In the rarified world of high-end coffee, there’s a broad discussion of whether the post-Starbucks rise of independent coffee shops and specialty roasts comprises a third wave or fourth wave of coffee culture in the U.S.
Regardless of the wave number, however, there’s something gathering out there on the horizon; it’s cold brewed iced coffee, and it’s headed for a store near you, and likely sooner than you think.
Consider the impact of the second wave: Starbucks and its competitors, like Peet’s and Caribou, fomented a taste revolution among coffee consumers, creating an understanding that better-made Java could be sold as an affordable luxury at both cafés and at home. That success created an opportunity for brand extensions into RTD that gave rise to the Frappuccino and the Doubleshot. That’s a billion dollars, and also a generational shift: just as the millennials are the first generation of “digital natives,” they’re also coffee natives, the first group of kids to grow up with the expectation that they could get high-quality coffee on every corner, whether the weather is cold or hot.
Now, subsequent companies are refining the Starbucks idea, building a higher level of quality, sustainability, and personality onto an American coffee zeitgeist that’s already designed for snob appeal.
“Our assessment of why it’s getting traction now as a unique set is that the quality is higher than it was in the past,” says Chameleon Cold Brew co-founder Chris Campbell. “It didn’t taste like the crop out there now that are done really slowly, expensively, using really high quality coffee. As well, there’s the extra caffeine that comes into it. You put that together into a handful of scrappy brands that naturally appeal to the skinny-jean Brooklyn crowd as well as the people who believe in taste, and that leads to traction.”
Chameleon Cold Brew pulled in investment capital earlier this year and has been growing across the country, getting its 32 oz. and 16 oz. bottles into Whole Foods and independent specialty retailers via UNFI and Green Shoots distribution. The company is one of several that are growing independent of a brick-and-mortar presence; but those companies also are beginning to edge into the fray as well, with popular – and venture capital backed – coffee roasters like Stumptown and Blue Bottle joining other stores like Gorilla Coffee and La Colombe with cold-brewed line extensions.
“I think the category is taking off as we speak,” said Kyle Buckley, one of three partners behind bottled, New Orleans-inflected concentrate brand Grady’s Cold Brew. “It seems to be doing well for the people involved right now, but it’s still really a regional thing. It’s gonna be cool when all of these brands start overlapping and developing a craft coffee section of the grocery store.”
That “craft coffee” idea that Buckley mentions is the one that has many buyers excited. Just as small beer brewers have gradually created a category for better-tasting, small-footprint craft beer through a mix of consumer education, increased availability, and cultural attenuation, so too are the coffee brewers trying to convince the Starbucks consumer that there might be something even better than the ubiquitous chain.
“It’s the same reason why, 30 years ago, craft beer started to emerge on the scene,” said industry veteran Joth Ricci, who was recently hired as the president of Stumptown Coffee Roasters. “The beauty of beverage – and it’s always been this way – is that it’s always reinventing itself with the new thing, the next flavor, the next way of doing things. Coffee is a big business with a lot of consumers – just like they did with Starbucks 20 years ago, this third generation group is the evolution of the next wave of coffee.”
And while Starbucks seems to hold a stranglehold nationally, the change is happening faster than you might think: independent stores and tiny chains (fewer than six stores) now account for more than 45 percent of the brick-and-mortar coffee specialty stores in the U.S. – although only about 30 percent of the revenue – according to the Specialty Coffee Association, a trade group. As some of those cult roasters have gained notoriety, they have also begun to look a bit more at the opportunity that they can find in the grab-and-go cooler or the dairy aisle, in addition to their stores.
The cold brewed phenomenon, both in-store and ready-to-drink, has been picked up by high-end and even mainstream food and lifestyle magazines, Campbell pointed out.
“When people start showing up in Bon Appetit, that’s a trend,” he said.
There have been several approaches to this new craft coffee segment; to date, the most widely distributed brands have been Chameleon and Grady’s, both of which are concentrates that come in large bottles; so too do less-well-known brands like Secret Squirrel, Dave’s, and many others. Products from independent coffee shops have come in more disparate formats: some include smaller bottles – popular versions include Stumptown’s 10.5 oz. “stubbies” and La Colombe’s glass bottles of Pure Black cold brew, which offers two 8 oz. servings. – while others have taken concentrate and put it into Tetra Pak (like Gorilla Coffee) or have aped the emerging craft beer growler scene by offer the big bottles for delivery.
“What’s fun about it is everyone is taking their own approach,” Ricci said. “The quality is not being rubber-stamped, either.There’s an artisan quality to every one of those products that makes them unique and different.”
The growler brands point out that they fit with the trend of consumers wanting to “have it their way” by customizing their products. From a base of concentrate, they can add water, milk, sugar, flavorings, while reconstituting a well-made cup of coffee. Meanwhile, the single-serve oriented brands have shown the ability to extend the footprint of brick-and-mortar stores, some of which have strong brands of their own.
The offerings of both Stumptown and Blue Bottle were highly anticipated by the gourmet press and foodie community, but they have taken divergent paths. Blue Bottle has largely scuttled RTD for now, with spokesman Byard Duncan calling it a pilot program; meanwhile, with Ricci, who has worked for both Columbia distributing and for Jones Soda, it’s obvious that Stumptown has ongoing RTD plans.
Still, while there’s cultural momentum and growing interest, there are many obstacles to a the next wave of RTD being a tidal one: because the products need to be kept cold, distribution remains an expensive question, particularly for a category whose multi-serve bottles don’t lend themselves to the same fast turns in the store that single-serves do. Shelf lives for the products are strong – ranging between 90 and 180 days for many of the products – but usage occasions are bound to stationary settings rather than on-the-go. There is also the shelf-set problem: in order to get extra shelf space and to really turn, sales veterans say, these companies will need more traditional, single-serve SKU’s.
“Increasing our geographic reach is one of our biggest challenges,” Buckley said. “Right now we are primarily in the Northeast, but we would obviously like to be everywhere. We compete with coffee shops and individuals who brew coffee fresh every morning, so our cold brew has to taste freshly brewed straight off the shelf (and for the entire shelf-life).”
Additionally, even the juggernauts are aware that iced coffee has a growing profile overall, and they aren’t going to concede the turf simply because they’re happy with what the Frappuccino has wrought. Earlier this year, Starbucks launched single-serve coffees (not cold-brewed – but they’re Starbucks, and what it loses in craft it more than makes up for in distribution). Meanwhile, other brands like Marley Beverages’ One Drop, Coke-affiliated Illy Issimo and fast-growing newcomer Real Beanz continue to try to grab their own piece of the single-serve business, while hybrid drink Coco Cafe has been accepted into many new channels, as well.
And just as craft beer met with an early boom-and-bust cycle, it’s not like cold brew hasn’t been tried before: Adina, a product backed by beverage veterans John Bello and Greg Steltenpohl, sold a high-quality cold brew – although it failed to emphasize that process at the time. There’s also an active line of Wolfgang Puck cold-brewed iced coffees that has claimed some shelf space. Still, to date, there hasn’t been a product to set the world on fire, although entrepreneurs in the space think the time is right.
That’s because cold brew itself is on the rise, in stores and at home. Those same independent stores have turned “cold brewed” into a catchphrase for stronger, cleaner-tasting takeout coffee. That’s been enough to get Steltenpohl himself back into the cold brew business as part of his new venture, Califia Farms, which recently introduced carafes of a high-quality non-dairy cold brew made with the “milk” of California almonds.
There’s challenge, but there’s promise, and there’s also a sense that the time has come. The popularity of cold brew as a takeout product is emblematic of that sense, according to Ric Rhinehart, the executive director of the Specialty Coffee Association,
Rhinehart notes the millennial consumer is going to make the shift more pronounced, as its members have grown up in a coffee culture, one that may be just as likely to enjoy iced coffee in hot weather as it is hot coffee when it’s cold.
“Coffee has been around for some 600 years, but people only figured out some 15-20 years ago that it can quench thirst, and only in the last 5 with cold brewing,” added Grady’s Kyle Buckley. “It’s amazing to me how many places don’t serve iced coffee because of its association with its hot brethren. Why don’t you see iced coffee at movie theaters, ballparks, concerts? I think you will now.”
Still, he concedes, location helps. If you’re relying on trends, you can’t beat being based in New York, “where people are obviously obsessed with their coffee and have been drinking it cold for a long time,” Buckley said. “It’s a little different when I bring it back home to Missouri, but it’s only a matter of time.”