One-cup coffee slow to percolate in U.S.

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one-cup coffee is taking too long to brew for Sara Lee Corp.

Faced with intensifying competition and slower-than-expected sales for its Senseo one-cup coffee system, the marketer is changing advertising direction. Senseo, which pairs single-serve "pods" of Sara Lee's Douwe Egberts coffee with new single-serve machines made by Philips, has experienced rapid success in Europe, but hoped-for revolution in home coffee consumption has not materialized so far in the U.S.

While Sara Lee spokeswoman Julie Ketay said that Senseo is "taking a while to build and we expected that," an executive close to the company said the category is building more slowly than Sara Lee expected. Therefore, it is shifting to a more "foundational" advertising approach for the crucial holiday period, when roughly one-third of coffee makers are purchased.

The initial ads that broke in May featured a variety of people moaning and sighing over Senseo's unique frothy coffee layer. But new work, breaking this week from Omnicom Group's BBDO Worldwide, Chicago, more clearly indicates what the product is, how it works and how the proprietary frothiness trumps the competition. The tagline, "Coffee that feels as good as it tastes," will remain the same. Sara Lee will also offer a $20 "Bet you can't find a better-tasting cup of coffee" rebate on the $70 machines.

In the three years since it launched in the Netherlands, a Douwe Egberts stronghold, Senseo has built household penetration of 30% and total sales overall of $210 million for Sara Lee's fiscal year ended in July, up from $100 million in fiscal '03. Ms. Ketay said the company expects the brand-one that has been marked for "strategic investment" by CEO Steve MacMillan-will hit $500 million in sales by fiscal '07.

pedigreed rivals

How much of Senseo's success will be in the U.S., where the company holds a mere 4.5% share of the $2.8 billion coffee market from regional brands such as Chock Full o'Nuts and Hills Bros., remains to be seen. Rivals with strong coffee pedigrees are also chasing the domestic market. Procter & Gamble Co.-a leader in the coffee category with a 31% share for brands including Folgers and Millstone vs. Kraft Foods' 33% share for Maxwell House, Starbucks and others-has vowed with its appliance partners to spend $50 million this year on its single-serve system, Home Cafe.

Pods, necessary for the new machines, command a significant premium over regular ground and even whole-bean coffee. Kraft's new Maxwell House pods, for example, retail for $3.95 for 18 individual servings vs. $6.99 for a 34.5 oz. can.

Home Cafe launched in May with TV and print from Publicis Groupe's Saatchi & Saatchi, New York, that bills it as the "One-Cup Coffeehouse." Its pods of Folgers and Millstone coffee brands are intended to be paired with Home Cafe machines from Black & Decker (available now), Mr. Coffee (coming soon) and, eventually, Krups and Hamilton Beach. According to a P&G spokeswoman, those brands make up 75% of the coffee-appliance market in the U.S.

Even should the machines from the lesser-known Philips brand take off here, "there's no guarantee [consumers] will buy Douwe Egberts pods," said Neuberger Berman analyst Bill Leach. Ms. Ketay acknowledged that pods are all interchangeable, but said research in Europe shows that 70% of people with Senseo machines use Senseo pods.

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