Cold Coffee Heats Up: Why the RTD Coffee Set is Getting More Competitive

Ready-to-drink coffee is among the fastest growing categories in beverage, with dollar sales up 20.1% in retail channels in 2021 to $3.4 billion, according to NielsenIQ, and growing 35.4% on a two-year stack basis. Bottled java is now outpacing the (still significantly larger) energy space on shelf and, as consumers increasingly stock multiserve cold brew in their fridges and grab canned lattes from their local convenience stores on the go, many of the smaller players are feeling the lift from that good ol’ rising tide.

But even with a large array of brands growing their share of the space, Starbucks is still the leviathan of RTD coffee, with dollar sales up 11% last year to $2.4 billion, per NielsenIQ. The second largest player, Danone’s STOK, accounted for a relatively smaller $331 million.

For years the Seattle icon has been steadily bleeding market share to the crop of emerging brands that have redefined the space over the past decade, and its growth is decelerating further (sales were up just 1.1% in the 12-weeks ending January 1) while its rivals differentiate through flavor, texture, and functional innovations. STOK might be a fraction of Starbucks’ size, but the brand was up 36.8% in 2021. Meanwhile, competing conglomerate Coca-Cola (Dunkin’, McCafe) rose 62.7% and independent brand Califia Farms reported coffee sales up 21.1%.

That’s to say nothing of the emergence of brands like Super Coffee and La Colombe (up 45% in MULO and convenience last year, according to the company) which have fueled their nationwide expansion through DSD partnerships with beer giants Anheuser-Busch InBev and Molson Coors Beverage Company, respectively, who are looking to make up for the decline in the beer category by diversifying into non-alc.

Industry followers know the RTD coffee revolution has been long underway, but since the onset of the pandemic –which drove the expansion of the multiserve cold brew set for at home consumption – the space has further cemented itself in retail and consumers are becoming more familiar with a diversified set. However, with brands like Califia Farms, Super Coffee and La Colombe winning in the mainstream, there are also signs that a shakeout in the category is now underway. According to SPINS data for MULO and convenience, as of December 26 there were 326 active coffee brands (excluding private label) in the market, down from 350 in 2020 and a peak of 357 in 2019.

Jim Watson, senior beverage analyst for Rabobank, told BevNET that although the category’s sales are strong, the category is more established and the glitz has worn off, meaning retailers aren’t necessarily allotting additional shelf space at the rate they were several years ago. As well, dedicated coffee brands large and small are also now fighting for placements with established companies who decide to launch coffee line extensions (see Chobani’s multiserve cold brew line, for one example).

“I think one of the biggest challenges, especially for the smaller players, is that the big players know that they can introduce a lot of new flavors, they can add nitro, functionality, all the different things that you can do, and take up a lot of space,” Watson said. “And I think retailers are happy to give it a little extra space, but I mean, it’s no longer that ready-to-drink coffee is outgrowing the market in a significant way. So, they’re really not going to be getting more than compared to the first couple of years of the category.”

New Opportunities Emerge

While Starbucks may have plenty of share to spare for startups to get in the door, it’s primarily the large players and the brands that align with them who are making the biggest gains. But the door is by no means closed for independent companies to win in the set, particularly if they’re positioned to take advantage of the uncertainty within the category and able to provide meaningful differentiation.

Grant Gyesky, co-founder and CEO of nitro cold brew coffee brand RISE Brewing Co., said he has seen the shakeout occurring in the set and that it has been accelerated by supply disruptions. Out-of-stocks from smaller companies have led some retail buyers to seek out coffee brands with more fortified supply chains to fill empty shelf space, he noted, which is now benefitting the established brands and forcing many of those small players out of the market entirely. For RISE, the company has worked with its co-packers and ingredients suppliers since the beginning of the pandemic to ensure stable inventory and consistent fulfillment, and that has positioned the brand to maintain high levels of growth without a distribution deal with a major strategic partner.

“I think the challenges from the pandemic and supply chain issues have made it more difficult for new brands to enter into the space,” Gyesky said. “And that certainly benefits the brands that have established themselves and gotten national distribution and have the supply chains in place. So it will also be interesting to see how far that trend goes and what the set looks like a year from now or two years from now if there’s a continued high water mark that brands need to get over in order to stay in the category.”

When RISE was founded in 2014, the brand differentiated itself as one of the first nitro cold brew makers on the market. Now, in an environment where Starbucks has its own nitro line and consumers are more familiar with the concept, RISE has focused on innovation in plant-based oat milk lattes and multiserve formats to help draw in new consumers. According to Gyesky, the company is currently producing a new 12 oz. slim can line to drive an expansion in the convenience channel, while the multiserve products are finding placement in conventional grocery.

The pitch that many coffee brands made early on that consumers would adopt black cold brew as an alternative to sugary energy drinks has not entirely panned out yet. Starbucks’ Frappuccino (over $1.3 billion in sales per IRI) and Double Shot remain the number one and two best selling lines in the space and Java Monster is a not too distant third. But where indulgence will continue to play a significant role, health and functionality are also places for companies to differentiate.

La Colombe EVP Kyle O’Brien said he’s seen retailers beginning to “clean up” the category, particularly in regards to differentiating between the cold case and the dry shelf. As consumers “basically know what they want” from their coffee, the shakeout in the set is expected and the company is now focused on continuing to expand its presence throughout the store, whether that be its beans in the dry shelf, multiserve cold brew in refrigerated and single serve lattes in grab-and-go sections.

“There’s been a lot of ready-to-drink [coffee products] that have come out, and they’re just going to throw everything and anything at the shelf. It’s taken a while for the retailers to figure out ‘Okay, how does this [set] need to look?’ What should be in the dry aisle, what should be in the refrigerated aisle? And, you know, we need to help them figure that out, and they’ve been great in terms of doing just that.”

At Super Coffee, co-founder and CEO Jimmy DeCicco has made health and wellness a key trait of the brand and most recently launched an industry action group, Alliance to Control Excessive Sugar (ACES), to promote better-for-you food and beverage options. He noted that to succeed in the mainstream today, brands entering the space likely need to be both flavorful and functional, noting that “functional” could mean anything from added protein to plant-based. But perhaps more importantly, they also need to be able to draw in new consumers who aren’t already coffee drinkers.

“A buyer only has such limited space, right? They have four feet and they need that shelf to generate so much revenue. So if they’re generating $1,000 from Starbucks alone, and this next brand comes in and says, ‘Hey, we generate $500 a month and we steal so much business from Starbucks,’ that buyer doesn’t really care because they were already getting $1,000 from Starbucks. They don’t need that $500, they need $500 from people who don’t drink Starbucks, and that’s where function is so critical.”

DeCicco said that Super Coffee, whose product portfolio includes coffees with added MCT oil and L-theanine, has largely brought protein shake and energy drink consumers into the coffee set by providing a cleaner label alternative to those products. The brand, which signed a master distribution agreement with AB InBev in 2020, has been one of the largest drivers for incremental dollar sales in coffee over the past year and has focused on growing its presence in grocery and convenience. However, even as a health focus fuels expansion, DeCicco said the move away from sugar is still slow rolling.

“Health is here to stay, function is here to stay,” he said. “Flavor is not going anywhere anytime soon, meaning people are still going to drink Starbucks and Monster despite the sugar and calories, because it tastes good. I think we’re probably, I don’t know, maybe five years away from the seismic shift of recognition that ‘Just because it tastes good, doesn’t mean I should buy it.’”

New Ways In to the Set

It may be a lofty challenge for a new brand to establish itself in the RTD coffee category today, but there is one significant new entrant emerging as a potentially significant player: Black Rifle Coffee Company. The Utah-based brand, founded in 2014, launched a ready-to-drink line of iced coffees in 2020 and is now among the fastest growing in the category. The brand’s RTD products rose 1,602% to $32.1 million in MULO and convenience sales in the 52-weeks ending October 3, according to IRI, positioning it below Super Coffee but above brands like Peet’s and International Delight.

In November, Black Rifle was acquired by SilverBox Engaged Merger Corp I, a SPAC that is now in the process of taking the company public at a valuation of $1.7 billion. The company will receive $225 million in the deal, which will support its growth as it expands both its cafe chain nationwide and its RTD line. According to the company, total revenue between 2019 and 2020 grew 100% to $164 million, driven by direct-to-consumer sales.

“The proposed business combination with SilverBox Engaged Merger Corp I (NASDAQ: SBEA) will provide significant resources to expand our primary mission,” Black Rifle co-CEO Tom Davin told BevNET in an email. “[Black Rifle] will accelerate the implementation of our omnichannel strategy and support continued rapid growth across all of our formats, which RTD is certainly a primary focus. This will provide the capital Black Rifle needs to expand growth, serve great coffee, and move us closer to our goal of hiring 10,000 Veterans.”

Black Rifle’s sudden rise in retail is primarily a translation of their success building the brand online and via on-premise, Watson noted, and their credibility in other channels helped set the stage for quadruple digit growth barely one year after launch.

The company can point to high caffeine and premium quality as the reasons for its success in retail, but it’s also succeeded in large part due to its branding. Black Rifle has not shied away from partisan politics, and established a strong conservative consumer base in 2017 when it announced its plan to hire 10,000 veterans in response to a pledge by Starbucks to hire 10,000 refugees. Political associations have often sparked controversy — Black Rifle has grown cautious to temper those associations amidst its expansion — but its strong branding attracted a large, loyal American consumer base seeking an alternative to Starbucks’ corporate identity.

Looking ahead, Starbucks’ status as the coffee category leader is not in any immediate danger. But as consumers seek out more from their coffee, a diverse set of established brands will continue to seize their piece of the pie. Gyesky said that while Starbucks may still be over 50% of the category, he thinks the shift will come sooner than later.

“I think the opportunity now for the brands that have established themselves and have grown and found themselves in the majority of retailers is to begin attracting the consumers that no longer want to be owned by Starbucks,” he said “And I think we’re all there’s a lot of opportunity for all of us to be successful in trying to attract that consumer and that’s going to begin to get reflected in the sets over the coming years. Starbucks won’t own 50% of the ready to drink coffee space in two years.”