How milk and coffee are consolidating to corner the RTD market

RTD and milk
  • Coffee roasters and dairy and plant-based milk manufacturers are increasingly consolidating in a bid to tap into RTD coffee
  • This trend also comes as a response to falling milk sales across dairy and vegan sectors, as milk brands try to hedge risk 
  • The RTD segment is a lucrative one for coffee roasters to invest in, with a reported 51% increase in US sales from 2021-2023, and milk-based drinks will be competitive product lines

THE EXPLOSIVE growth of ready-to-drink coffee (RTD) is offering dairy and plant-based milks avenues for growth, with entry-level and customised coffee drink options suited to a wide audience.

Coffee roasters and plant-based and dairy milk plants are now looking for ways to tap into this increasingly lucrative opportunity, feeding into a trend of consolidation of both segments in recent years.

Today, new generations of consumers are demanding better quality convenience products and customised options, laying the foundations for the pairing of milk and coffee in the RTD segments with endless flavour and recipe options.

Coffee roasters are acquiring milk plants and vice versa, and brand collaborations on products that combine both segments are an increasing occurrence.  Vertical integration as a competitive strategy to stand out in the thriving RTD market is no news, and is going nowhere.  

Last year Greek yoghurt brand Chobani acquired US La Colombe coffee company for US$900 million.  Califia Farms, a dairy and plant creamer producer, branched out into cold brew nearly a decade ago, and announced its decision to source its own coffee in 2018.   

Earlier this year, Westrock Coffee Company announced a partnership with Select Milk Producers in Texas, USA – adding cold-chain capability to their facility to better respond to existing customer demand for extended shelf life and multi-serve bottles. By using Westrock’s coffee extract and both dairy and plant alternatives from Select Milk, they aim for a cost-effective RTD line and better brand agility.  

Meanwhile, the dairy and alternative milk segment has lost market share in recent years – another incentive for consolidation and product line diversification.

Dairy and plant-based milk companies are losing market share

As consumers become more health-conscious and environmentally aware, many are actively trying to mitigate the possible health and climate risks associated with dairy production and consumption.  This has affected dairy milk’s market popularity.

Health concerns appear to be consumers’ top priority when it comes to dairy consumption, with a recent study from the UK Agriculture and Horticulture Development Board showing 57% of people have given up dairy for that reason.

Animal welfare and environmental concerns follow closely at 46% and 40% respectively, as younger consumer demographics raise concerns about animal welfare in milk production, and tout the ethical and environmental benefits of a vegan, plant-based diet. 

“Personally, I wouldn’t enter any milk business as a small company, because competition there is already very strong and distribution is even more difficult,” says Krzysztof Barabosz, Head of Coffee and Co-Founder of Hard Beans Coffee Technology HUB & Hardtank — which manufacture plant-based RTD coffee beverages on a private label basis.

Plant-based alternatives have also been affected by the shift away from milk, and are seeing market share and profitability slip away.  Oatly recently reported a quarter four net loss of US$ 298.7 million – reflecting growing consumer concerns about the possible health and environmental impacts of alternative plan-based milks.  

Brands are responding directly to consumer concerns by leveraging innovation and marketing – for example, Oatly’s recent organic oat milk release – and looking at new product and brand pairings. 

“We started with plant-based coffee drinks from day one, mostly in a bid to create products that would appeal to everyone,” says Krzysztof. “We’re turning to new ingredients such as nootropics, adaptogens, minerals and vitamins to create new, exciting formulas.”

Amidst the uncertainty faced by the dairy and plant-based milk industry, exploring options to diversify both risk and product offerings seems like a sound move. Consolidation projects between coffee roasters and plant-based and dairy milk plants provide a strategic hedge against falling sales, as well as a great entry point into the booming RTD segment.  

RTD offers endless product options, with milks positioned as key market differentiators  

Despite the overall struggles of the dairy and plant-based milk sector, interestingly, cold, milk-based coffee drinks are booming – swept up in the overall explosive growth of RTD. An overwhelming hit with younger consumers, they hit the Gen Z demand for sweet, flavoured, convenience-based drinks that can be tailored and customised to market tastes.  

A recent study found that US sales of cold RTD beverages, such as cold brew and iced coffee, increased 51% between January 2021 and January 2023.  The trend is still going strong, reflected by convenience store 7-Eleven’s recent decision to launch its own RTD line.  

“Our RTD line is seeing a rapid growth in sales,” says Krzysztof. “Entering this market was a logical next step for us, considering it’s been steadily booming in the US for the last 10-plus years. In Europe, we’re still in the early days, but catching on quickly. That’s why we took the risk of a large investment in RTD – we’re aiming to be among the pioneers within this segment in the European market.” 

By diversifying into the dairy and plant-based milk space, coffee roasters can mitigate the risks of relying on just one product category, and increase their chances of growth and market sustainability.  Vertical integration both ways can also add value across the supply chain, which helps enhance market competitiveness for businesses in both coffee and milk segments. 

Product line diversification also allows coffee roasters to innovate and experiment with new products tailored to the younger generations of consumers that many brands are targeting these days, for a more scalable brand with potential staying power.

Coffee Intelligence

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