August 27, 2015 / 3:07 PM / 3 years ago

Peet's sees U.S. premium coffee demand soaring, driven by millennials

NEW YORK(Reuters) - Millennial consumers are driving a shift in coffee consumption away from traditional economy brands and toward pricier, higher-quality beans, the chief executive officer of Peet’s Coffee said in an interview.

A cup of coffee sits on a table in Starbucks' Vigo Street branch in Mayfair, central London January 11, 2013. REUTERS/Stefan Wermuth

The growth in the premium coffee segment comes as the third major coffee category in the United States, single-serve, has exploded in recent years.

Taken together, the rise of single-serve and premium has boosted overall coffee consumption, and both are catching up with the economy coffee sector, dominated by the biggest U.S. roaster J.M. Smucker Co, maker of Folgers, and Kraft Heinz Co, maker of Maxwell House.

“We’re seeing now a whole generation of millennials. They’re coming into their own as coffee drinkers,” Dave Burwick, Peet’s chief executive officer, said in an interview last week. “They’re the ones who are choosing better coffee right out of the gate.”

Nielsen data provided by Peet’s shows that 58 percent of American households purchased coffee in the second quarter of 2015, up from 57 percent in the same period in 2014.

This was driven by growth in household penetration of the premium segment, defined as coffee sold in bags, to 18 percent from 16 percent last year.

On the other hand, economy coffee, defined as coffee sold in canisters, reached 28 percent of American households, down from 29 percent.

The country’s largest brands showed almost no growth in dollar sales in the 52 weeks ended July 4, the data showed, with Maxwell House growing by 1 percent and Folgers registering flat growth.

To be sure, that period coincided with higher prices for major economy brands, due to a drought in top-producer Brazil, which hurt sales.

Smucker and Kraft cut prices 6 percent in early July, though it is not yet clear if sales have improved.

But premium, higher-priced brands like Starbucks and Dunkin Donuts grew 11 percent and 5 percent, respectively, during that period. Peet’s, which prices its products 10 percent to 12 percent above Starbucks, saw the highest growth of any major coffee brand over the period, at 22 percent.

This shows that in addition to millennials’ preference for premium, consumers in general are paying up to switch to higher-quality blends, Burwick said.

“It’s not about the cheapest cup of coffee anymore. It’s about the best, or most convenient,” he said. “Once you go to a darker roast or a better quality, it’s very unlikely that you go back to the economy segment.”

Editing by Lisa Shumaker

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