The 2019 Coffee and Tea Report

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Whether it’s an on-the-go latte from a neighbourhood café or a leisurely afternoon cuppa, Canadians love their coffee and tea. While brewed coffee showed a slight decline in foodservice orders over the last year, according to Toronto-based market-research company Ipsos FIVE/FSM, there are plenty of bright spots in the segment, with espresso-based drinks, iced coffee and hot- and cold-tea purchases on the rise.

There are clear generational preferences when it comes to the types of coffee and tea Canadians are drinking. Older demographics tend to choose traditional coffees and teas, with Ipsos’s research showing baby boomers (age 52 to 70) are responsible for 42.4 per cent of all hot coffee and 39 per cent of hot tea consumed both at home and at foodservice. The same research shows millennials are the driving force behind the growth of the specialty and iced-coffee and tea sub-segments.

Robert Carter, industry advisor for market-research company NPD Group Inc., says the demand for specialty drinks is helping independent cafés carve out a niche for themselves. “From a marketplace standpoint, we’re seeing these unique coffee places pop up,” says Carter. “They’re introducing nitro coffee, cold-brew coffee, et cetera and driving innovation in the category. Consumers are responding to that.”

Regardless of consumer support for smaller cafés, big players such as Tim Hortons, Starbucks and Second Cup Coffee Co. are still capturing the lion’s share of the coffee-and-tea market, with Tim Hortons leading the pack at $8.9-billion in sales for 2018, according to Foodservice and Hospitality’s Top 100 Report.

Carter says the availability of quality coffee and tea is continuing to expand beyond the classic cafés to places such as full-service restaurants and grocery stores. “Historically it was limited to very specific channels like coffeeshops,” says Carter. “Now you can walk into multiple different channels and have a selection of good coffee and tea.”

Delivery apps, such as UberEats and SkipTheDishes, are also helping make coffee and tea more accessible. Vanda Provato, vice-president of Marketing and Category at Second Cup, says delivery apps are positively impacting sales. “Customers want the convenience of ordering from the comfort of their home or office and the orders are often larger than we see in café,” she explains.

Convenience is key and the rise in mobile-ordering-app use shows Canadians are looking for a quicker experience at the counter (and the opportunity to earn points to put towards future purchases).

JUST BREW IT
Although coffee consumption in Canada is plateauing, it’s still a massive industry, with the Canadian Coffee Association reporting 72 per cent of Canadians consumed coffee in 2018 (up slightly from 71 per cent in 2017).

Experts agree espresso-based specialty coffees are driving the small growth occurring in the coffee category, with millennials fuelling the popularity of specialty beverages. The Canadian Coffee Association’s 2018 study shows 29 per cent of respondents aged 18 to 24 had consumed an espresso-based beverage within the previous day.

Iced coffee continues to be a popular sub-segment of the specialty-coffee category, with Technomic’s 2018 Canadian Consumer Beverage Trend Report showing a 24-per-cent increase in cold/iced or blended-coffee orders at foodservice over the past year. “We’ve seen a significant growth in the cold-beverage category,” says Provato, who points to rapid growth in sales of Second Cup’s Flash Cold Brew — the brand’s signature iced coffee — which is freshly brewed directly over ice.

Brian Turko, founder of B.C.-based Milano Coffee, agrees cold brew is steadily growing in popularity. “It’s not just in restaurants and cafés, but people are buying cold-brew set-ups for home,” says Turko. He adds the home-cold-brewing trend is still good for business, since consumers are generally buying their beans at foodservice (even if they’re ultimately consuming their coffee at home).

Within the specialty niche, operators say the types of dairy substitutes consumers prefer is evolving. “Oat milk has displaced soy,” says Cliff Hansen, head roaster for Ottawa-based Bridgehead Coffee. “It tastes better, it showcases the coffee much better and it’s more sustainable.”

Provato says Second Cup is also noticing non-dairy milk alternatives expanding. “We’re continuing to see innovation into new types of non-dairy options,” she says. “We’re exploring these options for our cafés.”

Experts are quick to point out, however, that while these sub-segments of growth are exciting, traditional coffee still reigns supreme. “Our biggest seller is still hot black coffee,” says Hansen. And, according to Technomic’s 2018 report, traditional coffee was the most widely consumed coffee beverage among those surveyed.

Technomic’s findings are consistent with the trends observed by the Coffee Association of Canada, according to its president, Lesya Balych-Cooper. “The niche [beverages] are interesting, such as cold brew and nitro,” she says. “They’re growing, but they’re still quite small.”

Within the traditional-coffee market, both Hansen and Turko point to natural coffee as a trend that’s gaining momentum. In contrast to the classic-washed-processing method, natural processing dries the coffee bean within the coffee cherry, rather than being removed immediately. The resulting coffee is “fruitier, distinctive and creamier,” according to Turko.

Hansen says the more unique, intense flavour of natural coffee is resonating with consumers. “A lot more people are intrigued by that bigger, fruitier coffee.”

TO INFINI-TEA AND BEYOND
The tea segment continues to experience growth, according to Shabnam Weber, president of the Toronto-based Tea and Herbal Association of Canada (THAC).

Weber says the general consumer trend towards healthier food-and-beverage choices is generating increased interest in tea, which has long been positioned as a good-for-you option. “If you ask anybody on the street today: ‘what do you associate with tea?’, nine times out of 10, one of those words is going to be ‘health,’” says Weber.

Billy Dietz, Tea Research and Development manager for Montreal-based DAVIDsTEA, agrees the health benefits of tea are a key motivator for consumers. “Many of our customers are looking for a healthier juice or soda alternative,” says Dietz. “While a few of our blends contain calories, the count is much lower than most bottled juice on the market and it still delivers the punch of flavour that customers crave.”

Carter says specialty teas — including “functional” teas offering added health benefits — are among the main drivers behind the gradual expansion of the tea category. “It’s a small segment, but it’s growing dramatically,” says Carter.

Weber notes functional and fortified teas are a natural extension of the inherent health qualities of tea. “Companies are now enhancing their [tea] products with additional vitamins and other goodness,” says Weber. “We’re going to see more of that.”

Experts say iced tea continues to be another significant area of growth within the tea category. Last May, Second Cup launched its new Iced T-Fusions, brewed iced teas paired with fruit flavours. Provato says these new iced-tea products are showing “strong early performance.”

Dietz says DAVIDsTEA is seeing noticeable seasonal shifts towards its “iceable” blends, such as Frozen Raspberry and Caribbean Crush.

Jennifer Commins, founder and CEO of Toronto-based Pluck Tea, also reports growth in iced-tea sales. However, she says many operators have been slow to add freshly brewed iced teas to their menus, which she calls a missed opportunity for foodservice establishments.

“There’s lots of ways to make iced teas,” says Commins. “You can make simple syrups, use sodas to dilute them or combine them with locally pressed juice. You can add great, healthful options to make premium drinks. It’s giving a restaurant a whole new pantry of flavour options.”

Commins notes freshly brewed iced tea sometimes intimidates consumers who are unfamiliar with it, but it’s often easier to prepare than traditional tea. “Just like with wine, when we chill tea, the flavour profile changes radically,” says Commins. “So, you can get away with something that’s really over-steeped or steeped at the wrong temperature.”

According to THAC, about 70 per cent of tea in Canada is enjoyed hot. Weber says for the iced-tea sub-segment to really take off, Canadians need to begin thinking of tea as a drink that can be enjoyed year-round. “We’re still a hot-tea-drinking nation,” says Weber. “There is an opportunity for growth by making people see this beverage can be enjoyed hot or cold.”

COME AGAIN
Loyalty programs and mobile apps are becoming more important than ever in foodservice, with the Coffee Association of Canada reporting 16 per cent of coffee drinkers used a loyalty card in 2018, while seven per cent of respondents ordered coffee through an app. “It’s vitally important that [restaurants] have a solution where consumers can order ahead and collect loyalty points,” says Carter. “The coffee player needs to get more from their existing customers and steal from their competitors, since the market growth is relatively flat overall.”

Tim Hortons, Starbucks, McDonald’s and DAVIDsTEA revamped their loyalty offerings in early 2019. Tim Hortons launched its new Tims Rewards Program in March 2019, giving customers the option to collect rewards through a physical card or the Tim Hortons app. The customer response to the new program has been strong so far, with the brand reporting “more than 20 per cent of the population of Canada” has used the loyalty program and about 50 per cent of customers scan loyalty cards in its restaurants every day.

Starbucks updated its Starbucks Rewards program in April 2019 with changes allowing customers to redeem rewards sooner (customers can collect “stars” on a preloaded Starbucks card or use the Starbucks app); while McDonald’s launched a new mobile version of its McCafé Rewards in January 2019 (although customers can still collect points using the old on-cup rewards system).

DAVIDsTEA also updated its Frequent Steeper loyalty program in January 2019, allowing customers to collect points using a physical card or key fob (a mobile app is in the pipeline). “Our Frequent Steeper program has an incredibly high participation rate, as 80 per cent of our customers are members,” says Dietz.

At Second Cup, Provato says the brand’s loyalty program is “a key part of our growth strategy,” adding the Second Cup Rewards Program accounts for a quarter of its annual sales. The brand is poised to launch pay ahead via its app and website later in 2019 — one of the brand’s biggest initiatives for the year.

While larger chains are increasingly offering pre-ordering via their own branded apps, many independent cafés are getting into the skip-the-line game through third-party pay-ahead apps such as Ritual, a meal-pick-up app that partners with restaurants in several major Canadian cities. Ottawa-based Bridgehead Coffee has its own app that customers can use to collect loyalty points, but it turned to Ritual (which launched in the city this year) to allow for pre-ordering.

“Pre-ordering pick-up apps are having a big impact on people,” says Hansen, who notes balancing pay-ahead orders with at-the-register customers was challenging at first. “It was briefly [challenging] as we found our legs with it, but once we got the flow down it became easy,” he explains.

Starbucks Canada has taken things one step farther by launching door-to-door delivery service in partnership with Uber Eats. Starbucks Delivers is available in major cities, including Toronto, Vancouver and Calgary and the company expects the service to help it reach new customers using the Uber Eats platform, as well as offer existing customers added convenience.

Written by Jessica Huras

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