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Coffee - UK - April 2011

Overall, the in-home coffee market is worth 55.3 million kg in volume sales in 2010, and £831 million in value sales.

Volume sales growth has been stagnant over the past five years, however, increasing premiumisation as well as escalating commodity prices have meant that value sales have risen steadily, albeit not above the rate of inflation.

  • Manufacturers need to do more to promote the health benefits of instant coffee or develop healthier brand extensions to prevent older consumers from falling out of the market. Currently, as UK adults reach 65+ their instant coffee consumption falls from 13.4 cups per week to 11.9 – worth millions of pounds considering this age group now accounts for a fifth of the adult population.
  • Coffee shops such as Starbuck’s and Costa can enter the in-home coffee market much more aggressively than is currently the case, by focusing on youth-targeted products. Among the current generation of 16-24 year old drinkers, a quarter trust branded coffee shops to make better quality in-home coffee than established supermarket brands like Nescafé and Kenco.
  • Coffee brands can do more to promote their energy-giving benefits, something which has been key to growing energy/sports drinks into a billion pound market as consumers look for help in navigating increasingly busy lifestyles. Just under half (47%) of in-home drinkers agree that coffee provides a welcome energy boost.
  • Developing a business model which allows consumers to have a free pod machine in exchange for being tied to a monthly contract where they pay to receive a set amount of pods/capsules can stimulate the market. Currently, seven in ten put are off buying a coffee pod machine for their home because it is too expensive.
  • There is also an opportunity to target smaller variants of coffee pod machines towards young urbanites. Londoners are almost twice as likely as average to be interested in owning pod machines but 47% of Londoners are put off owning the machines because they will take up too much space in the kitchen, compared to 41% of the overall population.
  • Coffee pods increasingly have an opportunity to target the working population. Currently, just over 30 million UK adults are in the workplace and 8 million (or 27%) of them tend to drink instant coffee at work but would rather drink roasted/ground coffee.

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Table of contents

  1. Introduction

      • Definition
        • Excluded
          • Abbreviations
          • Executive Summary

              • The market
                • Figure 1: Sales and forecast of value sales of in-home coffee, 2005-15
              • Market factors
                • Companies, brands and innovation
                    • Figure 2: Brand market share of the in-home coffee market, in value sales, 2010
                  • The consumer
                      • Figure 3: Attitudes towards coffee pods, February 2011
                    • What we think
                    • Issues in the Market

                        • Is in-home coffee a mature market?
                          • What is the impact of volatile commodity prices on the market?
                            • What is the future of the in-home coffee market compared to coffee shops?
                              • Are there major generational differences in coffee drinking habits?
                                • How much potential do coffee pods have?
                                • Future Opportunities

                                    • Re-teching the Past
                                      • Extend my Brand
                                      • Internal Market Environment

                                        • Key points
                                          • UK coffee prices are being forced up
                                            • Figure 4: Annual percentage change in RPI (Retail Price Index) for coffee and other hot drinks, 2000-10
                                          • Rising prices will be a particular problem in 2011
                                            • Figure 5: Average commodity price for Arabica and Robusta coffee beans, January 2009 -February 2011
                                          • The quality of in-home coffee products is rising…
                                            • …but price remains a barrier at the upper end
                                              • Figure 6: Estimated cost per serve of coffee, by coffee product, March 2011
                                            • UK drinkers educated to consume better-quality coffee in home
                                              • Coffee fulfils consumer demand for functionality
                                                • Figure 7: UK value sales of energy and sports drinks, 2004-10
                                              • Fair trade provides the coffee category with a ‘halo effect’
                                                • Figure 8: Estimated retail sales of fair trade-certified products in the UK, hot beverages versus all products, 1998-2009
                                                • Figure 9: Trends in agreement with selected lifestyle statements, 2006-10
                                              • Nespresso patent case has implications for the pod market
                                              • Broader Market Environment

                                                • Key points
                                                  • Rising inflation means that incomes are becoming ever more squeezed…
                                                    • Figure 10: RPI and average weekly earnings, 2005-11
                                                  • …however, this may play to in-home coffee’s advantage
                                                    • There is currently a sharp growth in 25-34-year-olds
                                                      • A more educated society demanding better-quality goods
                                                      • Competitive Context

                                                        • Key points
                                                          • Fewer people are drinking hot beverages at home
                                                            • Figure 11: Trends in UK penetration of hot beverages, 2005-09
                                                          • Coffee shops are essentially a positive for in-home coffee
                                                              • Figure 12: Trends in competing products, 2005-10
                                                            • Soft drinks dominate UK ‘share of throat’
                                                              • Figure 13: Retail value sales in non-alcoholic drinks, by major category, 2005-09
                                                              • Figure 14: Per capita consumption of coffee in selected countries, 2005 and 2009
                                                          • Strengths and Weaknesses in the Market

                                                            • Strengths
                                                              • Weaknesses
                                                              • Who’s Innovating?

                                                                • Key points
                                                                  • Focus of innovation is increasingly on instant
                                                                    • Figure 15: Proportion of new product development for in-home coffee, by format type, 2008-10
                                                                  • Ethical remains key but convenience claims are on the rise
                                                                    • Figure 16: Proportion of new product development for in-home coffee, by main product claims, 2008-10
                                                                  • Coffee shops increasingly targeting in-home market
                                                                    • Own-label steps up 2010 product renovation
                                                                      • Figure 17: Proportion of new product development for in-home coffee – own-label versus branded, 2008-10
                                                                  • Market Size for In-home Coffee

                                                                    • Key points
                                                                      • The 2010 recovery has been built on discounting
                                                                        • Volume sales will remain stagnant over the next five years…
                                                                          • Figure 18: Volume and value sales for the in-home coffee market, 2005-15
                                                                          • Figure 19: Sales and forecast of value sales of in-home coffee, 2005-15
                                                                        • …but higher prices will fuel a 15% increase in value sales
                                                                          • Figure 20: Cost per value of UK in-home coffee, 2005-15
                                                                        • Forecast methodology
                                                                        • Market Segmentation for In-home Coffee

                                                                          • Key points
                                                                            • Instant coffee still accounts for 80% of the market
                                                                                • Figure 21: Value share of the in-home coffee market, by coffee type, 2010
                                                                              • …however, the UK market is steadily moving towards better-quality coffee
                                                                                • Figure 22: Value sales of the in-home coffee market, by coffee type, 2009 and 2010
                                                                            • Market Share

                                                                              • Key points
                                                                                • Nestlé dominates but is not without its problems
                                                                                  • Kraft is aggressively pursuing UK market growth
                                                                                    • Figure 23: Brand market share of the in-home coffee market, in value sales, 2008-10
                                                                                  • Own-label is capitalising on the growth of ground/roasted coffee
                                                                                    • Positive signs for Starbucks Via
                                                                                    • Companies and Products

                                                                                      • Key points
                                                                                        • Cafédirect
                                                                                          • Douwe Egberts
                                                                                            • Kraft Foods
                                                                                              • Lavazza UK
                                                                                                • Nestlé
                                                                                                  • Starbucks
                                                                                                  • Brand Research

                                                                                                    • Brand map
                                                                                                        • Figure 24: Attitudes towards and usage of coffee brands, January 2011
                                                                                                      • Brand attitudes
                                                                                                        • Figure 25: Attitudes, by coffee brand, January 2011
                                                                                                      • Brand personality
                                                                                                        • Figure 26: Coffee brand personality – macro image, January 2011
                                                                                                        • Figure 27: Coffee brand personality – micro image, January 2011
                                                                                                      • Correspondence analysis
                                                                                                        • Brand experience
                                                                                                          • Figure 28: Coffee brand usage, January 2011
                                                                                                          • Figure 29: Satisfaction with various coffee brands, January 2011
                                                                                                          • Figure 30: Consideration of coffee brands, January 2011
                                                                                                          • Figure 31: Consumer perceptions of current coffee brand performance, January 2011
                                                                                                          • Figure 32: Coffee brand recommendation – Net Promoter Score, January 2011
                                                                                                        • Brand index
                                                                                                          • Figure 33: Coffee brand index, January 2011
                                                                                                          • Figure 34: Coffee brand index vs. recommendation, January 2011
                                                                                                        • Target group analysis
                                                                                                          • Figure 35: Target groups, January 2011
                                                                                                          • Figure 36: Coffee brand usage, by target groups, January 2011
                                                                                                        • Group One – The Conformists
                                                                                                          • Group Two – Simply the Best
                                                                                                            • Group Three – Shelf Stalkers
                                                                                                              • Group Four – Habitual Shoppers
                                                                                                                • Group Five – The Individualists
                                                                                                                • Brand Communication and Promotion

                                                                                                                  • Key points
                                                                                                                    • Investment continues despite tough economic context
                                                                                                                      • Figure 37: Topline advertising spend for the total in-home/out-of-home coffee market, 2006-10
                                                                                                                    • Return of the Nescafé Gold Blend couple
                                                                                                                      • Figure 38: Media advertising spend for the top five in-home coffee advertisers and their share of total coffee spend (ie including coffee shops), 2008-10
                                                                                                                    • Kenco offers consistent above-the-line support
                                                                                                                      • Battle of the premium instant brands
                                                                                                                        • Figure 39: Media advertising spend for the top ten coffee brands, 2008-10
                                                                                                                      • Dolce Gusto is the first UK brand to use product placement
                                                                                                                      • Consumer Usage of In-home Coffee

                                                                                                                        • Key points
                                                                                                                          • Instant coffee’s user base is in decline…
                                                                                                                            • Figure 40: Trends in frequency of drinking instant coffee, 2005-09
                                                                                                                          • …as consumers trade up...
                                                                                                                            • Figure 41: Trends in frequency of drinking fresh ground coffee, 2005-09
                                                                                                                          • ...but drinking of instant coffee remains deeply embedded
                                                                                                                            • Younger people are gravitating more to fresh ground coffee…
                                                                                                                              • Figure 42: UK consumption of instant and fresh ground coffee, in volume, by gender and age, 2009
                                                                                                                            • …while over-65s are falling out of the instant category
                                                                                                                              • Coffee pods were drunk by a tenth of the population in 2010
                                                                                                                                  • Figure 43: UK consumption of coffee, February 2011
                                                                                                                                • Pods are proving a hit in London – but size is a potential barrier
                                                                                                                                  • Figure 44: Index of UK consumption of coffee, by coffee type and demographics, February 2011
                                                                                                                                  • Figure 45: Agreement with the statement ‘I am put off buying a coffee pod machine for my home because it will take up too much space’, by region, February 2011
                                                                                                                                • Difficult to kick the instant habit
                                                                                                                                    • Figure 46: Crossover in usage of drinkers of instant, fresh and pod coffee, February 2011
                                                                                                                                • Consumer Attitudes towards In-home Coffee

                                                                                                                                  • Key points
                                                                                                                                    • Convenience and price trump quality for the mainstream UK coffee drinker
                                                                                                                                      • Figure 47: Attitudes towards drinking coffee at home, February 2011
                                                                                                                                    • Coffee provides a welcome energy boost for urban types
                                                                                                                                      • Younger consumers are looking for different things…
                                                                                                                                          • Figure 48: Attitudes towards drinking coffee at home – 16-34-year-olds compared to all drinkers, February 2011
                                                                                                                                        • …and for different (high street) brands
                                                                                                                                          • Figure 49: Agreement with ‘I would trust branded coffee shops (eg Starbucks and Caffé Nero) to make better-quality in-home coffee than established supermarket brands like Nescafé and Kenco’, by age, February 2011
                                                                                                                                      • Consumer Attitudes towards the Potential of Coffee Pods

                                                                                                                                        • Key points
                                                                                                                                          • The high price of pod machines is holding back the market
                                                                                                                                              • Figure 50: Attitudes towards coffee pods, February 2011
                                                                                                                                              • Figure 51: Trends in ownership of filter coffeemakers and espresso machines, 2007-10
                                                                                                                                            • UK consumers are not rational purchasers of coffee
                                                                                                                                                • Figure 52: Use of coffee shops to sit in or take away, by age, 2010
                                                                                                                                              • Rich potential for young drinkers attracted by quality, convenience and style…
                                                                                                                                                  • Figure 53: How younger consumers differ from older consumers in their attitudes towards coffee pods, February 2011
                                                                                                                                                • …and put off by coffee shop prices
                                                                                                                                                  • Figure 54: Attitudes towards buying coffee in home versus out of home -16-34s, February 2011
                                                                                                                                                  • Figure 55: Attitudes towards buying coffee in home versus out of home, by UK consumption of coffee, February 2011
                                                                                                                                              • Appendix – Internal Market Environment

                                                                                                                                                  • Figure 56: Agreement with selected lifestyle statements, by demographics, 2009
                                                                                                                                              • Appendix – Broader Market Environment

                                                                                                                                                  • Figure 57: GDP, PDI, consumer expenditure and savings, at constant 2010 prices, 2005-15
                                                                                                                                                  • Figure 58: Trends in the age structure of the UK population, 2005-15
                                                                                                                                                  • Figure 59: Forecast adult population trends, by socio-economic group, 2005-15
                                                                                                                                              • Appendix – Brand Communication and Promotion

                                                                                                                                                  • Figure 60: Media advertising spend for the top ten coffee advertisers, 2008-10
                                                                                                                                              • Appendix – Consumer Usage of In-home Coffee

                                                                                                                                                  • Figure 61: UK instant coffee consumption in volume, by demographics, 2009
                                                                                                                                                  • Figure 62: UK fresh ground coffee consumption in volume, by demographics, 2009
                                                                                                                                                  • Figure 63: Frequency of drinking instant coffee, by demographics, 2009
                                                                                                                                                  • Figure 64: Frequency of use of instant coffee, by demographics, 2009
                                                                                                                                                  • Figure 65: Frequency of drinking fresh ground coffee, by demographics, 2009
                                                                                                                                                  • Figure 66: Frequency of use of fresh ground coffee, by demographics, 2009
                                                                                                                                                  • Figure 67: Most popular UK consumption of coffee, by demographics, February 2011
                                                                                                                                                  • Figure 68: Next most popular UK consumption of coffee, by demographics, February 2011
                                                                                                                                                  • Figure 69: Other UK consumption of coffee, by demographics, February 2011
                                                                                                                                                  • Figure 70: Most popular UK consumption of coffee, by demographics, February 2011
                                                                                                                                                  • Figure 71: Next most popular UK consumption of coffee, by demographics, February 2011
                                                                                                                                                  • Figure 72: Other UK consumption of coffee, by demographics, February 2011
                                                                                                                                                  • Figure 73: Over-65s as a proportion of the total adult population, 2005-15
                                                                                                                                              • Appendix – Consumer Attitudes towards In-home Coffee

                                                                                                                                                  • Figure 74: Most popular attitudes towards drinking coffee at home, by demographics, February 2011
                                                                                                                                                  • Figure 75: Next most popular attitudes towards drinking coffee at home, by demographics, February 2011
                                                                                                                                              • Appendix – Consumer Attitudes towards the Potential of Coffee Pods

                                                                                                                                                  • Figure 76: Most popular attitudes towards coffee pods, by demographics, February 2011
                                                                                                                                                  • Figure 77: Next most popular attitudes towards coffee pods, by demographics, February 2011
                                                                                                                                                  • Figure 78: Most popular attitudes towards buying coffee in home versus out of home, by demographics, February 2011
                                                                                                                                                  • Figure 79: Next most popular attitudes towards buying coffee in home versus out of home, by demographics, February 2011

                                                                                                                                              Companies Covered

                                                                                                                                              • Betty's and Taylors of Harrogate Ltd
                                                                                                                                              • Caffé Nero Group Plc
                                                                                                                                              • Coffee Nation
                                                                                                                                              • Costa
                                                                                                                                              • Douwe Egberts UK
                                                                                                                                              • International Coffee Organization (ICO)
                                                                                                                                              • Kraft Foods Inc.
                                                                                                                                              • Luigi Lavazza SpA
                                                                                                                                              • Nestlé UK Ltd
                                                                                                                                              • Rainforest Alliance
                                                                                                                                              • Robert Bosch Ltd
                                                                                                                                              • Saeco International Group
                                                                                                                                              • Starbucks Corporation
                                                                                                                                              • The Kenco Coffee Company
                                                                                                                                              • Waitrose

                                                                                                                                              Coffee - UK - April 2011

                                                                                                                                              £1,995.00 (Excl.Tax)