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Coffee - UK - April 2012

“Newer types of premium instant innovation are important in replacing the jar, which consumers are used to associating with lower prices and brands should look to expand and segment their ranges by introducing sachets, cubes and refill pouches.”

– Jonny Forsyth, Senior Drinks Analyst

Some questions answered in this report include:

  • How can manufacturers combat rising commodity prices?
  • Does instant coffee have a future with younger consumers?
  • Which competitors are coffee pods stealing share from?
  • How much impact can Starbucks make in the retail sector?

The UK take-home coffee market has been mature for some time now and has had to perform in a challenging environment of soaring commodity prices and falling consumer discretionary spend, as well as growing competition from soft drinks. However, the market also has huge advantages, with high street coffee shops having raised awareness of quality coffee, something which is translating into the homes of the masses. With health-conscious consumers moving away from alcohol and so many people not liking but loving the taste of coffee, it remains a promising investment opportunity.

This report covers coffee consumption for the in-home market only. Therefore, it does not include coffee shops or other outlets where coffee is purchased and drunk outside the home, including vending machines or self-serve coffee outlets such as Coffee Nation recently purchased by Costa Coffee.

The majority of in-home coffee is sold in supermarkets, but a small proportion of sales also take place through newsagents, convenience stores and specialist shops. Apart from RTD versions, people will make in-home coffee themselves.

There are three broad groups of coffee in the take-home market:

  • Instant coffee – this is the largest sector accounting just over 80% of the market. This is where, through various processes, the coffee is dehydrated into the form of powder and granules for sale, usually in jars.
  • Roast and ground – this is when coffee is sold in the form of coffee beans or when the coffee beans are sold ready-ground.
  • This sector includes coffee pods which are pre-packaged ground beans sold in their own filter to make the coffee-making process easier. Included in this category are products for open and closed coffee systems, such as those that take a cartridge or pod.
  • Ready-to-drink coffee – this is chilled ready-to-drink (RTD) coffee drinks such as Kenco Ice Cappio. These currently make up a very small segment of the market and Mintel’s market size figures do not split out this segment.
  • The market definition includes decaffeinated coffee.

 

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Table of contents

  1. Introduction

      • Definition
        • Abbreviations
        • Executive Summary

            • The market
              • Figure 1: Market size and forecast for the total UK take-home coffee market, in volume sales, 2006-16
            • Market factors
              • Figure 2: Annual changes in price (in Retail Prices Index) of coffee/other hot drinks (excl. tea) and all items, Q1 2008-Q4 2011
            • Companies, brands and innovation
              • Figure 3: Market size of top five take-home instant coffee brands in 2011, by value, and value growth rate between 2009 and 2011
            • The consumer
              • Figure 4: Most important attributes when choosing to buy one in-home coffee brand over another, February 2012
              • Figure 5: Attitudes towards coffee, February 2012
            • What we think
            • Issues in the Market

                • How can manufacturers combat rising commodity prices?
                  • Does instant coffee have a future with younger consumers?
                    • Which competitors are coffee pods stealing share from?
                      • How much impact can Starbucks make in the retail sector?
                      • Future Opportunities

                          • The Real Thing
                            • Slow It All Down
                            • Internal Market Environment

                              • Key points
                                • Increased price volatility hits instant coffee the hardest
                                  • Figure 6: Annual changes in price (in Retail Prices Index) of coffee/other hot drinks (excl. tea) and all items, Q1 2008-Q4 2010
                                • Premiumisation is the best strategy to counter price volatility
                                  • Figure 7: Monthly weighted average price of coffee beans on world markets, by coffee bean type, January 2010-February 2012
                                • Gourmet coffee is now part of the national psyche
                                  • Figure 8: Visits to coffee shops in the last 12 months, 2007-11
                                • Consumers want convenience and quality
                                  • There is not enough innovation geared to attracting younger drinkers…
                                    • Figure 9: Trends in agreement with company ethics lifestyle statements, 2007-11
                                  • …nor is the branding engaging enough
                                    • Figure 10: Proportion of 16-24-year-olds who think each retail coffee brand is ‘boring’ compared to all adults, February 2012
                                • Broader Market Environment

                                    • Consumer spend has been under severe pressure
                                      • Figure 11: Change in average weekly earnings compared to inflation, January 2007-January 2012*
                                    • Tentative signs that 2012 will be a more prosperous year
                                      • Figure 12: GfK NOP Consumer Confidence Index, January 2007-January 2012
                                    • Rise in ABC1s underpins the continued importance of premiumisation
                                      • Figure 13: Forecast adult population trends, by socio-economic group, 2006-16
                                    • An ageing population means instant still remains a big revenue driver
                                      • Figure 14: Forecast adult population trends, by age, 2006-16
                                  • Competitive Context

                                    • Key points
                                      • Chilled drinks are stealing share from hot beverages
                                        • Figure 15: Market value (£ millions) and share of the UK take-home non-alcoholic drinks market, chilled beverages versus hot drinks, 2000-10
                                      • Evidence that take-home coffee is stealing share from hot rivals
                                        • Figure 16: UK take-home volume sales of hot beverages, by product type, 2009-11
                                      • Coffee shops helping to drive take-home sales rather than stealing share
                                        • Figure 17: Market size and forecast of UK coffee shops, 2006-16
                                      • Coffee can be much more aggressive in challenging energy/sports drinks
                                      • Strengths and Weaknesses in the Market

                                        • Strengths
                                          • Weaknesses
                                          • Who’s Innovating?

                                            • Key points
                                              • Instant coffee replaces ground in the innovation stakes
                                                • Figure 18: Product launches within the UK coffee market, by main format types, 2008-11
                                              • Convenience claim as prevalent as ethical in 2011
                                                • Figure 19: Proportion of new take-home coffee product launches, by claims category, 2008-11
                                              • Flavour innovation remains the rarity when it should be the norm
                                                • Figure 20: Proportion of new take-home coffee product launches within the UK that are flavoured, 2008-11
                                                • Figure 21: Examples of flavoured new product launches within the UK coffee market, 2011
                                              • Marketing the benefits of intensity
                                                • Figure 22: Examples of new product launches within the UK coffee market which market themselves around intensity/energy
                                              • Fitness Coffee Antioxidant Blend for consumers with healthy lifestyles
                                              • Market Size and Forecast

                                                • Key points
                                                  • The coffee market has stagnated in recent times
                                                    • Coffee prices are spiralling upwards
                                                      • Figure 23: Market size and forecast for the total UK take-home coffee market, in volume and value sales, 2006-16
                                                      • Figure 24: Value sales and forecast for the UK take-home coffee market, 2006-16
                                                    • Forecast methodology
                                                    • Market Segmentation

                                                      • Key points
                                                        • Premium segments are driving growth as instant clings on
                                                          • Figure 25: Coffee volume and value sales and share in the take-home sector, by coffee type, 2009-11
                                                      • Market Share

                                                        • Key points
                                                          • Nescafé successfully protects its share from Kenco
                                                            • Figure 26: Top ten instant coffee brands in the take-home instant coffee sector, by value sales, 2009-11
                                                          • Kenco and Nescafé increasingly focusing on two areas: youth and quality
                                                            • Own-label suffers from trend towards premiumisation
                                                            • Companies and Products

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

                                                                              • Brand map
                                                                                  • Figure 27: Attitudes towards and usage of brands in the coffee sector, February 2012
                                                                                • Correspondence analysis
                                                                                  • Brand attitudes
                                                                                    • Figure 28: Attitudes, by coffee brand, February 2012
                                                                                  • Brand personality
                                                                                    • Figure 29: Coffee brand personality – macro image, February 2012
                                                                                    • Figure 30: Coffee brand personality – micro image, February 2012
                                                                                  • Brand experience
                                                                                    • Figure 31: Coffee brand usage, February 2012
                                                                                    • Figure 32: Satisfaction with various coffee brands, February 2012
                                                                                    • Figure 33: Consideration of coffee brands, February 2012
                                                                                    • Figure 34: Consumer perceptions of current coffee brand performance, February 2012
                                                                                    • Figure 35: Coffee brand recommendation – Net Promoter Score, February 2012
                                                                                  • Brand index
                                                                                    • Figure 36: Coffee brand index, February 2012
                                                                                    • Figure 37: Coffee brand index vs. recommendation, February 2012
                                                                                  • Target group analysis
                                                                                    • Figure 38: Target groups, February 2012
                                                                                    • Figure 39: Coffee brand usage, by target groups, February 2012
                                                                                  • Group One – Conformists
                                                                                    • Group Two – Simply the Best
                                                                                      • Group Three – Shelf Stalkers
                                                                                        • Group Four – Habitual Shoppers
                                                                                          • Group Five – Individualists
                                                                                          • Brand Communication and Promotion

                                                                                            • Key points
                                                                                              • Coffee sees a steady increase in investment
                                                                                                • Figure 40: Above-the-line media advertising spend for the total coffee market, 2009-11
                                                                                              • Nestlé and Kraft invest over £50 million in three years
                                                                                                • Figure 41: Above-the-line media advertising spend on coffee, by advertiser, 2009-11
                                                                                              • Brand spend reflects the fragmented nature of the market
                                                                                                • Figure 42: Above-the-line media spend on coffee, by brand, 2009-11
                                                                                            • Consumer Usage

                                                                                              • Key points
                                                                                                • Premiumisation or not, the UK remains a nation of instant coffee drinkers
                                                                                                    • Figure 43: Consumption of coffee in the home over the past year, February 2012
                                                                                                  • Growth lies in the more niche coffee sectors
                                                                                                      • Figure 44: Consumption of different types of coffee in home, 2011 versus 2012, in order of the greatest change in penetration
                                                                                                    • Pods and chilled coffee are attracting a younger, richer audience
                                                                                                        • Figure 45: Index of usage for different coffee types drunk in home, by gender, age and gross annual income, February 2012
                                                                                                      • The British find instant coffee a hard habit to let go
                                                                                                          • Figure 46: Crossover in usage between instant coffee, ground/whole bean coffee and pods, February 2012
                                                                                                        • Instant loyalists tend to be ‘middle-aged’, from the North and low income
                                                                                                          • Figure 47: Solus instant coffee drinkers, by demographics, February 2012
                                                                                                      • Consumer – Most Important Factors When Buying In-home Coffee

                                                                                                        • Key points
                                                                                                          • Consumers put emphasis on a rich and smooth taste when buying brands
                                                                                                            • Figure 48: Most important attributes when choosing to buy one in-home coffee brand over another, February 2012
                                                                                                          • Brand loyalty remains strong
                                                                                                            • Demand for premiumisation is widespread, not particular to certain groups
                                                                                                                • Figure 49: Those for whom ‘the best-quality coffee’ is the most important attribute when choosing to buy one in-home coffee brand over another, by demographics, February 2012
                                                                                                              • Energy is a big selling point for the new generation of in-home coffee drinkers
                                                                                                                  • Figure 50: Index of most important attributes when choosing to buy one in-home coffee brand over another, 16-24s versus over-55s, February 2012
                                                                                                                • Men go for quality, women for price and ethics
                                                                                                                    • Figure 51: The most significant differences in the most important attributes when choosing to buy one in-home coffee brand over another, by gender, February 2012
                                                                                                                • Consumer – Attitudes towards Different Types of In-home Coffee

                                                                                                                  • Key points
                                                                                                                    • Premiumisation is important but convenience is still king
                                                                                                                      • Awareness of pods remains low
                                                                                                                          • Figure 52: Attitudes towards different coffee types that can be drunk at home, February 2012
                                                                                                                        • Young consumers crave flavour and chilled coffee innovations
                                                                                                                            • Figure 53: Net difference in attitudes towards different coffee types that can be drunk at home, 16-24-year-olds versus all adults, February 2012
                                                                                                                        • Consumer – General Attitudes towards Coffee

                                                                                                                          • Key points
                                                                                                                            • Four in five drinkers love the taste of coffee
                                                                                                                              • Coffee fulfils a variety of consumer needs
                                                                                                                                  • Figure 54: Attitudes towards coffee, February 2012
                                                                                                                                • The younger generation favour functionality over taste
                                                                                                                                  • Figure 55: Net difference in attitudes towards coffee, 16-24-year-olds compared to all users, February 2012
                                                                                                                                • Female coffee drinkers see it as more indulgent and comforting
                                                                                                                                    • Figure 56: Net difference in attitudes towards coffee, by gender, February 2012
                                                                                                                                • Appendix – Market Size and Forecast

                                                                                                                                    • Figure 57: Value sales and forecast for the UK take-home coffee market, 2006-16
                                                                                                                                    • Figure 58: Market size and forecast for the total UK take-home coffee market, in volume sales, 2006-16
                                                                                                                                    • Figure 59: Best- and worst-case scenarios for value forecast of coffee, 2011-16
                                                                                                                                    • Figure 60: Best- and worst-case scenarios for volume forecast of coffee, 2011-16
                                                                                                                                • Appendix – Brand Research

                                                                                                                                    • Figure 61: Brand usage, February 2012
                                                                                                                                    • Figure 62: Brand commitment, February 2012
                                                                                                                                    • Figure 63: Brand momentum, February 2012
                                                                                                                                    • Figure 64: Brand diversity, February 2012
                                                                                                                                    • Figure 65: Brand satisfaction, February 2012
                                                                                                                                    • Figure 66: Brand recommendation, February 2012
                                                                                                                                    • Figure 67: Brand attitude, February 2012
                                                                                                                                    • Figure 68: Brand image – macro image, February 2012
                                                                                                                                    • Figure 69: Brand image – micro image, February 2012
                                                                                                                                    • Figure 70: Profile of target groups, by demographics, February 2012
                                                                                                                                    • Figure 71: Psychographic segmentation, by target group, February 2012
                                                                                                                                    • Figure 72: Brand usage, by target groups, February 2012
                                                                                                                                  • Brand index
                                                                                                                                    • Figure 73: Brand index, February 2012
                                                                                                                                • Appendix – Brand Communication and Promotion

                                                                                                                                    • Figure 74: Above-the-line media advertising spend on coffee, 2009-11
                                                                                                                                    • Figure 75: Above-the-line media advertising spend on coffee, by brand, 2009-11
                                                                                                                                • Appendix – Consumer Usage

                                                                                                                                    • Figure 76: Most popular consumption of coffee in the past year, by demographics, February 2012
                                                                                                                                    • Figure 77: Next most popular consumption of coffee in the past year, by demographics, February 2012
                                                                                                                                    • Figure 78: Most popular consumption of coffee in the past year, by demographics, February 2012
                                                                                                                                    • Figure 79: Next most popular consumption of coffee in the past year, by demographics, February 2012
                                                                                                                                    • Figure 80: Consumption of coffee in the past year, by demographics, February 2012
                                                                                                                                • Appendix – Consumer: Most Important Factors When Buying In-home

                                                                                                                                    • Figure 81: Most popular factors when choosing to buy in-home coffee brands, by demographics, February 2012
                                                                                                                                    • Figure 82: Next most popular factors when choosing to buy in-home coffee brands, by demographics, February 2012
                                                                                                                                • Appendix – Consumer: Attitudes towards Different Types of In-home Coffee

                                                                                                                                    • Figure 83: Most popular attitudes to different coffee types that can be drunk at home, by demographics, February 2012
                                                                                                                                    • Figure 84: Next most popular attitudes to different coffee types that can be drunk at home, by demographics, February 2012
                                                                                                                                • Appendix – Consumer – General Attitudes towards Coffee

                                                                                                                                    • Figure 85: Agreement with the statements ‘Coffee provides a much-needed energy boost’ and ‘Drinking coffee makes a nice break’, by demographics, February 2012
                                                                                                                                    • Figure 86: Agreement with the statements ‘I tend to drink coffee out of habit’ and ‘Drinking coffee is comforting’, by demographics, February 2012
                                                                                                                                    • Figure 87: Agreement with the statements ‘I love the taste of coffee’ and ‘Coffee helps wake me up in the morning’, by demographics, February 2012
                                                                                                                                    • Figure 88: Agreement with the statements ‘A coffee makes a nice treat’ and ‘Coffee goes nicely with certain foods (ie breakfast, biscuits, chocolate)’, by demographics, February 2012
                                                                                                                                    • Figure 89: Agreement with the statements ‘Coffee is warming in the colder months’ and ‘Coffee is one of the healthier drink options’, by demographics, February 2012
                                                                                                                                    • Figure 90: Agreement with the statements ‘Drinking coffee helps me not to over-eat’, by demographics, February 2012

                                                                                                                                Companies Covered

                                                                                                                                • AEG Domestic Appliances
                                                                                                                                • Arla Foods amba
                                                                                                                                • BSH Home Appliances Corporation [Bosch]
                                                                                                                                • Cadbury Trebor Bassett
                                                                                                                                • Cafédirect Ltd
                                                                                                                                • Coffee Nation
                                                                                                                                • Costa
                                                                                                                                • Douwe Egberts UK
                                                                                                                                • Facebook, Inc.
                                                                                                                                • Fairtrade Foundation (The)
                                                                                                                                • J. Choo Limited
                                                                                                                                • J. Sainsbury
                                                                                                                                • Kraft Foods UK
                                                                                                                                • Luigi Lavazza SpA
                                                                                                                                • Nestlé UK Ltd
                                                                                                                                • Philips Consumer Electronics UK
                                                                                                                                • Rainforest Alliance
                                                                                                                                • Saeco International Group
                                                                                                                                • Sara Lee Bakery Group
                                                                                                                                • Seattle Coffee Company
                                                                                                                                • Starbucks Coffee Company UK Ltd
                                                                                                                                • The Kenco Coffee Company
                                                                                                                                • Whitbread PLC

                                                                                                                                Coffee - UK - April 2012

                                                                                                                                £1,750.00 (Excl.Tax)