Modern solutions for hot drink preparation are becoming increasingly accessible to the average consumer. The capsule format for coffee and tea, which once seemed like an innovation more suitable for cafés and restaurants, has stopped being uncommon in households. The growing availability of coffee machines and changing consumer preferences predetermine the basis for healthy development of the hot drink capsules market.
Throughout the past 5 years, growth of the coffee capsules market in physical terms has been positive all over the world. Retail sales of said coffee category demonstrated 6% growth in 2017. Said indicator was largely achieved through successful dynamics in the Western European market, where per capita consumption of coffee capsules remains the highest today. In 2017, the average resident of Western Europe consumed 450 grams of coffee in capsules at home. The Netherlands, Belgium and Switzerland were leading in consumption in 2017, with indicators 2–3.5 times higher than the region’s average. This situation can be explained by the fairly high level of wealth among the local population as well as the established coffee culture.
Despite the fact that Eastern Europe has not achieved similar results just yet, sales of coffee capsules in said region continue to demonstrate two-digit growth. In 2017, the dynamics of this type of coffee in retail trade reached 11% in volume terms. Per capita consumption for the time period in question, on the other hand, did not exceed 20 grams on average. This indicated that Eastern Europe offers great potential to coffee capsules.
Russia is remaining below the average level for the Eastern European region for now. In 2017, the average Russian only consumed 10 grams of the product, as opposed to residents of Bulgaria, Slovakia and Czech Republic, who were consuming coffee capsules 3 times more often than the average indicator for the region as a whole.
The most active dynamics for 2017 were demonstrated by historically tea-oriented markets – primarily the Pacific Rim. Growth in the segment of coffee capsules in the region reached 19% in physical terms in 2017 and was ensured by a low consumption base as well as increasing interest in coffee in Asia.
It should be noted that the distribution of capsule coffee machines across households plays a pivotal role in the development of the coffee capsules market. The largest amount thereof in 2017 was owned by residents of Australia and New Zealand, Western Europe, and North America. The average capsule coffee machine count per household in said countries has been staying at the level of 0.1. Without doubt, this correlates to the aforementioned statistics of coffee capsule consumption in the countries in question. At the same time, growth in the number of machines in Western Europe has slowed down somewhat in the past few years, whereas in North America it has been demonstrating negative dynamics for several years in a row.
The Pacific Rim has, on the contrary, been reaching two-digit growth rates in the market for capsule coffee machines. The Near East and Eastern Europe purchased 8 and 7% more capsule coffee machines respectively in 2017. This has to do with the growing availability of said devices, which, in turn, positively affects coffee capsule sales.
Following a slight decline in 2014–2015, the market for capsule coffee machines in Russia has stabilized and achieved an increase of up to 1%.
Development of a given coffee capsule brand depends on the compatibility of capsules with coffee machine systems. In the past, upon choosing a machine, consumers had to purchase capsules exclusively compatible with it. Nowadays, however, more and more manufacturers have been designing coffee capsules suitable for most of the popular types of capsule coffee machines. For instance, the majority of players in the Russian coffee market strive to offer capsules compatible with Nespresso machines. This allows them to stay involved and in demand, competing with such giants as “Nestlé”, and to promote other categories of hot drinks, such as tea, cocoa or hot chocolate.
The share of soft coffee pods has been on the decline globally. These capsules are difficult to find in a number of countries today, as the respective coffee machine varieties are simply not popular enough. In 2017, coffee machines for soft coffee pods continued to have their share reduced in the total volume of capsule coffee machine sales. Over the past 5 years, it has dropped from 15% to 12%, and this process is expected to persist in the near future. Western Europe is leading in the number of coffee machines compatible with soft pods, but even in this region, the dynamics of ‘hard’ coffee capsules prevail.
Consumer interest in coffee capsules was largely influenced by coffee lovers desiring to obtain a professional solution at home. The quickness and simplicity of preparation captivated the modern man striving to save time. The small size of capsule machines also stimulated rapid growth in popularity of these appliances and coffee intended for them.
The actively developing coffee shop segment in countries with low per capita coffee consumption had an influence on the interest in the coffee consumption culture as a whole. At one point this factor gave impetus to sales of both regular ground coffee and coffee beans, and coffee capsules. Millennials, who tend to religiously follow modern trends and monitor the quality and history of various goods, maintain the popularity of the latter coffee variety.
Presence in modern retail plays a huge role in the FMCG market. Online commerce is becoming increasingly important as well. Having entered and actively placed in retail networks (e.g. “Nescaf? Dolce Gusto”), coffee capsules have become more understandable to consumers as a product. People have started noticing the format and expressing interest in it.
The ever-growing number of gadgets, the Internet being available to the masses, the popularity of electronic payments – all this has ensured growth in retail sales of coffee capsules.
During the past few years, all over the world retail prices for coffee capsules have been growing at a slower pace than prices for coffee as a whole. This was contributed to by increasing competition in the form of new players and coffee varieties emerging in the market. In addition, through development in retail, coffee capsules have become subject to discounts and special offers inherent to the category of coffee.
Prices have been behaving in a similar manner in Eastern Europe. In Russia, on the contrary, the dynamics of prices for coffee capsules have been higher than of those for coffee in general. Coffee formats more familiar to Russians have been susceptible to deep discounts for several years in a row, whereas the local niche segment of coffee capsules has been rapidly growing in prices.
Modern companies today are prone to expanding their product ranges not only through specialized coffee varieties or convenient and original packaging, but also through introducing capsule solutions. This is being done at both the company and brand levels. For instance, the brand “Lor” (“Jacobs Douwe Egberts”), which was created in 2017, included coffee capsules among its formats right away.
It is not only international giants that are present in the capsule market. Increasingly often, local companies have been offering their innovative solutions as well. In Russia, for instance, “May” launched its own capsules under the brand “Coffesso” a few years ago. In 2018, “Orimi Trade” also ventured into this developing market and introduced a capsule variation of its existing brand “Jardin”, already familiar to the consumer. Being one of the strongest players in the tea market, the company released tea pods as well. This solution may serve as a breath of fresh air in the tea market, which has been stagnating in physical terms for several years in a row. Even cocoa has been getting ‘capsulized’, although it is only the strongest players – “Nestlé” (“Nesquick”) and “Jacobs Douwe Egberts” (“Milka”) – that are offering them at the moment.
The global coffee capsule market is expected to develop further in the next 5 years. In physical terms, aggregate weighted average annual growth will not exceed 5%. The highest values will be observed in countries with the lowest consumption of said products, primarily the Near East, Africa and the Pacific Rim. Coffee capsule sales in these regions will demonstrate two-digit growth. It should be noted that regions with highest levels of coffee capsule consumption today – namely Western Europe and North America – are expected to continue demonstrating positive dynamics. During the following 5 years, consumption of said coffee category in these countries will be growing at up to 5 and 4% respectively.
Development of the coffee capsule format in Eastern Europe will not exceed 9%. Increased interest in capsule coffee machines and growth in their presence in modern retail will contribute to the development of this category.
The prospects of coffee capsules in Russia look less optimistic. The expected cumulative weighted annual growth for the following 5 years will stop at 3%, which, nonetheless, allows said format to still be regarded as a promising niche.
Consumers all over the globe are becoming more demanding to goods that they purchase. This fact will influence consumer expectations in both coffee machines and products compatible with them. More and more manufacturers will be entering the market for hot drink capsules, which will no longer create the impression of an oddity. Both leaders and new players in the market will be increasingly paying attention to materials used in capsule production. Plastic will gradually be replaced by aluminum due to the harm the former causes to the environment. Tea capsules will follow coffee capsules and will begin to win their audience.
Analyst “Euromonitor International”