segment has, surprisingly, been the least well-catered for. This has seen a number of brands scrambling to become the dominant player. (Costa Coffee launched its “Frappe” range last year to drive sales in precisely this area.)
Westrock will also undoubtedly be looking to cater to this segment as it seeks to grow its profits over the next few years. And with their new, centralised facility expected to have the capacity to produce almost one billion canned or bottled units per year, the company clearly sees the market continuing on its cold, bottled path.
“Ready to drink cold coffee is the fastest-growing product on grocery store shelves in America today,” Ford says.