Grounds for a New Strategy

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The coffee market is undergoing a crisis of demographic proportions. Coffee drinking in the U.S. has been on the decline for decades, as many consumers, especially younger ones, have traded cups of Joe for cans of Coke, bottles of water, sports drinks, and other new beverages. And while Starbucks helped buck the overall coffee market decline, spurring the '90s “coffeehouse craze,� the availability of coffee-to-go actually served to further undercut the market for coffee at home. According to a recent report, the market for coffee at home will continue to decline, unless coffee companies can convince more young adults to perk up.

The most committed coffee drinkers today are older adults. In fact, the older you are, the more likely you are to be a serious java junkie. While only 21 percent of 18- to 24-year-olds drink one cup of coffee, or more, at home daily, 70 percent of the 65 and older crowd do, according to the report, “Consumer Intelligence, The U.S. Coffee Market,� from Mintel, a London-based market research company. In fact, men and women in their 20s consume more than three times as much soda as coffee on an average day, and teens consume almost no coffee at all. This makes perfect sense, considering that coffee marketers have traditionally spent the bulk of their ad dollars on hooking middle-aged consumers, leaving the younger “Pepsi Generation� alone.

But that tactic is starting to backfire: Per capita consumption of coffee dropped to about 17 gallons in 2000, down from 36 gallons in 1970, while soft drink consumption grew to 55 gallons, up from 23 gallons, over the same period — an increase of more than 140 percent. While the aging Boomers will help ease the downward spiral — coffee consumption is expected to increase by 7 percent by 2005, as the number of guzzlers in the 55- to 64-year-old segment increases — this group alone cannot fuel future growth. As the youth inherit the earth — with 71 million Gen Ys coming down the pike — the coffee industry needs to wake up and smell itself.

There may be hope, but only if marketers can capture them early enough, according to the report. The sharp jump in the number of regular coffee drinkers between the 18- to 24-year-old group and the 25- to 34-year-olds (29 percent vs. 60 percent) suggests that the drinking habits of young adults do change as they enter the working world and establish their own households. After age 35, however, the proportion of people who convert from nondrinkers to regular drinkers is considerably lower. “Most coffee advertising in the past focused on brand building or touting line extensions rather than building a customer base,� according to the report. “But as the proportion of Americans who drink coffee declines, coffee companies will have to direct some of their ad dollars to reaching new customers, especially younger consumers.�

Some marketers are starting to understand the necessity of reaching a younger, more diverse group of customers. For instance, Procter & Gamble's Millstone coffee released a series of commercials, aimed directly at younger consumers, that pay tribute to real-life “adventurers,� featuring the producer of CBS's Survivor, a major hit among youth. They've also run a campaign of ads showing a coffee mug morphing into a sports car, an ocean liner, and mountains, all with the tag line: “All you need is a taste for adventure.�

Because younger generations are more racially and ethnically diverse than their elders, the coffee industry faces even more challenges in capturing their attention. Blacks and Hispanics — whose share of the population is increasing considerably, especially among youth — are less likely than whites to regularly drink coffee at home: Over half of whites (55 percent) are regular coffee lovers, but only 41 percent of Hispanics and 31 percent of blacks are.

Marketers could also expand the coffee market and increase sales by playing up potential health benefits of coffee. For instance, various studies have linked coffee with a lower incidence of kidney stones and gallstones, and it has been suggested that the beverage may provide some protection against colon cancer, cirrhosis, and Parkinson's disease. Still, playing the good-for-you card hasn't won over many young coffee achievers: 40 percent of 18- to 24-year-olds and 34 percent of 25- to 34-year-olds think that the overall health effects of coffee are mostly negative, and an additional 8 percent and 6 percent, respectively, don't know anything about its effects. In comparison, just 16 percent of 55- to 64 year olds feel they're harming themselves by drinking the hard stuff.

For more information, contact Mintel at (312) 932-0400 or visit www.mintel.com

What Doesn't Kill You

African Americans and those aged 18 to 24 are the most likely to say that coffee has negative health effects.

MOSTLY POSITIVE MOSTLY NEGATIVE NEITHER DON'T KNOW
Total 11% 26% 53% 9%
Regular coffee drinkers 13% 24% 58% 6%
Non-coffee drinkers 8% 31% 47% 13%
Men 14% 24% 52% 24%
Women 7% 29% 55% 29%
Black 11% 38% 37% 12%
White 11% 24% 56% 8%
Hispanic 18% 34% 37% 10%
18-24 13% 40% 37% 8%
25-34 10% 34% 50% 6%
35-44 8% 31% 55% 5%
45-54 7% 17% 63% 11%
55-64 15% 16% 57% 12%
65+ 14% 18% 55% 12%
Numbers may not add up to 100 due to rounding. Source: Mintel
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