- Lavazza and PepsiCo will be launching a ready-to-drink iced cappuccino in the U.K. this summer, according to FoodBev Media.
- Although the partnership is releasing only one beverage this year, there are plans to release new drinks and tap into new additional markets in 2020, the publication said.
- The cappuccino beverage will feature Lavazza coffee and milk that is blended and chilled in a 100% recyclable can.
As coffee becomes an increasingly desirable segment that fuels the hectic lives of on-the-go customers, the space has been rapidly growing. Within this category, ready-to-drink coffee has been increasing 31% between 2016 and 2018.
Seeing this exponential growth alongside the shrinking demand for soft drinks and other sugary beverages, large CPG companies have been aggressively investing in the coffee aisle. Coca-Cola completed its purchase of Costa Coffee for $5.1 billion in January, and last month the U.K. coffee company released its first new product line since the deal closed in the form of ready-to-drink beverages. Now PepsiCo is responding with its own ready-to-drink canned cappuccino in a way that is reminiscent of the cola wars of the 20th century, except this time, the caffeine of choice comes from coffee beans rather than soda.
Already PepsiCo has a ready-to-drink partnership with Starbucks. Although Nestlé paid $7.15 billion last year to sell the brand’s drinks and coffee beans in retailers worldwide, PepsiCo still distributes the iconic iced Frappuccino and double shot espressos. The success with the Starbucks Frappuccino partnership catalyzed the first counter move by Coca-Cola, which in 2017, partnered with McDonald's to distribute a line of ready-to-drink McCafe Frappes in grocery stores.
Coca-Cola's decision to roll out new Costa products just a few short months after closing the acquisition may have prompted PepsiCo to respond. PepsiCo most likely picked the upscale Lavazza for its notoriety in Europe. Similar to Coca-Cola, this new partnership will conduct a test run in a market where consumers are familiar with the brand. If all goes well, PepsiCo plans to expand the concept into new markets that will likely include North America.
The soda giant already has an enormous global distribution system and insight into on-the-go gourmet coffee, meaning it should be straightforward for PepsiCo to tap into those resources to widely distribute its new product. Of course, if PepsiCo finds success with its Lavazza partnership and brings the product to the U.S., it could face a tough market.
Mordor Intelligence reports that in 2018, the North American ready-to-drink coffee industry was valued at $2.5 billion and is expected to grow at a compound annual growth rate of 2.7% to about $2.65 billion by 2023. Competition in the segment is fierce. Coca-Cola is not the only purveyor of ready-to-go coffee products. Nestlé acquired Chameleon Cold-Brew and a majority stake in Blue Bottle Coffee. Keurig Dr Pepper not only distributes its popular K-Cups but High Brew Coffee while Danone sells Stok, a brand it acquired in its WhiteWave deal.
As consumer demand for ready-to-drink coffee increases, large CPG companies hungry for growth are quickly expanding their presence in the space through acquisitions or partnerships. With several products suddenly lining store shelves, it may not be enough to just have a coffee product, placing increased pressure on companies to experiment with new flavors, blends or innovations to help them stand out.