Everywhere you look, iced coffee brands are on offer. How is this changing the shape of the category, and who is benefiting?

Something strange is happening in the RTD coffee aisle. As the rest of grocery battles with double-digit inflation, the category has remained notably immune. In fact, its prices have gone backwards.

The price of take-home chilled RTD coffee has fallen by 6% [Kantar 52 w/e 14 May]. It means the average price per litre is now £3.14, down from £3.34 last year.

This isn’t because brands have been exempt from rising cost pressures. Rather, they are going all out to recruit shoppers – and promotions are their strategy of choice.

The scale of this competition is illustrated by Assosia data, which shows the number of promotions in the sector was 60.3% higher on 31 July 2022 compared with the same date the year prior.

“All the major brands are promoting, with only the value brands and own-label products not promoting,” says Abigail Kelly, head of marketing & insight at Arctic Coffee maker Crediton Dairy.

“In a category such as iced coffee which has so much room for expansion, promotions play a valuable role in recruiting new consumers as well as encouraging existing buyers to buy more and more often.”

So what kind of promotions are brands running? What success have they had in boosting sales? And what impact could they have on the category in the long term?

If you’re looking at Kantar data, the impact of promotions on volumes appears minimal. It shows volume sales of chilled coffees fell 1.6%, while value slumped 7.5% to £92.8m.

But this is just take-home data. NIQ’s analysis, which captures the sizeable impulse market, paints a more positive picture. Value sales are up 13.7% to £293.4m, while volumes have increased 6.8% to 59.8 million litres [NIQ 52 w/e 17 July].

That same data shows Starbucks, Arctic, Costa and Jimmy’s – all of which are using promotions to drive sales – have each recorded a double-digit increase in volumes.

In the case of Arctic, volumes have grown by almost a quarter. This comes on the back of a number of “low-level promotions” this summer on impulse and take-home sharing formats, Kelly says. “The levels of discount have been nothing like those seen on other brands but nevertheless we’ve seen sales increase as a result,” she adds.

A look at the Tesco website points to the scale of promotions on those other brands. At the time of writing, market leader Starbucks – which grew its volumes by 10% [NIQ] – was on a three for £3 Clubcard Prices deal. Costa, whose volumes have soared 37%, was selling its 250ml Caramel Latte for a Clubcard Price of £1. And Jimmy’s, which is up 33.5% in volumes, is part of the meal deal.

This mix of offers is typical of the market. Assosia data shows temporary single-product price promotions are the most popular mechanism overall. But there has also been a 145.4% increase in the number of loyalty card promotions, and multibuy promos have increased fivefold – albeit from a lower base.

Britvic, which purchased the Jimmy’s in July, sees these promotions as crucial to growing the category.

“Promotions are just an inevitable part of the category lifecycle,” says Russell Goldman, the company’s MD for breakthrough brands. He says price growth is coming through, despite the topline Kantar figures. “Promotions are not hurting the ability of the category to drive sales value for both retailers and brands,” he says.

And certainly it appears to be driving volumes. Goldman believes this can be done without devaluing the category.

“Relative to other categories, the level of discount is low,” he says. “In the latest 12 weeks, the average promotional discount in iced coffee was around 12%. In comparison, cola – the biggest segment within soft drinks – was 32% [NIQ 52 w/e 24 June 2023], so there’s limited risk of category devaluation.”

Multiserve growth

Plus, the decline in average price isn’t just down to promotions. There has also been a rise in multiserve take-home formats, which are nearly half the price of on-the-go packs per litre, points out Pippa Foster, associate director of commercial development at Coca-Cola Europacific Partners.

“Post-Covid, the RTD chilled coffee segment has been positioned more to the take-home shopper in grocery,” she explains.

CCEP has been catering to that shift with its Costa brand. It sells 4x250ml multipacks across its RTD Latte range and, in September 2022, it launched 750ml versions of its Latte and Caramel Latte variants. These ‘Big Latte’ products have since generated sales worth £1.5m [NIQ w/e 17 June 2023].

Costa isn’t the only one taking this tack. The number of iced coffee products available in the traditional big four, Waitrose and the discounters has grown 33.5%, when comparing 31 July 2023 with the same date in 2022 [Assosia]. And many of these new products are multiserve formats. Around a third of the RTD iced coffee products in Assosia’s data are designed for multiserve consumption, up from just over a quarter (27%) a year earlier.

Costa has led the way, having grown its number of listings among the supermarkets in Assosia’s data by 68.8%. But Starbucks isn’t far behind, with growth of 57.1%.

Having launched a multiserve format in 2022, Starbucks’ Multiserve Caramel Macchiato and Multiserve Caffe Latte have been key drivers of value growth, says Adam Hacking, head of beverages at UK manufacturer Arla. That spurred on the brand to add a Multiserve Skinny Latte in 2023.

This format “caters to those who may buy in larger quantities less frequently, and those whose purchase decisions are swayed by in-store offers”, says Hacking.

These lines go some way to explaining the growth in take-home sales of ambient RTD coffee. While it’s still a small part of the market compared with chilled, sales have soared 138.2% to £31.1m [Kantar].

The primary reason is likely to be the rise in multiserve formats, which are frequently advertised in ambient free-standing display units (FSDUs) away from the chillers, says Arctic Coffee’s Kelly.

She says these are an effective way to promote products without running discounts. “FSDUs are fantastic at creating increased off-shelf visibility and penetration,” she says.

Another way to avoid discounts is by offering something genuinely different. This is where challengers have excelled. Brands like Rokit Health and Grind are hoping to attract customers via innovations such as nitro cold brew in cans, and functional plant-based RTDs with ingredients including vitamin D, taurine and zinc.

But among the giants, the promotional war shows little sign of dying down. And as inflation continues to rise, consumer thirst for those deals is unlikely to wane, either.


Published in The Grocer, 6 September 2023


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