Coke, Nestlé Take Aim at Starbucks

Bypass Baristas to Steal Share in Premium Hot-Beverage Business

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CHICAGO ( -- Coca-cola co. and Nestlé want to sideline Starbucks, or at least its baristas.
Coca-Cola's Far Coast coffee system is being introduced in Canada this month.
Coca-Cola's Far Coast coffee system is being introduced in Canada this month.

The global beverage players are targeting the $6.4 billion java giant with two new foodservice concepts credited with creating goof-free superpremium brews that can be served up by ordinary coffee-counter jockeys rather than highly trained drink masters.

Coca-Cola's system, called Far Coast, is being first introduced in Canada this month, with Singapore and Oslo, Norway, to follow. Nestlé, meanwhile, is quietly developing Nescafe Specialty Solutions, a gourmet-coffee system that allows upscale foodservice customers to mix concentrate with water to create hot or cold mocha, latte, French vanilla and chocolate drinks.

7% annual growth
Coke and Nestlé are hoping to beat Starbucks at its own game as specialty brewed drinks grow at a 6% to 7% annual clip. The lure is particularly strong for growth-challenged Coca-Cola, which pegs the market outside the U.S. as twice as big as the market for carbonated soft drinks.

Demand for coffee, tea and cocoa-based specialty beverages has ballooned in recent years, but labor and operational limitations have kept many retail, restaurant and other foodservice operations away. Now there's a land-grab in coffee, the third-most-consumed beverage in the U.S.

"The biggest thing constraining the purchase of premium-brewed beverages is availability and convenience," said Scott Stuckmann, Coca-Cola's global marketing director-premium brewed beverages. "I feel like we moved the artistry upstream so we can control it and make sure what the consumer gets is highly consistent. It is easier for the crew to operate. All they have to do is place the pod. The machine will extract the espresso and froth the milk."

Globally sourced gourmet coffee
Designed for coffee connoisseurs at upscale hotel and fine-dining restaurants, Far Coast boasts globally sourced gourmet coffee, tea and cocoa blends. Coke also is unveiling a quick-service-restaurant brand called Chaqwa, to provide coffeehouse blends on the go using the same machine.

To introduce consumers to the Far Coast experience, the company has opened a single concept store on Bloor Street in Toronto's fashionable Yorkville district. The brand also is backed by a print campaign via DiNoto, New York, using the tagline "Adventures by the cup."

Unlike Starbucks-which advertises sparsely and markets around the experience in its stores with ties to music and movies-Far Coast marketing is less place-based and focuses on how drinking the brand can help consumers "experience" exotic locales. The concept store will also have a brand curator to organize performances and other cultural events befitting the brand. Chaqwa will get outdoor, print and in-store ads using the tagline "Your cup is calling." Both brands will have interactive websites, with Mint, Seattle, handling the Far Coast site and Office, San Francisco, handling Chaqwa's.

Coffeehouse sales up $14.4 billion
According to the National Coffee Association, retail sales at coffeehouses grew to $14.4 billion in 2005, up 13.9%, according to Mintel and Technomic. Mintel estimates that retail outlets for coffee grew 21,400 units in 2005, up from 12,600 in 2000, mainly on the growth of Starbucks, which accounted for 7,551 units.

Still, the market is highly fragmented: A 2004 ExxonMobil survey found that 39% of customers purchase coffee at convenience stores, compared to 38% at local coffee shops and restaurants. According to the National Association of Convenience Stores, some 35% of Americans buy their coffee from C-stores, accounting for $5.2 billion of coffee sales in 2005.

John Sicher, publisher-editor of Beverage Digest, predicts the brewed-beverage business could reach into the billions over the long term for Coke, which controls 70% of the domestic foodservice fountain business. "There's no doubt they have competency in equipment and service," said Bob Goldin, exec VP for Technomic, but he added: "They're late to the game and have a lot of catching up to do."

Nestlé targets theme parks
Nestlé is testing its Nescafe Specialty Solutions' bag-in-a-box system with more than a dozen national foodservice customers, according to a knowledgeable executive. The company is targeting theme parks, movie theaters and high-volume fast feeders that have a consumer core of 14- to 35-year-olds. Among its bigger clients are Regal Cinema's Edwards Theaters and House of Blues. Deep, Springfield, Mo., handles the marketing.

"It's easy for these operators who for labor reasons or space reasons wouldn't otherwise be able to get into that market," said a spokeswoman for Nestle Foodservices North America.

Even Starbucks has caught on to the potential of goof-proof coffee service. In 2004 it launched the Starbucks Interactive Cup, a system designed for office coffee that has gained more than 2,300 "placements," the company said. When asked about the rival systems, a Starbucks spokeswoman said: "We don't comment on competition."

Although Starbucks has built its brand on the in-store experience, complete with baristas' banging, grinding and frothing sounds, Larry Wu, a former Starbucks executive turned VP-consumer strategist at Iconoculture, said the definition of that experience is changing. "When people are building coffee habits, they build it around a personal experience," he said, "not the environment."
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