Sales revenue from coffee pod products grew by 52% to £102m ($157m) in the UK in 2014. Volumes grew by 54% to more than 310m cups sold.
Whereas the supermarket in-store range would average at 14 items five years ago, shoppers can expect to find an average of 23 items on the shelves.
But Jen Ayling, analyst, IRI, says brands should look to online sales and discount stores, because of emerging changes to supermarket shelves.
Coffee shop menu at home
Ayling told BeverageDaily.com consumers have developed a taste for premium products and coffee shop favourites – cappuccino, latte, and macchiato pods take a 62% chunk of sales.
“Having had the experience of the coffee shop menu, consumers now want that experience at home - as we’ve seen with pizzas and hair dying,” she said.
“The drop in machine prices has opened up the market to more consumers. We are seeing traditional hot beverages categories like instant coffee and tea decline, suggesting a degree of trading up.
“Similarly, we are seeing big growth in super premium instant coffee as well,” she said. (Brands like Azera and Millicano have driven this sector up 27% to £63m / $97m).
Room for more Nespresso compatible brands
Kraft takes a 51% share of the coffee pod sector with its Tassimo brand, with £58m ($90m) in sales value for 2014. Nescafe’s Dolce Gusto takes a 41% share (2014 sales value £46m / $71m). Philips’ Senseo takes 3% of the market.
IRI’s figures do not track premium brand Nespresso (which sells through boutiques and online).
But with Nestle’s patent on Nespresso coffee pods expiring in 2011, Nespresso compatible pods are springing up. CaféPod, Dualit, and Carte Noire take 3% of the market – not a huge chunk yet, but a category so far showing 354% year on year growth.
"I would expect more Nespresso compatible pod brands to enter the market, as it's growing fast and there is a big slice of business to go after,” said Ayling. “The patents around Tassimo and Dolce Gusto are still in place, so it’s not possible to go after their business.”
Ayling says coffee pods are driving the entire ground coffee sector forward, with the ground coffee market showing 14.1% growth in sales value to £267m ($412m), and up 4.8% in volume.
Supermarket shuffles
Although brands always have to jostle for a place on supermarket shelves, competition is even fiercer in the coffee pod sector. Packs of coffee pods usually take up more space than a 100g jar, and stores may only sell bestselling products, warns Ayling.
In addition, supermarket shelves are changing – Tesco recently announced plans to simplify its choice for consumers, while Sainsbury’s will welcome branches of Argos into its stores as it looks for new ways to use space.
“Recent announcements from the top four retailers indicate they have learnt from the discounters and are looking to maximise profitability from in-store space,” Ayling said. “Coffee pods is a niche market compared to bread and milk, so their space will be under pressure as with other items in-store.
“However, they are a premium product, more profitable, and therefore may have some level of protection."
Ayling predicts growth of coffee pod sales online, as brands look for alternatives to supermarket retailing.
Discount stores are another way brands could get their products out to consumers, she added.
"The discounters are an obvious gap, we know everyone is shopping in these stores now, so exclusive sized packs would be a good option,” she said.