By Published on .

Most Popular
Strong competition is brewing in supermarkets for upscale coffee beans.

Starbucks Coffee Co. is expanding its grocery line from Chicago to 10 new markets -- including Los Angeles, San Francisco and Phoenix -- that represent 3,500 supermarkets, part of its bid to gain 20% to 25% of what it estimates is a $1 billion market for specialty coffee.


At the same time, another Seattle coffee marketer, Seattle Coffee Co., is set to do more business on grocery shelves as part of its growth plan for its Seattle's Best and Torrefazione Italia brands.

While Seattle's Best may not be as well known as Starbucks, it has powerful weapons in its arsenal: a supermarket-distribution deal with Procter & Gamble Co.'s Millstone Coffee unit and an infusion of cash from new owner AFC Enterprises. AFC is the parent of Churchs Chicken, Popeye's Chicken & Biscuits and Chesapeake Bagel Bakery.

An AFC executive said Seattle Coffee, which distributes coffee in some 1,500 supermarkets and 66 cafes it operates, plans to eventually hire its first ad agency to help boost the brand.


P&G is hardly sitting on the sidelines with its Millstone brand, which it bought in 1995 and has since rolled national into 7,000 supermarkets.

This month, the giant package goods marketer launched a new ad campaign in Cincinnati -- a market it entered last August -- to support Maisonette Blend, a new flavor created specifically for local consumers and named after a well-regarded Cincinnati restaurant. TV spots feature the restaurant and its chef.

Last fall, to weaken Starbucks' Chicago test, P&G launched a Millstone campaign from N.W. Ayer & Partners, New York, proclaiming Millstone's superiority in taste tests (AA, Oct. 20).

Neil Stern, partner of McMillan/Doolittle, a retail consultancy, said Starbucks is entering the supermarket fray with the built-in advantage of brand cachet carrying over from its retail cafes.

"Customers understand" Starbucks, he said. "For Millstone, [P&G has] to develop a brand cachet because it doesn't exist right now."

Ted Lingle, executive director of the Specialty Coffee Association of America, which counts all three marketers as members, said that for now the real fight for share in the growing segment will be between Starbucks and Millstone. Seattle's Best, he said, as a smaller company, still has basic brand building to do.

"It could end up in the near-term that it's a two-horse race," he said. "The trick for [Starbucks] is figuring out how to get the word to the consumer in a way that doesn't cannibalize [its] in-store sales."

Starbucks' expansion, slated for mid-April, will be supported with new advertising from BBDO Worldwide, Los Angeles. A Starbucks spokeswoman said it's too early to say whether TV will be part of the marketing plan.


For its Chicago test, the company touted the coffee line with outdoor and newspaper ads. One ad offered Starbucks cafe customers a free cafe latte in exchange for a receipt showing they purchased Starbucks beans in a supermarket.

"Early results in Chicago indicate that any cannibalization of the retail business is minimal," the spokeswoman said.

The new markets also include Portland, Ore.; Seattle; Spokane, Wash.; Denver; Salt Lake City; Billings, Mont.; and Albuquerque.

Gregg Kaplan, VP-worldwide strategic development for AFC Enterprises -- whose acquisition of Seattle's Best is expected to close next week -- said he sees a bright future for gourmet coffee in supermarkets.

According to Information Resources Inc., supermarket shoppers spent $234 million on all brands of whole-bean coffee for the 52 weeks ended Jan. 4. The data tracker doesn't break out gourmet products as a separate category.

In terms of unit sales, Great Atlantic & Pacific Tea Co.'s Eight O'Clock brand led with a 49.7% share, down 4.4% from a year ago, followed by all private labels at 21%. P&G's Millstone had a 5.6% share, Seattle's Best had 0.8%, and Starbucks had 0.4%.

In this article: