Cold Coffee Disruption Heating Up

Ready-to-drink coffee has been a market that the Pepsi/Starbucks partnership has dominated for two decades thanks to their powerhouse Frappuccino entry. Coca-Cola struggled with brands ranging from Planet Java to Godiva before garnering a modest amount of traction with its Illy collaboration. Monster Energy’s inauguration of coffee/energy blends under the Java Monster moniker drew a response from Pepsi/Starbucks – Doubleshot – that for a while knocked Monster back on its heels, though Java Monster has since come back to carve out a durable piece of business.

On the small company side, SoBe creator John Bello invested in Adina a few years back mainly because he viewed its RTD coffee entry as a solid platform for a Starbucks challenge, but it remained a niche item even as Bello moved on. A canned line called Bean & Body seemed promising enough to draw an investment from Coca-Cola Consolidated’s BYB incubation unit, but was discontinued late last year.  I could list quite a few others, but you get the point.

It’s been enough to make folks wonder whether RTD coffee – like enhanced water, energy shots and kombucha – wasn’t one of those categories that were sufficiently supported by a single strong entry to be impregnable to challengers. Yet lately we’re seeing abundant stirrings of new activity, even as proliferating independent coffee shops and efforts by the likes of McDonald’s to upgrade their coffee offerings are stimulating consumers to rethink their views about old man Joe.

In conventional formats, Real Beanz, from a Brooklyn food company, melds functional ingredients with coffee in a striking glass package, while  The Bob Marley beverage enterprise has spawned a canned entry, One Drop, that aims for a sense of authenticity stemming from the late singer’s connection with Jamaica. Both now seem to be picking up solid distribution.

Then there’s the potential for disruption emanating from the burgeoning legion of cold-brewed coffee purveyors. As a feature story in this magazine last month explained, this is a process that eschews heat for the slow running of water over the coffee beans, yielding a full-flavored drink that is shockingly free of any trace of bitterness.  Among the barriers to broad success, awareness is still very low outside of foodie areas like Portland, Ore., and Williamsburg, Brooklyn, and there can be quite a bit of sticker shock, particularly among consumers who don’t recognize that some of the higher-priced entries actually are concentrates that yield several servings of iced coffee. (I became addicted to the cold-brew at Blue Bottle in Williamsburg, Brooklyn, a few years ago, but my wife – with a gourmet’s palate but a practical sense of value – at first refused on principle to pay $4 for a 6-oz. pour.  Upon sampling, though, she was converted, too. And soon enough, no doubt because it got a similar reaction from other potential customers, Blue Bottle increased its serving size.)

Like the BevNET editors, I find the segment full of intrigue and promise. Besides the wonderful taste and the mystique of the chemistry-set-like brewing apparatus (on full view at operations like Blue Bottle in Brooklyn), the segment shares several traits with the burgeoning craft beer and kombucha segments. Local and regional entrants are sprouting up, and the drink is turning up on tap or available for growler pours. Respected roasters like Stumptown and Gorilla have thrown their hats in the ring, even as entrepreneurial upstarts like Grady’s in Brooklyn and Kohana in Austin have edged in. The rich range of varietals and roasts available offer the sort of texture that rewards exploration and sparks discussion in Whole Foods aisles and on social media.

I do wonder, though, whether the welter of different approaches being explored will prove to be a blessing or a curse.  Most cold-brewed entrants are refrigerated, but a few are shelf-stable. Most are sold in concentrate form in multiserve bottles, but some are full strength, offered in single-serve bottles. That makes it difficult for unseasoned consumers to understand, just as the diverse approaches taken by acai beverage marketers likely hindered that category’s development.  By contrast, a fairly unified “nature’s sports drink” theme adopted by all three coconut water pioneers made it easier to establish that category.  Will the confusion of entries forestall adoption or insure that the right concepts are able to establish roots? Time will tell.

If the category does take off, scaling up production without compromising quality will pose another challenge, but we have to get there first. At this stage even ardent proponents acknowledge that it’s impossible to know yet whether cold-brew will remain a niche or be able to broaden into something approaching mainstream acceptance. It certainly will be exciting to watch this unfold.

But I can also envision a disruptive entry of an entirely different nature that could up-end the business: a ready-to-drink version of Dunkin’ Donuts coffee.  As a more grounded, value-based challenger to Starbucks, I can’t think of a brand that’s better equipped to serve as the Blue Moon of high-end coffee.  You’d have to think companies like Coca-Cola have approached Dunkin’ about a collaboration along those lines. The issue forestalling this to date apparently has been resistance from Dunkin’s franchisees who’re afraid that bottled or canned versions will decrease visits to their stores. My sense is they’re being short-sighted about this, and if eventually Dunkin’ is able to work out some accommodation that gets a product to market, that could prove the biggest challenge of all to Pepsi/Starbucks’ hegemony.

Longtime beverage-watcher Gerry Khermouch is executive editor of Beverage Business Insights, a twice-weekly e-newsletter covering the nonalcoholic beverage sector.