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Consumer and Innovation Trends and Future Growth Opportunities in Coffee Tanvi Savara Food and Drink Analyst, Datamonitor Consumer ICO Coffee Seminar 2014 March 2014 Agenda About Datamonitor Consumer preferences for coffee Five key sub-trends affecting the coffee industry Coffeefruit: one to watch SummaryAbout Datamonitor Consumer Consumer Innovation Market Insight Tracking Assessment Real insight on Uncover new trends in Identify new hot spots real consumers products and in the marketplace packaging 3 Source: Datamonitor ConsumerAgenda About Datamonitor Consumer preferences for coffee Five key sub-trends affecting the coffee industry Coffeefruit: one to watch SummaryCoffee preferences are driven by taste, price, and health Most highly influential factors when choosing hot drinks (including coffee) Global Australia Brazil China Germany UK US average 1 1 2 1 1 1 1 Taste 2 4 5 2 2 2 2 Price 3 2 1 4 3 3 3 Healthiness Natural 4 3 3 3 4 4 4 Ingredients Source: Datamonitor's Consumer Survey 2011; 20 countries surveyedThe importance of eye-catching innovation How do you usually choose which coffee to buy? Source: Datamonitor's Consumer Survey 2011Consumers are open to new innovation in coffee What is your approach to buying new coffee products? Source: Datamonitor's Consumer Survey 2011What percentage of new products fail?It is estimated that 80% of new products fail within the first year of launch Source: Datamonitor analysis. Depending on how failure is defined and measured, this number can vary between 50% and 90%"Innovation is one of the main drivers for organizational success. Despite constant developments in product design and marketing, most new products fail … However, the failure of innovations is most often due to a lack of understanding of consumer needs." Bartels and Reinders, Journal of Business Research, 2011Agenda About Datamonitor Consumer preferences Five key sub-trends Coffeefruit: one to watch SummaryDatamonitor's TrendSights framework consists of eight mega-trends Health & Wellness Individualism & Expression Sensory & Indulgence Evolving Landscapes Sustainability & Ethics Smart & Connected Easy & Affordable Comfort & UncertaintyFive key sub-trends affecting the coffee industry 1. Cocooning 2. Sensory Fusion 3. Made for Me 4. On-The-Go 5. Weight Management Cocooning Deconstructing the trend WHAT? • Creating "insperiences" that bring traditional out-of- home experiences into the comfort of the home. WHY? • People are doing far more from home now than in the past, and doing it with added sophistication. HOW? • Replicate the café experience at home. The quest for value is creating demand for at-home alternatives 66% 47% are giving up some of are making an effort to their favorite brands to save more money save money. following the economic downturn. Source: Datamonitor's Consumer Survey May/June 2011; images: "People during the downturn are more worried about going out, so instead of drinking coffee outdoors, we're seeing more people preferring to consume the drink at home without compromising on quality." David Rogers, home sales and marketing director for Lavazza Coffee UK, quoted in The Wall Street Journal, October 2012Single-pod coffee machines offer a better-value alternative to out-of-home purchases Tassimo Vivy is a compact Nespresso U – "Consumers coffee solution that will help now appreciate the full café consumers to "get their experience (aroma, choice, coffee shop fix for less at quality) and want to recreate home."² this at home."¹ Source: 1 Appliance Retailer, August 2013 – Image: Appliance Retailer 2013; 2 Bosch UK June 2013 – Image: Bosch UK WebsiteFoodservice brands are exploiting growth opportunities in the retail market Costa Coffee Starbucks Verismo Dunkin' Donuts Tassimo-compatible system – "Your ground pumpkin capsules – favorite Starbucks coffee – "Bring home "Experience the magic beverages. All at the best flavor of the of Costa in the comfort home, all from one season."² of your own home."³ machine."¹ Source: 1 Verismo Website 2 Dunkin Donuts Website 3 Costa Coffee UK website Kenco Millicano recreates the café experience at home Finely milled whole bean coffee combined with instant coffee for a "rich and full- bodied" taste. "Coffee shop culture" has driven demand for premium tasting coffee at home. Sales grew £3.3m (5.4m) from July 2012 to July 2013. Source: Datamonitor's Successes and Failures: Kenco Millicano Sensory Fusion Deconstructing the trend WHAT? • Pursuit of exciting and novel sensory experiences that combine taste, texture, smell, sound, and/or shapes. WHY? • To meet growing consumer demand for more sensually indulgent products. HOW? • Maximise sensory appeal by developing exotic flavor blends, converging with other product categories (e.g. hot drinks and carbonates).

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