STARBUCKS, PEPSI TACKLE COFFEE VENTURE

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Starbucks Coffee Co. and Pepsi-Cola Co., on the road to developing bottled coffee beverages, may be marching toward a watery sinkhole.

The market for ready-to-drink coffee, popular in many other parts of the world, always has been nebulous in the U.S. A marketing executive who once worked on coffee products at Nestle Beverage Co. called ready-to-drink coffee "one of the toughest nuts to crack."

Yet soft-drink giants Pepsi and Coca-Cola Co., supermarket purveyors General Foods USA and Nestle, and now, the hot retailer Starbucks, are eager to crack it. All have or are brewing ready-to-drink coffee brands for the U.S. market.

But while iced coffee is popular in Asian countries, it has been a difficult product to position in the U.S. Total supermarket sales of liquid coffee for the year ended July 3 were a meager $28.1 million, according to Information Resources Inc. And even that paltry sum was down 11.7% from a year earlier.

By comparison, the exploding ready-to-drink iced tea segment rang up more than $250 million in supermarket sales alone in the same period.

General Foods unveiled Cappio in 1992, and it remains the only national iced coffee beverage. Supported by stylish TV spots and couponing from Ogilvy & Mather, New York, the brand now accounts for 87.9% of ready-to-drink coffee supermarket sales. But even Cappio's sales fell 9.7%, to $24.7 million, in the past year.

The rest of the category is populated with small, regional brands; No. 2 Chock o'cino from Chock Full o'Nuts, New York, had sales of only $770,400 for the year ended July 3, down 47.1%.

"Iced coffee has been tried before without much success," said coffee analyst John Maxwell, Wheat First Securities, Richmond, Va. "It's a taste situation-people seem to like iced tea better."

But with soft-drink sales shrinking, marketers like Coca-Cola and Pepsi have been increasingly eager to tap new markets. In 1991, the joint venture of Coca-Cola Nestle Refreshment was formed in Tampa, Fla., to develop ready-to-drink teas, coffees and chocolate beverages.

The collaboration has made a name for ready-to-drink Nescafe coffee in Asian countries like Taiwan, Hong Kong and Singapore, where consumers favor the beverage's sweet, milky taste. The drink, available warm or chilled, is positioned as a snack for consumers on the go, said a spokeswoman.

The snack niche seems to be the best fit for iced coffee; unlike iced tea, it's not a popular mealtime beverage, and its sweetness makes it a hard sell for breakfast.

Disputing published reports that Coca-Cola Nestle will introduce a bottled coffee drink in the U.S. within the next year, the spokeswoman said there is no definite timetable but the joint venture is "always looking to expand."

Ken Egan, brand manager for Jamaican Gold canned coffee at Everfresh Beverages, Franklin Park, Ill., hopes big names like Starbucks and Pepsi will heighten awareness and expand the category.

"Iced coffee is such a foreign concept to most people, one of the best ways to market it is through sampling," Mr. Egan said.

Everfresh has introduced the Jamaican Gold brand in the past year to the Chicago and New York markets with heavy sampling.

Pepsi declined to elaborate on its partnership with Starbucks, announced last week, stating only that the agreement will be concluded later this month.

Starbucks has zoomed to 383 retail stores nationwide, and is planning to build another 200 by September 1995. For the 39 weeks ended July 3, sales were up 67%, to $204.6 million. Starbucks' allure has been credited with turning around declining coffee consumption in the U.S.

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