Good to the last (healthy) drop

COFFEES: Sales are perking up nicely as at-home consumption is seen as a beneficial, cost-conscious alternative to a Starbucks visit

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The death knell for at-home coffee sales may have sounded too soon. After years of suffering losses to coffeehouses such as Starbucks, major ground coffee brands including Folgers and Maxwell House are back in form, experiencing strong gains as health news and innovation shore up their battered bottom lines.

The ground coffee segment, accounting for three-quarters of the $2.45 billion market for ground, decaf ground and whole bean, grew 15.6% in dollars in food, drug and mass outlets excluding Wal-Mart for the 52 weeks ended April 16, according to Information Resources, Inc. Procter & Gamble Co.'s Folgers was up 8.8%, Kraft Foods' Maxwell House up 12.1% and Starbucks (licensed by Kraft for retail sales) up 14.8%.

The coffeehouse trend may even be helping ground coffee marketers. P&G spokesman Lars Atorf notes "a cup of coffee at Starbucks is an indulgence, but if people want to consume [coffee] on a more frequent and intense level, they may choose to drink their own coffee at home."

A recent report from the National Coffee Association shows that more coffee is being consumed overall. Out of 2,950 consumers surveyed this past winter, 82% said they drink coffee, up from 79% in '04, and the number who drink coffee daily grew from 53% in '05 to 56% in '06-the highest level in nine years.

The impact on the at-home coffee brands by the more-pricey coffeehouses is likely to be one of price rather than at-home volume, because virtually all "at home" brands declined in unit sales while increasing in dollar volume. The latest IRI data, indeed, show ground coffee volume down 2.5% vs. growth of 15.6% in dollar sales.

A big reason for increased consumption can be attributed to the National Coffee Association's aggressive promotion of a series of health studies over the past two years that link the antioxidants in coffee to helping fight everything from Type 2 Diabetes to colon cancer.

According to NCA spokesman Joseph DeRupo, "This information had been hidden in scientific journals while people were hearing old myths about coffee's negative health affects," which, he says, can be traced to coffee drinkers' bad habits like smoking and lack of exercise. The major public relations push and the myriad media coverage of the disease-fighting properties of coffee have driven the number of consumers surveyed who believe coffee is good for their health up from 26% in '05 to 40% in '06, according to the NCA study.

In addition to benefiting from the positive health halo, P&G has made some innovations. Most recently, it launched Folgers Simply Smooth, a gentle-on-the-stomach blend for which it will launch an estimated $20 million marketing effort this July. The campaign from Saatchi & Saatchi, New York, is tagged "The return of the second cup."

Folgers' Coffee House line, launched in 2004, will get a push in the fall. The line of darker premium roasted coffees is one of the top gainers in P&G's coffee portfolio, Mr. Atorf says. Other segments of the portfolio that will garner more attention in the coming year are Folgers' half-caffeine product and its instant coffee business, which has been in decline.

Kraft, too, has begun to reap the benefits of recent efforts, even though TNS Media Intelligence data show ad spending for Maxwell House in 2005 down nearly 19% to $26 million from the prior year. Seeing sales declines, Kraft last March launched a campaign for Maxwell House to the Madness tune "Our House." The campaign from Ogilvy & Mather, New York, dovetailed with a "Spruce Up Your House" promotion that awarded $10,000 monthly to a winner for home repair projects.

Kraft is also pushing its superpremium entries, Starbucks and the Seattle's Best brand, the latter extended to national distribution last year. Under Starbucks, Kraft recently launched two new varieties, African Kitamu and Costa Rica Terrazu, which it supported with newspaper inserts and sampling and direct mail, and has launched a national print and outdoor campaign for Seattle's Best that touts the brand as smooth coffeehouse coffee.

Kraft is also pushing Yuban, traditionally sold in Western states, with the recent launch of a Rainforest Alliance Certified line that plays into the sustainability trend. The Rainforest line has led to acceptance of Yuban in 1,000 Target stores, up from the 300 stores.
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