Industry Analysis

The global ready to drink (RTD) coffee market size was USD 71.43 billion in 2015 and the is expected
to increase exponentially on account of health benefits provided by these drinks. These drinks are being
touted as a healthy replacement for carbonated drinks which are associated with numerous health
hazards including obesity and hypertension. Improving health awareness coupled with rising disposable
income is expected to boost demand for these products.

The demand for these drinks is high among the millennials who are on the lookout for instant energy
drinks. Manufacturers have now started formulating RTD drinks with nutraceutical ingredients to
enhance the nutritive value provided by these drinks. The rising demand for on the go drinks is expected
to boost the demand for these products.

India is the worlds sixth largest producer of coffee, with a production of 304 thousand metric tons
(MT) in 2013, of which 125 thousand MT is the domestic consumption1 with the per capita
consumption being ~90 gm per year. The major channels for domestic trade are modern, traditional
retail, and national and international caf chains. The retail coffee trade is largely dominated by branded
players, with Nestl and Hindustan Unilever being the categorys leaders accounting for approximately
60-70% of the retail market (by value) in 2012. Other brands include Tata Coffee and regional players
like Narasus, Cothas, and Leos which compete strongly in the respective markets.

The channel which contributes most to the sales of branded, packaged coffee is traditional retail, i.e.
large and/or small kiryana stores accounting for approximately 70% of the total sales (by value).
Modern retail contributes approximately 20-25% of total retail sales. The market for packaged coffee
constitutes different variants, shown below

Instant coffee is highly popular in all other regions of India, which has propelled brands like Nestl to
innovate and produce packaged variants of exotic coffee beverages in ready-to-drink (RTD) formats,
e.g. instant cappuccino packs. The increasing acceptance and appreciation of coffee as a beverage, in
all parts of the country, has encouraged the established brands in this category to launch exotic ranges
to provide a heightened experience to their patrons. Hindustan Unilever has launched different flavors,
e.g. Bru Exotica Brazil, Bru Exotica Columbia, and Bru Exotica Kilimanjaro as an extension of their
product offerings to capitalize on a premium range. HUL and Nestl together have a wide range of
coffee powders, varying from Nescaf Gold (priced between INR 4000- 4500 per kg) to Bru (Green
Label, at INR 250-275 per kg) to cater to all classes of consumers.

The RTD market for coffee-based beverages is likely to grow, although it is currently at a very nascent
stage, making up less than 10% of the total coffee market in India (by value). It is largely serviced by
instant packs marketed by international players, e.g. Nescaf Cappuccino packs, and by caf chains like
Starbucks who are retailing their Private Labels.
Environmental Context
Customer
Evident customer group for this category of products (till now) are individuals in the age group of 15-
40. Some of the products are positioned as Healthy to tap the customer segment who are health
concious while others are positioned as Refreshing. So, as a whole, the customers can be defined as
the ones who are looking for a healthy drink to re-vialise themselves. The following research shall
critically question this assumption about the target group which can be defined as I may be young, but
please take me seriously.

Substitutes
Ready-to-drink coffee is a part of the soft drink industry. Though it accounts for 20% of the entire coffee
indusrty, it faces stiff competition from Other Cold Beverages like Pepsi, Coke, Fruit Juices et al. The
market captured by the substitutes is in excess of 85%.

Company
Nescafe ready-to-drink coffee is offered by Nestle India. It tries to deliver Anytime Coffee for todays
active lifestyle. Extension of Nescafe is part of the companys plan to expand its product offering across
dairy, chocolate and confectionery categories in a bid to reduce dependence on Maggi instant noodles
that accounted for 30% of the companys revenue in 2014. Amul has come up with its flagship coffee
product Amul Kool Caffe to take on the cold beverage industry. The current market share of Amul
accounts for approximately 20% agianst 40% of Nestle. Various coffee chains such as Starbucks, Costa
Coffee, Caf Coffee Day etc also provide packaged cold coffee at a premium price targeted at a niche
segment.

Insights from Discussions with Industry Experts

Distribution Channel Insights

The channel which contributes most to the sales of branded, packaged coffee is traditional retail, i.e.
large and/or small kirana stores accounting for approximately 70% of the total sales (by value). Modern
retail contributes approximately 20-25% of total retail sales.

Foodservice is expected to be the fastest-growing distribution channel with a CAGR of over 6% from
2016 to 2024. The rising number of millennials adopting the caf culture is expected to boost the
demand for these products through the food service distribution segment.

Packaging Insights

The packaging type has a direct impact on the demand for these products. The major packaging in which
these products are available is PET Bottle. The total value of consumption of RTD coffee in the PET
Bottle was over 1 billion in 2015.

The other packaging types used predominantly are canned, glass bottle and other types such as cartons
and pouches. The demand for cartons and pouches is expected to reduce over the years owing to rising
awareness about plastic pollution.

Segment Insights

Low price segment dominates the ready to drink coffee market with a share of over 37%. The demand
is expected to grow as the manufacturers are looking to introduce the new flavor and trying to capitalize
on the premium products comprising these flavors. The segment which prefers RTD cold coffee can be
defined as in the age range of 15-40 with disposable income greater than 5LPA.

Product Insights

RTD coffee which has a market share of over 20% is finding greater acceptance due to improved taste
and the introduction of new flavors by manufacturers. The rising consumption in restaurants and offices
is expected to boost demand.
Literature Review
The factors which influence the customer decision can be classified as Cultural, Social, Economic,
Psychological and Personal Factors (Kotler, 1997). To understand the Cold Coffee industry we
classified the factors in to Demographics such as Age, Gender etc. and Psychographic such as Lifestyle
etc. Through our research we have found out that the purchase occasion is of prime importance which
drives the customer decision. We have also analysed how various tangible features such as packaging,
point of ssales marketing affect the purchase of cold coffee.

A consumption occasion has a verifiable effect on consumer behviour and arises from the
aforementioned factors with a characteristics space and time of purchase, influence, consumption etc.
(Belk, 1975). For the consumption of cold coffee we analyse only the time and place of consumption
as the occasion. Purchasers for cold coffee can be segregated based on demographics and
psychographics as well. We divide the target group based on age and income. Qualitative research
suggests that the age group 15-40 are the most common consumers. Detail analysis will tell us any
differences in gender preferences for cold coffee. Personal lifestyle also plays an important role in
consumer purhase decision. Various Psychographics profiles such as household size, location have been
analysed in accordance with Activities, Interests and Opinions (Wells and Tigert, 1977). Lastly we
have considered various product characteristics such as packaging, colour, point-of-sales etc.

Qualitative Research
We now formulate the procedure to carry out the qualitative research which will be Exploratory reseacrh
using Primary Data. This enables us to understand the parameters dictating the consumption occasions
and behaviours for coffee.. The Qualitative Research is divided into the following three parts:
1. Projective Techniques
2. Finding Substitutes

1). Projective Techniques

In this process, instead of directly asking the respondent for the outcome, we camouflage our question
and ask implicit questions which will elicit the required response indirectly. For finding out the
consumption occasions for cold coffee, we ask the respondent to imagine his/her friend/family member,
etc. and conduct an enquiry as to what they would be the appropriate occasion fit for cold coffee for
their associate. The form of Projective Technique employed here is the Expressive Technique as
emphasis is on extracting the perception of product consumption than on the product itself. Basis our
analysis we arrived at the following occassions :
a). Quenching Thirst
b). Sharing with others
c). Self Indulgence
d). With Snacks / In-between meals
e). Working late at nights
f). Holiday/Trips

2). Finding Substitutes

So as to analyse the consunption of RTD Cold coffee it is imperative that we identify the substitutes
and how they effect RTD cold coffee sales. Through a direct survey conducted from the candidate pool,
we were able to zero on the following substitutes:
a). Fruit Juices
b). Lassi
b). Soft Drinks (Coke/Pepsi)