- Cola-Cola acquired the UK café chain Costa Coffee for $5bn in 2018
- It was recently voted Britain’s favourite coffee chain for a 13th consecutive year
- Coca-Cola is using the strong Costa brand to dominate the RTD coffee market worldwide
THERE ARE few similarities between Motel Beer & Coffee and The Coca-Cola Company. One is a microbrewery and canned coffee manufacturer based in Berlin run by a former World Champion Cup Taster; the other is among the world’s largest multinational corporations whose largest shareholder is business tycoon Warren Buffet
Yet while the two companies may seem worlds apart, when it comes to coffee they are both driven by a similar goal: to break into the ready-to-drink (RTD) market.
RTD coffee has taken the sector by storm in recent years. Defined as a chilled, pre-made coffee in a can or bottle, it has a global market value estimated at around $26bn, with forecasts that it could nearly double by 2027.
Its quick, simple, and convenient format has made it a hit among young consumers in particular. And, according to the founder of Motel, Cory Andreen, Covid-19 also boosted interest in the segment.
“Part of it has to do with the pandemic, when people were getting more comfortable drinking coffee out of cans and bottles,” he explains. “Especially in Germany, where before it was very much the culture to go, sit down, and drink coffee at the café.”
Indeed, between 2021 and 2022, the RTD coffee market jumped by nearly 40% as forced lockdowns changed coffee consumption habits. Although the format was introduced in the 1990s, it was around this same time that multinationals, including The Coca-Cola Company, began to ramp up their offerings.
However, what’s most intriguing is not just that big brands want a share of the market. It’s the way in which they have been going about it.
Leveraging the high street name
In 2017, Coca-Cola debuted its “With Coffee” range in Australia. Made using Brazilian coffee beans, the canned blend was launched following research that found more than half of Coca-Cola consumers also enjoyed drinking coffee on a regular basis.
However, it failed to capture the market as the company might have hoped. And, just a year later, it acquired popular UK café chain Costa Coffee in an eye-watering $5bn deal. The aim, as many observers at the time saw it, was to leverage Costa’s brand to break into the canned coffee market once and for all.
“I think just on the soda and sparkling beverages, clearly there have been challenges,” said James Quincey, Coca-Cola’s CEO. “We have been trying to respond to those, with innovation, reformulations and reducing sugar. [Consumers] want different beverages. They just want greater diversity. They are not going to consume one thing. Coffee is one of the things that fits into that, and it’s the thing that we’ve least got.”
Five years later, Costa Coffee’s RTD products are a key revenue driver for Coca-Cola, helping to prop up falling demand for its sugary soda drinks. A similar story can be found at Nestlé, which acquired the rights to sell RTD coffee using Starbucks’ branding in a deal worth $7bn.
Both deals were carefully thought out. They allow the world’s largest companies to continue to dominate the market by combining their marketing and sales capabilities with well-known and protected brands that people already trust. (Costa Coffee was recently voted as the UK public’s favourite coffee shop for the 13th consecutive year.)
Launching a product in a new market segment can be a difficult sell for brands, particularly in the fiercely competitive world of coffee. By acquiring the likes of Costa and Starbucks, multinationals are essentially cutting corners, while harnessing their vast financial powers and global reach to make the rollout of RTD coffee a success.
“The target audience is everyone,” says Cory, who points out that it is a trend which has risen in line with the coffee capsule craze – another product that prioritises convenience.
“Bigger businesses like hotels were interested in offering higher quality coffee but people weren’t interested in investing in equipment or training baristas,” he explains. “Those were not places with high turnover rates so they ended up going for capsules. The idea (of producing RTDs) was to offer something that is as convenient as capsule coffee.”
A new battleground
In the grand scheme of things, the RTD coffee market is still relatively small. It comprises just 2% of soft drinks sales and has only recently begun to grab the attention of large industry players.
What’s clear, however, is that the shift towards convenient, pre-made packaged coffee is most likely to continue. And according to Jonny Forsyth, a global drinks analyst at Mintel, it speaks of a broad change in consumer preferences worldwide. “Twenty years ago people would have a coffee in the morning and a coke in the afternoon,” Jonny told the Financial Times.
“Today’s consumers are now more likely to have a hot coffee in the morning and a cold coffee in the afternoon. This is being led by the US market, but European, Asian, Middle-Eastern and Latin American consumers are starting to also follow this trend.”
Yet although growth is expected, the nature of this growth is still up for debate. Motel, which specialises in small-batch, artisanal coffee, believes that for the time being, bigger brands do not represent competition because their focus is not on quality.
“Motel produces only 1,000 RTD coffees per batch and offers a white-label partnership to small businesses in the marketplace that otherwise would not have such a product in their offering,” he says. “This gives not only the companies but also high-quality coffees a chance to be showcased.
”In 2019 we collaborated with Coffee Collective, where we had the coffee from Hacienda La Esmeralda, Geisha and sold those cans for €10 each. It’s a totally dumb thing to do but we sold all of the cans.”
But this could all soon change. While some specialty coffee companies have found success in the current RTD market, they must overcome challenges such as scaling and economic headwinds to maintain their position.
Equally, market behemoths such as Costa and Starbucks may soon look to their parent companies for support with the opposite if they hope to remain competitive, focusing less on scaling and more on quality. It will be an interesting space – and one that could bring the likes of Motel and The Coca-Cola Company even closer than anyone could have imagined.
