rtd coffee

Who will win the race for RTD coffee dominance?

Micky Baker unwraps the ready-to-drink (RTD) coffee craze, analysing how it’s exploded onto the scene, why it’s so popular, and how coffee brands can stake their claim in the rapidly growing market.

Semantics, broadly speaking, is a field of study that deals with meaning, whether that be the meaning of a single word or the intangible characteristics we assign to it.

Take the word coffee, for instance. Anyone who hears it is most likely to picture a hot latte or perhaps a steamy espresso.

Ten years down the line, however, and today’s late Millennials and Gen Zs might be just as inclined to picture a can of RTD coffee – such is the impact this category is having on the marketplace.

RTD coffee is marketed in an array of formats. Although the best modern example is probably canned or bottled cold brew, companies like Starbucks have been selling pre-packaged, milk-based coffee drinks since the mid-1990s.

Often, it’s made using cold brew concentrate and any number of other ingredients like dairy, plant-based milks, sweeteners, and flavourings. In specialty coffee, however, the focus is usually on producing high-quality cold brew free from any adulteration.

According to research from Fortune Business Insights, the global RTD coffee market was already valued at US $22.44 billion in 2019 and is expected to grow to US $42.36 billion by 2027. Mordor Intelligence similarly predicts that the market will grow by a compound annual growth rate (CAGR) of 7.69% between now and 2026.

So far, this rampant growth has been fuelled by several factors, including growing health consciousness among consumers and more demand for convenience. Furthermore, lockdown restrictions during the Covid-19 pandemic encouraged consumers to find their coffee kicks in new ways.

Asia Pacific represents the RTD coffee category’s best prospect. The market in this region is expected to grow at a CAGR of 9.1%, with Japan and China being significant drivers.

Currently, the segment is dominated by global brands like Nestlé, Starbucks, and Coca-Cola. However, as specialty coffee continues to increase its market footprint, there may be scope for smaller brands to stake their claim.

starbucks cold brew rtd coffee

Why is RTD coffee so popular?

For several decades, consumers have turned to sugar-rich sodas and energy drinks for both refreshment and invigoration. However, today’s consumer is more health-conscious than ever, and sugar is arguably public enemy number one.

In fact, the Nielsen Global Health & Wellness Survey suggests that both Millennials and Gen Zs are willing to pay more for healthy products. However, other research shows that in the UK, 52% of Gen Zs never drink coffee at a café.

These and other trends have presented a huge opportunity for RTD coffee. RTD products can be low in sugar, tasty, carbonated, and contain caffeine that still provides the consumer with an energy boost.

Coffee’s therapeutic effects are also being put in the spotlight once more. A 13-year study by the Journal of the American Heart Association found that moderate (two to four cups per day) coffee consumers are 20% less likely to develop heart disease.

RTD coffee is also incredibly convenient and can be bought and consumed virtually anywhere, including supermarkets, vending machines, convenience stores, and even in offices.

Younger consumers are also concerned with the impact of their purchasing habits on the environment. The Nielsen survey also found that around 40% of Millennials and Gen Zs want products to contain sustainably-sourced ingredients.

Specialty coffee has placed more of an emphasis on sustainability in the coffee supply chain than ever before, and the sector’s products are plastered with labels attesting to fair trade standards and ethical business practices.

All these trends have skyrocketed RTD coffee to where it is now. Currently, the global coffee market is valued at around US $102 billion, meaning that RTD coffee already represents nearly a quarter of the entire industry.

The next generation – Alpha – is likely to follow the purchasing patterns established by its predecessors.

nitro white coffee rtd

How can brands stand out from the crowd?

With their well-established global distribution channels, brands like Nestlé and Coca-Cola have quickly infiltrated countless markets with RTD offerings.

Furthermore, Transparency Market Research suggests that these companies are poised to increase their RTD coffee innovation in the next few years and will create products that appeal to wider audiences.

Smaller companies have fewer avenues for expansion, so it can take a significant amount of differentiation to find any sort of success in the market.

Packaging is one way to achieve this – some brands bottle their RTD products, while others use cans or cartons. Companies will also be rewarded for sustainable practices like business transparency and attempts to mitigate their carbon footprint.

Following suit, many RTD coffee brands are now offering plant-based products, which are scientifically proven to be better for the environment. And, as mentioned, it’s not just lactose-intolerant and vegan consumers opting for these drinks – their sustainability appeals to everyday Millennials and Gen Zs who want their purchasing habits to have less of an impact on the planet.

Current innovations in RTD coffee include things like nitro cold brew, sparkling coffee, and the addition of functional ingredients like ginseng, vitamins, and taurine. In another example, both Pepsi and Coca-Cola have launched coffee-cola blends, which have proven popular in several markets.

One trend that might appeal to Gen Z in particular is hard coffee – essentially the coffee equivalent of a hard seltzer, containing around the same amount of alcohol as a beer, albeit without the calories.

In the specialty coffee sector, brands tend to differentiate their products based on quality and flavour. Gen Z coffee consumers are more than twice as likely to consume “gourmet”, non-instant arabica coffee, so single origin, high quality products may appeal to them even more.

Ultimately, this seems like the way to go for companies of all sizes. One 2022 report shows that premiumisation is a primary driver in many markets, and despite ongoing economic difficulties around the world, consumers are happy to splash out on quality products.

Who will win the race for RTD coffee dominance?

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