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12/10/2018

‘Biggest Innovation Year’ at Pepsi/Starbucks Coffee Partnership Brings Raft of New Plays, from Refrigerated Frappuccino to Expanded, Now-Permanent Latte Line

Pepsi-Starbucks North American Coffee Partnership (NACP) gave a hint at this fall’s NACS c-store show that it had rich range of innovation coming, with entries like Tripleshot and cold-brewed extension of its Frappuccino warhorse (BBI, Oct 9).  But as joint venture’s vp/gm Bryan Welsh made clear at Beverage Digest’s Future Smarts conference on Fri, it’s going to be complete bombardment of category, “the biggest innovation year in NACP’s history.” Among the highlights are expanded lineup of Lattes serving as transition between Frappuccino and more coffee-forward entries like Cold Brew, raft of almondmilk entries on both single-serve and multiserve sides, and refrigerated Cold Brew items.  It’s possible there may even be brand’s first packaged nitro-based entries in mix: asked about nitro during Q&A, Welsh smiled and replied, “I think I brought you well under the hood on 2019, so maybe we’ll leave one thing outstanding.” Remember, Starbucks is holding its investor day this Thurs so it’s possible we may hear about this innovation as soon as then.

By now, NACP is 24 years old and employs 90; strong case can be made that it’s among most successful jv’s in food/bev, as the 28-year Pepsi vet Welsh argued.  Degree of alignment between partners is unusual among 2 corporate titans, he noted. It’s still clear leader in category that drove $2 bil in measured channels over past year, grew at compound annual rate of over 9% and sold at 35% higher price per oz than average liquid refreshment bev.  No surprise, then, that it’s attracting lotsa new competition. While in broadest sense Welsh was correct in saying that all the newcomers are sailing in Pepsi/Starbucks’ wake, it should be noted that co was relatively late to party in burgeoning segments like cold-brew and nitro, where indie entries already were proliferating.  There seems no question from NACS presence and Bryan’s presentation that partners are intent on closing that gap in coming year. With cold coffee close to overtaking hot coffee in sales within Starbucks’ own cafes, environment seems ideal for jv partners to build on trend with their ramped-up innovation in 2019.

Frappuccino Gets Almondmilk, Cold-Brew Entries   Alliance started with Frappuccino in Mocha and Vanilla flavors (BBI editor can recall tough early days when deli owners wondered why they should support coffee chain that was starting to compete with them in sandwich biz) and it’s blossomed into mega-franchise in RTD coffee.  While past year or so has seen a tapering off of interest in highly sugared and creamed confections within Starbucks stores, per Starbucks recent earnings reports, Bryan reminded listeners that it remains “workhorse . . . still the big dog.” The big news on Frap side in 2019 will be move into almondmilk, at time Welsh confessed to being shocked to learn that one-third of US households have almondmilk in fridge.  Entry in shelf-stable clear bottle containing 40% fewer calories than core entries should open door to Frap franchise for non-dairy consumers. (Almondmilk entries will also hit grocery-targeted multiserve entries.)

NACP also will invite indulgence-oriented Frappuccino drinkers to participate in trendy cold-brew category via trio of entries: Salted Dark Chocolate, Caramelized Vanilla Honey and Toasted Whey Chocolate.  In research, they were “some of the highest-scoring products ever tested” on that brand, Walsh attested. As noted, they were sampled at NACS back in Oct.

Lattes Now a Permanent Platform as Less-Sweet Alternative to Fraps   Espresso-based Lattes offering less sweet, more coffee-forward alternative to heavily indulgent Fraps at first were devised as seasonal entries, but it quickly became clear they had a real following thanks to taste profile and elegant bottle design.  So partners are creating permanent base biz around them, based on 5 anchor flavors: last year’s Molten Chocolate, Salted Caramel Mocha and White Choc Mocha entries plus additions of Caffe Latte and Vanilla. Pair of seasonals will further flesh out mix.

Cold Brew Enters Refrigerated Realm    As noted, contrary to its frequent claims of being cold-brew pioneer, Starbucks actually came late to segment, and its initial test was marred by technical glitches.  That was then. Since rolling out RTD product last Nov as partnership’s first truly coffee-forward entry it’s moved quickly to dominant position in grocery, requiring just 3 months to accomplish feat, Bryan said.  He said sales demonstrate little of regional skew that co expected, and “signs are the cold-brew phenomenon is here to stay for a very long time.” Its next key innovation is around the corner, in Jan, when it will bring the brand into the fresh environment with a refrigerated single-serve cold brew packed in a PET bottle.  

Coffee/Energy Hybrid Doubleshot Further Hybridizes with Smoothie Offshoot; Tripleshot Brings Less Sugar, Caffeine-Only Boost   Until recently, Starbucks Doubleshot energy/hybrid was enjoying wide lead over rival Java Monster that was scrambling to find retort production capacity (until recently SBUX seemed to have glommed most of capacity of Dairy Farmers of America, tho execs encountered at Bev Digest said new capacity has them back to prospecting for clients).  Now Java Monster has closed gap again, but NACP is looking to stay ahead in part by creating new sub-segment with Doubleshot Coffee Smoothie, in Vanilla Honey and Dark Chocolate flavors, made from coffee, almondmilk, real bananas, honey and touch of sugar. The inspiration? Welsh said the home recipes spotted online in which people threw into their blender coffee, dairy or alt-dairy, fruit, maple syrup or honey or flax seed to start their day.

To demonstrate cross-over between core coffee and energy category, Bryan cited interesting research stats: 83% of energy drink consumers have coffee in repertoire and 30% drink cold coffee, but only 15% drink RTD coffee.  That said, it’s not clear whether current RTD offerings have the punch sought by these consumers, so NACP is upping the ante with Tripleshot, in Caramel, Caffe Mocha and French Vanilla and packing 225 mg caffeine per 15-oz can, as seen at NACS.  But there are some tweaks: it’s less sweet than Doubleshot, and it derives all its energy from coffee, not from “funky ingredients” that consumers often don’t understand, Welsh said, clearly referring to taurine, guarana and other stapes of conventional energy category (including Doubleshot).  As we noted in our NACS coverage, it wasn’t that many years ago that energy drink execs were on Capitol Hill testifying that they intended to keep their caffeine dosages modest, but lately we’re seeing a bunch in 225-300 mg range, meaning consumption of more than 1 would exceed govt’s rec of 400 mg as limit for healthy adults.  So it seems we’re in arms race now.

Publishing Info

  • Year: 2018
  • Volume: 15
  • Issue #: 185
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