Iced coffee has been flying out the C-Store fridge door for a while now, and there is absolutely no sign that the public's insatiable thirst for the product has been quenched.
In fact, quite the reverse seems to be true … they want more! On a value basis, dedicated iced coffee brands now make up an impressive 37 per cent of total flavoured milk sales through convenience – and the total segment is currently growing at 22 per cent.
Taking National Foods – which boasts the popular Farmers Union, Masters and Big M brands – as an example, the value of its iced coffee brands and skus have been growing by 12% in the convenience channel, and it says there is still plenty of opportunity for yet more rapid growth.
The other major players – Parmalat with its IceBreak, Rush and Pauls Iced Coffee brands; and Dairy Farmers with Dare (currently growing at 54 per cent in convenience), Oak and Moove – are equally upbeat about their products' performance through the channel.
These are exciting times in the category and, for C-Stores not satisfied with their current sales of
cool beverages, it's time to wake up and smell the coffee.
Of course, iced coffee – like all milk products – is still very much a state by state story. Different products have different geographical strongholds and their historic advantages in certain areas are not easily overturned. But, with new products, new innovations and new variations arriving on the market all the time, not to mention an army of new consumers, boundaries are slowly being re-drawn.
"Big M is a much loved and trusted brand in Victoria and this is definitely spreading to New South Wales and Queensland," said Senior Category Manager for National Foods, Richard Knight. "Up the eastern seaboard Big M Iced Coffee and Big M Double Strength Iced Coffee have been performing well for us."
He said the brand was certainly helped by a recent on-pack consumer promotion offering consumers the chance to 'Win A Year Off' which really struck a chord with the target market.
Similarly, Farmers Union's on-pack promotion giving one lucky consumer the chance to win $50,000 and become the face of the brand is helping to drive its growth.
"Farmers Union Iced Coffee 600ml is still the number one impulse beverage in South Australia … in fact it has reached legendary icon status in the state, but the secret is out," said Mr Knight. "Farmers Union Iced Coffee's reputation for smooth tasting iced coffee has now spread to Tasmania and up the eastern seaboard."
National Foods says the launch of Farmers Union Iced Coffee Strong in Tasmania and in South Australia was fantastically well received, as was the launch of Big M/Masters Double Strength iced coffee.
"All of these launches have been tremendously successful for us and our customers on a number of levels," Mr Knight said.
Masters Iced Coffee brand, thanks in part to recent additions such as Premium Blend and Double Strength, is also continuing to perform strongly in its Western Australian base.
New innovations are then an important part of iced coffee's ongoing success. Certainly, Parmalat is very excited about the launch of IceBreak Loaded, which is the first iced coffee to contain a real energy hit of Guarana.
"IceBreak Loaded gives the instant hit of Guarana energy, with the great taste of real iced coffee and fills a market gap for an energy drink that tastes great and can be easily consumed in the morning," said Jemma Wellard, Parmalat's Assistant Product Manager – Beverages. "IceBreak has experienced exceptional growth for the past four years and is the number one iced coffee in Australian convenience stores."
Ms Wellard says this growth has been underpinned by the running of the IceBreak 'Win a Ute' competition – an annual on-pack promotion that has run for the past seven years.
"The success of this promotion stems from combining a prize structure that is highly desirable to the core male audience," she said. "It has a unique promotional mechanic where consumers must locate the word UTE under specially marked IceBreak promotional packs to enable them to enter the draw for the major prize."
Parmalat's Rush brand is aimed at the more health-aware consumer as its target, and also provides the category with a strong iced coffee offering. Rush is 99% fat free, and has 30% less sugar than regular flavoured milk, and has three iced coffees within its range – Wicked Latte, Intense Coffee and the recently launched Mocha Kenya.
Parmalat also has the Northern Territory's market leading brand within its stable. It says Pauls Iced Coffee is an iconic brand within the Territory, and is supported both above and below the line.
It is apparent then that iced coffee growth in Australia is showing little sign of slowing … and the opportunities are clear for switched-on retailers.
"The development of the iced coffee market segment is a key determinant of per capita consumption growth of the flavoured milk category," Ms Wellard said. "As an example, states with strong and dominant market leading iced coffee brands have significantly higher flavoured milk per capita consumption than states that do not have established iced coffee brands."
Dairy Farmers is behind some of the nation's best loved dairy beverages, with a stable of brands that includes Moove and Oak flavoured milks, and Dare iced coffee.
Dare was re-launched as a dedicated iced coffee brand back in 2005 in reaction to Australia's growing love affair with coffee and the café society. Its range of flavours suit wide-ranging consumer taste profiles and include Espresso, Double Espresso, Cappuccino, and White Chocolate Mocha, which was introduced at the end of last year and has been very well received.
Dairy Farmers has recently expanded the distribution of Dare 750ml Espresso and Double Espresso, making the products available throughout Queensland, New South Wales and South Australia.
"Aussie consumers' love affair with coffee continues to grow. Therefore, in future Dairy Farmers expects to continue to see strong growth in iced coffee sales," said Catherine Cannings-Bushell, Dairy Farmers' Group Marketing Manager for White Milk and Impulse Beverages, "particularly as processors innovate the segment with new flavours and packaging advances."
She says that in recent years Dare has experienced very strong growth in the dedicated iced coffee segment and is currently the fastest growing iced coffee brand in the country.
"The Dare iced coffee range is performing strongly across all sales channels," she said. "Dare's growth within the convenience channel specifically – which has traditionally been the flagship channel for iced coffee sales – continues be solid."
Certainly, convenience is an incredibly important outlet for iced coffee and therefore represents an incredibly important opportunity for C-Stores. It is obvious why. Iced coffee can either be an habitual or impulse product purchase, meaning it is either part of the 'routine' of consumers, or meets an on-the-go need state for consumers. The convenience channel sits perfectly to meet these consumer purchases.
Core iced coffee consumers still tend to be younger males, who habitually purchase the product as part of their 'routine' for the day, or purchase on impulse because it appeals to a certain need state such as 'need to feel full', or 'need a coffee kick'.
"Consumers that over-index in terms of iced coffee consumption also over index as heavy/more frequent convenience shoppers," said Richard Knight from National Foods. "We're talking about blokes working in skilled or semi skilled trades – these guys are key consumers of both iced coffee and the convenience channel."
So how can C-Stores increase iced coffee sales and hopefully profit?
"I would implore convenience operators to treat this category as a genuine impulse opportunity," said Mr Knight, who believes there has been a tendency in the past to position iced coffee with the white milk at the back of the store.
"When iced coffee is placed next to other impulse beverage categories or is dual located and brought forward to the front of the store, it can have fantastic results for the operator's overall beverage category," he said.
Jemma Wellard from Parmalat agrees. "C-Stores need to see flavoured milk as a beverage and give it the space that these beverages deserve as, when it is given the space, it certainly returns the sales," she said. "When IceBreak is placed off location in impulse fridges near the front of store, the results are significant incremental sales."
Indeed, she says that, in Queensland convenience stores, IceBreak 750ml currently outsells Coke 600ml.
"Retailers are certainly becoming more aware of the importance of increased facings, maintenance of stock weights on shelf, and fridge positioning in store," she said. "You can see the importance of the iced coffee market in the consumer's beverage choice."
She believes that broadening the range should only be considered if the core market-leading flavoured milk brands have adequate space allocated within the beverage category.
"Broadening the consumer offer too much may lead to greater out of stocks on the core market-leading brands, as insufficient space may be allocated to cater for sales volumes," she said. "Retailers should evaluate which brands are strongest in their region in order to maximise the sales opportunity that iced coffee presents to their business."
It is a point picked up on by Catherine Cannings-Bushell from Dairy Farmers, who says it is vital for stores to stock an optimal iced coffee range based on best performing variants.
"Stores should offer consumers choice, whilst being careful not to confuse consumers by presenting too many products of the same type," she said. "An optimal range will ensure suitable turnover of stock with minimal write-offs, deliver a timely return on investment for the store operator, and allow for appropriate fridge space to be dedicated to those lines that are in high demand to avoid out of stock issues."
In other words, in order for convenience stores to take maximum advantage of the opportunity in iced coffee, significant fridge space should be allocated to these products.
"A store's total flavoured milk range should occupy a minimum of one fridge door within convenience, and approximately 40 per cent of this should be allocated to dedicated iced coffees," Ms Cannings-Bushell said. "Stores should look to stock a variety of iced coffee flavours to suit the wide-ranging needs of consumers, and also consider introducing a second opportunity to buy the product."
She says the best way to do this is by placing iced coffee and other milk beverages in smaller fridges as close to the cash register as possible. This then acts as a reminder for consumers entering a convenience store to make other purchases.
Meal associations are another effective way that C-Stores may consider to encourage impulse purchase and increase sales, as they provide a 'value' offer to consumers. They are also a convenient meal solution to time-poor consumers, which is obviously important in the convenience channel.
Another important factor in selling any product successfully is packaging. In the convenience channel, the bulk of iced coffee sales are taken up by the 500ml pack size, but there is also a trend towards larger pack sizes following the introduction of 750ml products.
"The launch of Dare 750ml is helping to drive incremental growth in the category," said Ms Cannings-Bushell. "In the future we are likely to see dairy businesses innovating the iced coffee segment, including the introduction of new flavours and packaging advances, to help them capture a larger share of this growing market."
Jemma Wellard agrees that the pack sizes that are experiencing the most growth are the larger impulse sizes, and she says that is resulting in some changing habits.
"Packaging for iced coffee is most definitely evolving into a bottle market and, increasingly, in convenient pack formats like bottles with resealable caps," she said. "This is perhaps evidence of the changing consumption patterns of the user, perhaps to consume on the go over a longer period of time."
Interestingly, she says the bottle trend has not been a factor in the Northern Territory where cartons are still the packaging preference for a large proportion of consumers.
Of course, the other mega trend that seems to have an influence over all categories is that of health and wellness. We have already seen that Parmalat's Rush brand – which is 99% fat free, and has 30% less sugar than regular flavoured milk – is aimed at the more health-aware consumer.
Similarly, Dairy Farmers has introduced its 98% fat free Dare Cappuccino, which it says is a great option for those looking for a low fat iced coffee.
"As health and wellbeing trends continue to drive growth across most food categories, we will likely see solid growth in low fat dairy beverages," said Ms Cannings-Bushell.
However, Richard Knight from National Foods is more cautious. He argues that most iced coffee variants are already low in fat, and this simply isn't widely communicated to the consumer at the moment.
"I think a greater focus on health and body image (particularly amongst men) is an interesting trend," he said. "It can be phenomenally successful targeting healthier beverages to males but it can also fall very flat – it's a very fine line."
It's fair to say then that there are some interesting times ahead for the booming iced coffee segment. And C-Stores that make the effort to give it the attention it deserves could well find their bottom line enjoying a caffeine-inspired pick-me-up.