Coffee sales don't add up at P&G, Sara Lee

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For every dollar Procter & Gamble Co. and Sara Lee have reaped selling coffee for "revolutionary" single-cup systems, they have spent three on marketing.

A pretty grim payoff, indeed, for the systems hoped to forever change America's java-drinking habits. Based on the thinking similar to shaving systems that require repeat purchases on blades, the coffee systems with names like Home Cafe, Senseo and Tassimo were designed to create a major market for the "pods" of grounds used to make the coffee. But so far P&G and Sara Lee have racked up coffee sales of less than $10 million each for the systems despite what TNS Media Intelligence/CMR measures at $60 million in combined media expenditures.

While consumer dissatisfaction with many early models has tainted enthusiasm for the first new coffee technology since the `50s, that isn't deterring P&G, Sara Lee and new entrant Kraft Foods, which will optimistically grind away at the category this fall with large-scale efforts. Observers are skeptical.

"These systems are not going to revolutionize the industry," predicted one household-products expert, noting that consumers have had bad experiences with the machines and the novelty wore off quickly for early adopters. Certainly, product improvements and doing a better job educating consumers through marketing could help, she added, "but I don't think long term this is something that will be sitting on everybody's countertop."

According to the National Coffee Association's 2005 National Coffee Drinking Trends report, the hefty media investments from P&G and Sara Lee have driven awareness but not much purchase interest. The report showed that while 59% are aware of the systems, only 2% of those consumers currently own the product. Only 14% claim they are very or somewhat likely to purchase a system-but as a gift rather than for themselves.

P&G is enthusiastic about Home Cafe's potential to boost its Folger's and Millstone brands despite the pods garnering a mere $9.2 million in sales for the 52 weeks ended Aug. 7 in food, drug and mass outlets excluding Wal-Mart, according to Information Resources. It will follow up last year's media outlay of $28 million with an equally large budget beginning this October. The initiative, which includes national and direct TV, print, direct mail and in-store education efforts, will virtually relaunch the year-old system.

Lisa Willey, global director-marketing for the beverage team at Jarden, acknowledged that changing a daily consumer habit is a "huge hurdle" and that a lot of the "subpar" machines on the market tested retailers' patience with the nascent category. But, she said, the big media push from P&G centered around the benefits of the system make it very attractive.

CONSERVATIVE ESTIMATE

Ms. Willey said expectations are that the single-cup segment will make up 5% to 10% share of the overall $4.5 billion coffee market within the next five to seven years, projections far less ambitious than the 20%-25% of the market Kraft has predicted the segment might reach (AA, Feb. 20.)

Sara Lee is similarly bullish about the category and its Senseo entry despite a $28 million media outlay last year that netted it a disappointing $6.9 million in sales for the pods for the 52 weeks ended Aug. 7, according to IRI figures. Sara Lee has already changed its ad tack once due to lower-than-expected sales of Senseo (AA, Oct. 11), and last month it switched the brand from BBDO Worldwide, Chicago, to TBWA/Chiat Day, Playa del Rey, Calif., for its aggressive push this fall. A Sara Lee spokeswoman said, "There is still a lot of education that needs to happen."

Kraft, meanwhile, will have to fight against others' early failures when it finally launches in October its Tassimo system in partnership with Gillette Co.'s Braun (now owned by P&G). Kraft will offer a bevy of proprietary "T-disks" under its Gevalia brand that it will sell online and through an 800-number as well as in the specialty retailers that carry the machines. A spokeswoman for Kraft said the company anticipates it will be "a slow build."

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