The War Over Canadian Consumers’ Caffeine Dollar Continues

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The war over  Canadian consumers’ caffeine dollar has not shown any signs of slowing down. Whether the preference is for coffee or tea, operators are leveraging premium products, innovative menu items and incentive programs to keep customers loyal.

Statistically Speaking
Mary Chapman, senior director of product innovation at Chicago-based Technomic, explains that Coffee Café segment sales have not slowed down during the past five years. “Among our top 200 Canadian restaurant chains, this segment is the largest in Canada and its growth was also the highest,” she says. “Coffee Café sales were $8.59 billion in 2014, representing a 7.5-per-cent increase over 2013 sales. What’s clear is that coffee is the preferred beverage of Canadian consumers.”

Growth has been steady for all top coffee retailers. “Despite McDonald’s waning sales in the U.S. this year, it actually made gains in Canada by pushing its coffee program,” explains Chapman. “But Tim Hortons, McDonald’s and Starbucks — the top four chains — have consistently seen notable sales growth since 2013.” In Technomic’s recent “2014 Canadian Beverage Consumer Trend Report,” more than 75 per cent of consumers purchased regular hot coffee at fast-food concepts. While beverages at fast casuals are mainly consumed with food, beverage-only consumption is greatest for regular hot coffee with more than 81 per cent of customers purchasing the drink on its own.

Revenue garnered from coffee sales varies slightly across the country, with British Columbia charging the highest price per cup at $2.99 on average. Ontario sits neatly in the middle of the pack at approximately $2.44 per cup on average while the Atlantic region charges the least per cup at $2.17.

The Turn To Tea
Though coffee clearly leads the beverage category, exponential growth continues to characterize the tea segment, especially with respect to the increase in specialty offerings, including locally grown and/or organic looseleaf teas. Technomic reports the number of tea menu items has increased by more than 12 per cent during the past five years and that the number of operators expanding their tea menus has grown by more than five per cent within that same time frame.
Louise Roberge, president of the Toronto-based Tea Association of Canada, takes cautionary delight in this upwards trend. “Tea is getting a lot of attention these days because there are so many new formats and types of tea. There are new tea bags, new pots, but the truth is that the foodservice industry is slow to seize the variety,” explains Roberge. She notes that while most restaurants feature a beverage menu with numerous coffee choices — Americanos, cappuccinos, lattes and so on — the customer will often just see a single word “tea” to describe this huge and diverse category.

“Foodservice has always seen tea as a second thought,” says Roberge. “But they really need to embrace it as an opportunity to attract customers. Just think about it, our association has researched that people are willing to pay up to $4 for a specialty tea, served consistently and by a knowledgeable staff.” Roberge insists that much of this dilemma could be solved by properly training staff about where their teas are sourced from and how they should be served. “For starters, how about the foodservice industry actually serve tea in a teapot rather than those little metal containers,” quips Roberge. “They could also showcase the beauty of the full flower loose leafs with clear teapots or Bodums, so guests can truly appreciate the brewing process.”

But Judy Yu, marketing specialist with Richmond Hill, Ont.-based JL International, disagrees, noting that many foodservice operators are now recognizing the once-overlooked, tea-loving demographic. A distributor of big name teas such as Tetley and smaller players such as artisanal tea connoisseurs Tea Pigs, JL International distributes a variety of teas to operators. “Tetley has just launched a line of cold-brew iced teas, which is trending in the tea market. It’s got more of a fruity undertone to it and a different ingredient profile.” The cold-brew teas do not cloud in the refrigerator (like iced tea that is initially made with boiling hot water) and are available in caffeinated and decaffeinated varieties.

While Tetley is mainly distributed to hospitals, care centres and mainstream food venues, Yu says more high-end food operators are looking for niche brands to increase their price point and flavour profile. “The U.K.-based Tea Pigs is a company that’s really gaining in popularity. Considered a premium product, which uses solely whole leaf teas, flowers and herbs, customers are willing to pay more for it,” explains Yu. “It’s similar to David’s Tea or Teavana in the sense it is organic and looseleaf for those in search of a more artisanal experience.” For this reason, Yu says Tea Pigs is mostly sourced by the fine-dining segment. Milestone’s, for example, has recently launched Tea Pigs specialty teas on its menu.

Part of the reason for this artisanal trend is the price point opportunities for operators. Technomic’s “2014 MenuMonitor” report reveals that the average price for a cup tea in British Columbia is approximately $3.58, but in the Atlantic region the average price is $4.17, which is ironic considering the province’s reverse pricing in the coffee segment. Ontario teas are priced the lowest in the country at just $3.17 on average, per cup. Top flavours for hot tea are green, chai and lemon but peppermint is the fastest-growing emerging favourite. As for cold or iced teas, green or black teas flavoured with fresh lemon or mixed berries are most popular.

The Big Three
Competition among Starbucks, McDonald’s and Tim Hortons is fierce. That’s why each conglomerate is attentive to trends and product development.

But this is a competition that extends beyond the boundaries of quick-service restaurant doors and into the grocery store aisles. This past year, for example, McDonald’s began to offer McCafé Premium Roast ground coffee at grocery retailers in single-serve formats compatible with Tassimo and Keurig brewing systems, as well as a fine-grind version for drip machines.

There are also accompanying television commercials for McCafé coffee grinds across all major networks — ads which look distinctively un-McDonald’s like and more representative of a Folgers or Maxwell House commercial, featuring a couple brewing coffee in an Ikea-looking kitchen. It’s clear that McDonald’s — or rather McCafé in particular — is attempting to establish itself as the premium Canadian coffee choice both in and outside the home. McCafé also features an easy-to-achieve rewards program whereby customers can earn a free medium-sized McCafé hot beverage after purchasing any seven hot drinks.

In April, Tim Hortons launched a limited-test market of the brand’s first single-origin coffee, Three Peaks Colombian. The inspiration behind the new flavour was driven by the phenomenal response to launching its new dark roast in 2014. Tim Hortons claims the response to its dark roast was overwhelming and since its launch, Canadians have consumed more than 85 million cups. David Clanachan, president of Oakville, Ont.-based Tim Hortons Canada, says it is expanding its flavour profiles, in part because of the new generation of coffee-drinker who is naturally more adventurous when it comes to experimenting with taste. “We find that millennials especially are in search of that unique flavour and are willing to try new things,” says Clanachan. “We see expanding our coffee portfolio as similar to craft beer, wine or exotic foods. Coffee is one affordable adventure, so we’ve developed Three Peaks Colombian coffee to satisfy this new appetite for exciting flavours.”

Not to be overshadowed by coffee developments, Tim Hortons launched its new steeped tea made with whole leaves within the same month. “It’s important that we give equal attention to our tea-loving customers,” says Hailey DeDominicis, social media manager at Tim Hortons. “What’s unique about this tea is that the whole leaves are put through a steeping process and brewed in exactly the same way. This ensures a consistent, high-quality experience with every visit — similar to our coffee experience.”

So, why is tea becoming so popular? According to Kevin Reid, director of beverages at Starbucks Canada, “Coffee has always been a massive category in the foodservice segment. So you’re unlikely to see breakaway growth. Tea, on the other hand, has really taken off. There is a latent demand in the market that can still be captured — innovations and new capabilities are still possible,” says Reid. For example, there is now experimentations with tea lattes, new flavour combos for carbonated teas, blended tea drinks and other tea-related offerings being developed.

Since its acquisition of the Atlanta-based Teavana brand last year, Reid says tea at Starbucks has flourished. “We’ve just launched our Teavana sparkling tea juices and the response has been amazing,” he explains. “We’ve introduced this new piece of equipment to every Starbucks called the Fizzio, which allows for any combination of juice and iced tea to be infused with carbonation.” The vibrant colour and fresh taste has been a favourite draw for millennials. The newly launched sparkling juices are priced at $3.75 for a tall (or small) to $4.75 for a vente (or large).

On the coffee front, Starbucks introduced the cold brew in March. Essentially, cold brew requires a prolonged method of making concentrated coffee that later has to be diluted. Since expanding the cold-brew coffee from just 130 stores to more than 1,000 units in Canada, Reid says the new concoction has taken off. “The cold-brew process requires approximately 20 hours for the freshly ground coffee to steep. Then we dilute it with water and add ice. The end result gives a smooth, well-rounded, chocolatey sweetness. It’s quite different from iced coffee as a whole.”

Smaller Players
Ironically, many of the hot, new trends launched by McDonald’s, Tim Horton, and Starbucks actually originate in the smaller, independent coffeehouses across the country. Olga Braslavski, owner of Concord, Ont.-based Espresso Canada Inc. (the exclusive distributor of the Lavazza Espresso Point System in Canada) says Lavazza was the first to pioneer a quick-serve home brewing machine. “We did this 20 years ago, but now everyone in the North American market is catching up. Everyone in Italy has had one of these machines in their homes for years,” Braslavski laughs. Lavazza has supplied equipment to many smaller, independent cafés and restaurants for years and new products that cater to single-serve brewers at home, such as the Keurig, are helping consumers re-discover the brand. “This market has exploded and gone right through the roof,” she says. “It’s because this is not instant coffee; it’s real espresso.”

While the major mainstream coffee franchises may dominate the market, smaller cafés such as Toronto’s Aroma Espresso Bar are thriving with a demographic that prefers local, neighbourhood coffee shops to national chains (see story on p. 22). Tali Salvador, manager of operations at Aroma, says their customers appreciate the care and attention they receive. “We like to customize drinks for our customers. Also, our beverage menu is well complemented by a fresh and diverse food menu,” Salvador explains, “And we are always trying new things, most recently, a Middle Eastern-inspired tea made with fresh mint leaves and hint of lemon.”

Aroma orders all its tea from Pluck Teas, an artisanal tea company specializing in locally sourced, whole leaf, organically certified teas such as Creamy Milk Oolong, Field Berry Mate, and Apple on the Green (dried apple green tea). It also recently launched a cold-brew coffee. “Our customers who normally take sugar in their coffee don’t even require it with the cold brew,” she says. “It’s simply delicious — a whole new coffee flavour.”

Brewing competition in the coffee and tea industries keeps everyone on their toes. But ultimately, the winner in this fierce battle is the customer — who these days would be hard-pressed to find a bad cup of coffee.

Written By: Jennifer Febbraro

Volume 48, Number 6

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