The increasing popularity of coffee shops across many markets and the expansion of major retail brands such as Starbucks has boosted coffee consumption and provided fertile ground for the burgeoning ready-to-drink (RTD) coffee segment. Catherine Mars of Euromonitor International reports.

The proliferation of coffee shops in many markets has been a key factor behind rising coffee consumption, and among the beneficiaries of this increased demand are producers of ready-to-drink (RTD) coffees.

Traditionally, people tend to drink more coffee as they get older. However, coffee bars are today not just frequented by baby boomers continuing their coffee consumption habits, but increasingly by younger consumers in their 20s and 30s, and even those in their late teens and early 20s.

Moreover, RTD coffee is conveniently building a bridge between fully fledged coffee drinkers and teenagers, who retain an affinity for soft drinks but are gradually becoming familiar with a coffee-drinking culture. This crossover was reflected in a number of product launches in the US in the 1990s as manufacturers looked to appeal to young coffee consumers, particularly 18- to 24-year-olds.

Entry and transition products include iced coffees and chocolate and cream laden specialties, such as US market leader Frappuccino, owned by the North American Coffee Partnership, a joint venture between Starbucks and PepsiCo. The introduction of such coffees may also be intended to recruit consumers at an early age in the hope that they stick with the brand as they get older and switch to hot coffee.

Sweet and flavoured coffees have also proved popular in Asia-Pacific, once again particularly with younger consumers. Starbucks launched Starbucks Discoveries in Japan in autumn 2005, its first RTD brand to be launched outside of North America. Starbucks' move was partly triggered by fears of saturation and increased competition in the coffee shop sector in Japan, which have undermined the global coffee retailer's profits in the country.

However, Starbucks will have its work cut out building a presence in Japan's RTD coffee market, which is already well established. The use of a chilled-cup format suggests Starbucks is targeting the top end of the market where there is more potential for growth.

With a shelf-life of just 14 days, itself a marketing ploy to reinforce a fresh, quality image, Starbucks Discoveries is unlikely to be seen in vending machines, unlike the country's leading brand, Coca-Cola-owned Georgia. Starbucks is also differentiating itself by targeting young professionals, as RTD coffee in Japan, unlike in many other markets, is frequently geared towards working men. However, recently producers have been attempting to target young female consumers with distinct packaging formats, such as the aluminium bottle can.

Across European markets, the RTD coffee category has developed at varying speeds, though few countries have taken to it like the Japanese.

Deeply engrained coffee-drinking habits in Europe have meant RTD sales have been slow to take off, particularly in Mediterranean countries. However, certain Eastern European countries, such as the Czech Republic and Slovakia, have seen considerable growth in RTD coffee, as part of a general increase in western-style consumerism.

Meanwhile, in Germany the coffee shop culture has become a part of everyday life for many consumers, who are less likely to be caught up in the traditions of drinking fresh coffee at home, and are increasingly open to new formats and flavours such as specialty instant or RTD coffees.

The leading RTD brand in Germany, Nescafé Xpress, is produced by a joint venture between The Coca-Cola Co and Nestlé SA. The brand boasts high caffeine levels and is aimed at men, particularly male drivers. This overlap with the energy drink concept is an important aspect to the RTD coffee market.

RTD coffee manufacturers appear keen to tap into the 'energy can' concept, targeting 18-24-year-olds, with marketing strategies such as the use of slim metal cans. Starbucks' 'DoubleShot', launched in 2002 through its joint venture with PepsiCo Inc., is now the second biggest RTD coffee brand in the US, according to Euromonitor International, though with a market share of nearly 7% it is well behind the partnership's other brand Frappuccino, which enjoyed a 91% volume share of RTD coffee sales in the US in 2004.

By the same token, as the market for energy drinks reaches its peak, energy drink producers are themselves attempting to cash in on the RTD coffee boom, with Red Bull's launch of Krating Daeng canned RTD coffee in Thailand in 2005 a notable example.

European dairy producers have also looked to gain a stake in RTD coffee, introducing milk-flavoured coffee drinks, such as Munsterland's Eis-café and Eis-choc, launched in 2004. Madeta from the Czech Republic produces iced coffees, which are promoted for their energy-boosting characteristics. The Emmi Swiss dairy company launched Emmi Caffe Latte beverages in the UK in 2005.

Carbonated soft drinks brands are also keen to capitalise on the RTD trend with innovative coffee-flavoured products. In January 2006, PepsiCo launched Pepsi Max Cino in the UK, and France saw the launch of Coca-Cola Blak, a carbonated coffee-infused, low-calorie drink in the same month. Pepsi Max Cino comes in PET bottles and metal cans, while Coca-Cola Blak is available in 250ml aluminium bottles, so both drinks are not really classified as RTD coffee but represent a new category within carbonates.

Some observers have seen these recent introductions as risky given the number of new product failures in the sector - in the UK Nescafé Ice was dropped by Nestlé in 2002 because of low sales - but the much larger RTD coffee market in the US has managed to overcome many hurdles even though many new products have come and gone.

The UK RTD coffee sector is dominated by Kenco Ice Cappio, marketed as an indulgent, creamy chilled coffee drink aimed at impulse buyers. There are also a number of niche players, but the market is relatively undeveloped so there is considerable room for growth. Beverage companies are aware of this and are thought to be eyeing that potential eagerly.

Euromonitor International predicts that the future success of RTD coffee in the UK may in part hinge on iced coffees being made more readily available within the foodservice environment, so that consumers have an opportunity to develop an appreciation for these beverages before they commit to purchases through retail outlets.

Meanwhile, the initiative, drive and marketing muscle of big players testing the water with new product launches, while attempting to tap into the coffee drinking habits of consumers, may provide a much needed boost to the category and bring RTD coffee further into the mainstream.