Coffee Contenders

With Frappuccino and a pair of energy drink/coffee blends leading the way, RTD coffee remains a category that more companies have failed at than turned into a big win. But that hasn’t stopped them from trying, as the two brands we discuss below demonstrate.

TRYING TO FIND NEW SPACE IN A STARBUCKS WORLD
BY: RAY LATIF

In most David vs. Goliath scenarios, the world renowned celebrity chef would most certainly play the giant’s role. Yet with his name on a year-old line of bottled iced coffee, Wolfgang Puck finds himself a huge underdog in a category dominated by Starbucks, a company that controls almost 96 percent of the RTD coffee category, and one that in 2010 actually increased its market share.

“With Starbucks, the popularity of iced coffee exploded in this country.” said Craig Lieberman, who is the co-creator of Wolfgang Puck Culinary Iced Coffee. “But we’re not trying to [beat] Starbucks. Our hopes and expectations are that we’re looking at a category that is continuing to grow.”

Lieberman is a veteran of the consumer packaged goods industry with experience and success bringing various lines of frozen foods to market in Texas. In addition to his role as a managing partner with Woodway Beverage Partners, he is an investor with Jardin Foods and Sweet Leaf Tea. In 2008, Lieberman approached Puck about licensing his name and creating a new line of iced coffees.

“I wanted to create the best ready-to-drink iced coffee ever, and I knew Wolfgang was a big coffee lover. So when I was thinking of a partner, it was pretty simple.” Lieberman said. “I mean, how could you have a better partner than the premier chef in the country who is passionate about quality and taste and has a great a sense of what people like.”

“What was great was that even before I talked to Wolfgang about my idea, he and his pastry chef, Sherry Yard, had a discussion about American ice coffee being overly sweet and overly fat.” Lieberman continued. “They wanted to create a product that was a little healthier.”

To do so, Puck, Yard & Lieberman collaborated for almost two years working with blends of organic coffees from Ethiopia, Peru, Colombia and Mexico, organic milk, and complementary flavoring ingredients such as Tahitian vanilla, European chocolate, and pure cane sugar.

The result was an iced coffee that contains 120 calories per 8.5 oz. bottle and is both certified organic and kosher. It is produced through a cold brewed process that is supposed to give it less ‘bite’ and acidity than that a traditional, hot brewed coffee. Varieties include Café au Lait, Vanilla Fusion, Crème Caramel, and Double Blend Mocha flavors.

Though the product is currently distributed in Southern California, Las Vegas and some specialty food stores in New York, Lieberman recently announced that The Fresh Market and Kroger supermarkets in 35 states would begin carrying Wolfgang Puck Iced Coffee beginning in June.

At its suggested retail price of $2.29 for an 8.5 oz. bottle, the cost is higher than most other RTD coffee, including Starbucks’ Frappuccino and Doubleshot brands. But Lieberman noted that, “What we provide is a product that has a different taste profile that what is out there. It’s more like a true iced coffee as opposed to one that is cloyingly sweet, thick and indulgent. We’re hoping that consumers see value in our product and don’t mind paying for something that is modestly higher priced in comparison.”

That’s a big gamble for a product that has almost no presence in the category especially knowing that this is not Puck’s first RTD coffee. About six years ago, Puck approved the use of his name for a line of RTD lattes packaged in what was hailed as a revolutionary self-heating can. The product turned out to be a disaster with numerous reports of the can overheating, leaking, and even exploding. Within months of its release, the coffee was recalled from store shelves and Puck endured a public relations nightmare.

When asked if his new line of iced coffee was Puck’s attempt at redemption, Lieberman replied, “No, not at all. If [Puck] wasn’t proud to put his name on a product, he wouldn’t do it. While the technology [for the self-heating lattes] may have failed, the concept did not.”

Considering the early problems that doomed Puck’s last coffee line, Gerry Martin, the vice president of marketing and immediate consumption sales for Polar Beverages, stressed that education and exposure would be the key to success for Puck’s new coffee.

“Consumer education factors into [retail] buyers’ reluctance or willingness to put a product on the shelf,” Martin said. “And even though RTD coffee has limited players, a new entry will still need to be supported by local marketing pull programs. You have to do sampling, give coupons and offer promotions.”

Martin also noted the importance of localized marketing in specific cities and regions.

“If a company like Dunkin’ Donuts were to create a line of RTD coffee, they would have a home run here in the Northeast. But because Wolfgang Puck doesn’t have the same brand name recognition and trust – at least when it comes to coffee – [his new line] will have to come with more than just a name.  Unless they customize marketing to my backyard …I don’t have enough local pull to convince buyers to stock the product.”

Still, and even with several new RTD coffees quickly appearing in the category, (including Marley Beverage Company’s 56 Acres Iced Coffee and Bean & Body Coffee, both showcased at the 2011 Natural Foods Expo West), Lieberman seemed confident that Puck’s coffee would stand out amongst its competitors.

“If this were ‘Craig’s Iced Coffee’, I probably wouldn’t [be involved]. But with Wolfgang Puck, it gives us a leg up in finding customers that appreciate what we have as an alternative to what is out there.”

ILLY ISSIMO: COKE’S STAB AT A COFFEE SOLUTION
BY: KASIA PILAT

It is a somewhat uncharacteristic move for a beverage behemoth to take it slow and quiet with one of its latest ventures, but that’s just what the Coca-Cola Co. is doing with Illy Issimo. The ready-to-drink canned coffee has brought about as a joint project with an internationally-known coffee company, promoted through little more than modern day’s version of word of mouth, and rolled out slowly through key accounts. If it sounds like an entrepreneurial product, you’re right, but the aim is to make it a contender in coffee, which Coke considers an underdeveloped business.

Why is it underdeveloped? Well, certainly, the company’s much-publicized struggles haven’t helped when it’s thrown big product launches out there. So with Illy issimo, things are going slowly: it has been on the shelves since May of 2009, but is just beginning to get wider distribution beyond introductory channels. As a product under the VEB umbrella, it’s taken some notes from the pages of other successful VEB brands like Honest Tea and Zico. Both were small, entrepreneurial-based companies that built their business from the ground up, with individual nuances and qualities unique to themselves. Another brand that fits that description? Italy’s own illycaffè.

Choosing illycaffè as the partner may have been the best possible decision on Coke’s part. From a company lens, illycaffè is among the best of the best: the company has been devoted to producing its singular blend of Arabica coffee and coffee-related products for 77 years. Family owned and operated, illycaffè is also one of the world’s most scrutinized, yet most successful coffee brands, paying for high-end roasted beans from Ethiopia. That illycaffè is based out of Triesto, Italy, also offers the new product more room to grow: an international brand creates global opportunities, which can potentially alter or even redefine the ready-to-drink coffee category.

Of course, there’s an elephant-sized mermaid in the room, Starbucks. The presence of that kind of category-killer makes the task seem to be a daunting one: according to Symphony/IRI Group, in the twelve months ending this Feb. 21, Starbucks’ Frappucino accounted for 86.3 percent of RTD coffee sales, with the Starbucks Doubleshot picking up another 9.3 percent.

Still, that’s not Coke’s key concern – it doesn’t exactly believe illy issimo is around to compete with Frappuccino. Talk to Coke and they’ll tell you that illy Issimo is all about the coffee, rather than a milk-based indulgence. That idea, among others, is one of the distinguishing factors between illy issimo and Coke’s three previous coffee-related products.

Speaking of those products, this new venture does beg the question: with three fruitless previous attempts at a coffee-based product (Coca-Cola Bl?K, infamously spat out by Anderson Cooper on national television, Godiva Belgian Blends and Caribou Iced Coffee), what would cause Coca-Cola to opt for a potential fourth? For the answer, one has only to look at coffee itself, a product that is drunk pervasively in America and one that has shored up both Starbucks and Dunkin’ Donuts, and recently helped turn around another big food company, McDonald’s. Even so, cold coffee is regarded by many analysts as still in its nascent period, particularly from a grab-and-go standpoint. Both the consumer behavior and appreciation for this new category has been changing, and the takeoff success of a product like the Starbucks Frappuccino can attest to that.

The illy consumer, described to Advertising Age in November of 2010 by VP of Marketing at Illy Caffe North America Beverly Stotz, is also unique.

“First, they’re passionate about coffee,” she said. “They tend to live in urban centers, and we’re very much a bi-coastal brand and an urban brand. They tend to be professional, highly educated. Somewhere around 25% have a graduate-level degree and the age break would be mid-30s to late-50s. Psychographically speaking, they’re interested in food, wine and in seeking the best in life.”

These consumers are illy issimo’s direct targets, which weren’t there for Coke’s other three coffee drinks. While the Starbucks Frappuccino is more of an indulgent, calorie-rich, milk-based coffee beverage, illy issimo is deeply anchored in the already-established culture and legacy of illy’s coffee. Even its taste is strongly coffee-centric.

With such a focused target consumer, it seems unlikely that illy issimo will blossom into a mass appeal product anytime soon. That’s why just putting illy issimo everywhere Coca-Cola is simply won’t work, the company has found. The focus with illy issimo is finding the right markets, the right channels and the right customers. It’s available on Virgin America airlines, for example, and it has prominent outlets in places like the newly opened Renaissance hotel in Crystal City, near Washington, D.C. The brand is also prominently featured in niche coffee shops such as Caffe Milano in downtown Tucson, Ariz. Of course, it doesn’t hurt that illy issimo has partnered with big-time distributors Big Geyser in New York and Haralambos Beverage Co. in California, both known as experts at seeding brands in the right accounts.. For now, however, the people behind illy issimo are concentrating on building a brand with the right customer and through the right markets.

Similarly, instead of traditional marketing programs, marketing spending has been focused on the development of the illy issimo brand, driving awareness of the brand and product trial. As it stands, illy issimo is confident it can drive awareness in trial through product sampling and see repeats because it’s also confident in the quality of the product itself. This may also be why illy issimo retains a presence on social and viral media outlets like Facebook and Twitter, where news of trials and samplings is easily shared.

The fact remains that, for now, illy issimo is a specialized drink in a category that is still metamorphosing, and this makes it somewhat difficult to gauge the potential success or failure. That’s even more apparent when considering the slow, methodical approach the VEB Unit is taking: illy issimo’s growth isn’t necessarily measured by market share. Rather, in this stage of development, it’s measured by the number of outlets in which illy issimo maintains a consistent presence. It’s also measured by the sales turns based on illy issimo’s business models: How many cases per week or month does illy issimo need to sell at particular outlets to be a viable player and to be profitable? These, as well as individual, store-level measurements, are available, as are the tools to measure viral influence and impact on sites like Facebook and Twitter. Understandably, illy issimo is particular about where the product is put. Where it does elect put the product, it tends to perform quite well, which remains a positive sign for the company.

So, ten years from now, will illy issimo be a big, Coke-like brand? Maybe, but it doesn’t seem that way right this second. Until you look, once again, at a big, Pepsi-like brand like the Starbucks Frappucino, and where IT was 10 years ago.