So what’s with ready-to-drink iced coffee?  If you’ve been around beverages for a while, like me, you regard it as a long-standing mystery.  First, it took forever for the segment to get going – way longer than tea, even though this is more of a coffee-drinking country.  Entries came and went but never stuck.  Then, once Starbucks’ Frappuchino finally nailed it via its alliance with Pepsi, it remained pretty much a one-horse race.  This in a beverage industry that almost always has managed to support two or three major entries in every segment.  Like I said, weird.

So why did it take so long to start?  Years back, a fellow working on iced teas at Coke offered me a theory: Since lots of folks drink hot coffee in the U.S., it would have been harder to devise a cheap-to-produce RTD product that passed muster with them.  But, since fewer American consumers drink hot tea, the entry barrier in that segment was lower.  In other words, folks won’t reject a cheap, cold-filled iced tea if they don’t drink tea in the first place.  The situation was reversed in the tea-drinking nation of Japan, where it was iced coffee, not iced tea, that took off.  Make sense?  Well, it’s not completely satisfying.  (For one thing, in pre-Starbucks days, most Americans drank such lousy coffee that it’s hard to see them as rejecting any kind of iced coffee as not up to their standards.)  But leave it at that.

So, once the category was established with a strong performer like the Frappuchino, why haven’t other folks – particularly Coke? – been able to become meaningful players too?  What we have now is the expanding Starbucks lineup, and then a bunch of niche players.

I suspect the answer to that second question partly lies in how Starbucks changed the game.  To me, part of the brilliance of what it has accomplished is that its placed such an alluring veneer of cosmopolitan sophistication on its coffee when, in truth straight coffee – which it makes ridiculously well – is the least of its business.  Of late, most of Starbucks’ beverage business consists of frothy indulgences in which the taste of the coffee is overwhelmed by the cream and sugar and flavorings.  What Starbucks is really purveying is milk shakes for adults, and the genius in its branding is how the coffee-culture atmospherics and Italian nomenclature and rhetoric of connoisseurship provide cover for what otherwise would seem to be a childish pleasure.  It’s a bit like the success of Corona beer, in which an easy drinking pilsner that is no more challenging than Bud or Coors becomes more socially accepted because its import status puts it on the same plane as more challenging European brews like Heineken or Beck’s.

If I’m right about most of this, then that suggests some strategies for the future.  For now, I wonder whether Coke’s latest effort to participate in the segment via the licensed Godiva brand can really become big business.  Godiva is too nakedly positioned as an indulgence product, unmoored to the adult sophistication of a brand like Starbucks.  Yet for all its strength overseas, the brand that Coke has access to via its Nestle alliance – Nescafè – is too much an old person’s supermarket brand.  For Coke, then, the route to success would seem to require renegotiating its Nestle deal so that it can instead bring in a brand that, like Starbucks, melds gourmet indulgence with a more adult focus on quality coffee.  Great hot-coffee brands like Caribou or Peets might fit the bill here.  Then, maybe we’ll finally have the two-horse race we’ve been expecting all these years. (Beverage Spectrum- July/August, 2006)