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October 28, 2012

If You Think That the Future of Coffee Machines is All Pods, Think Again

CoffeePodsBeansCrop1FINALAnalyst Insight by Lorenza Della Santa, Senior Analyst – Consumer Appliances at Euromonitor International

There are many untapped opportunities in the global coffee machine market, and they are not just in pod formats. True, pods are driving sales in North America, the world’s biggest coffee machine market and also the most dynamic. Here overall volume sales of coffee machines are forecast to expand by an additional 6 million units annually by 2017. In context, this is six times bigger than the absolute growth expected in Western Europe. 

Behind this phenomenal growth in North America lies the success of hard pod coffee machines which, according to new data from Euromonitor International, are set to become the preferred format by 2014, overtaking cheaper and traditionally more popular filter coffee models.

Western Europe: penchant for premium

Does this mean that Western Europe has run out of steam? Far from it. In fact while Western European consumers are expected to buy fewer coffee machines in the mid-term, when they do, they will spend far more per machine than anyone else.

The standard coffee machine market, which includes all standard brewing systems (espresso, filter, percolators and combination coffee machines) is worth over US$2 billion in Western Europe, almost double that of North America. In the old continent consumers spend an average of US$144 on a standard coffee machine, in North America it’s just US$42.

Standard Coffee Machine Sales, US and Western Europe, 2012-2017
ScreenHunter_33 Oct. 25 15.31
Source: Euromonitor International

That Western Europeans are prepared to invest in their coffee machines does not come as a surprise since they also spend the most on fresh ground coffee globally. We estimate that in Western Europe consumers will be spending an extra US$2.2 billion annually in fresh coffee in the next five years. Come 2017 the regional market will be worth US$19.6 billion, the size of North and Latin America combined. And they are willing to pay a premium to prepare it properly.

Fresh Coffee Sales, US and Western Europe, 2011-2016
ScreenHunter_34 Oct. 25 15.32

Source: Euromonitor International

Look for value growth beyond pod machines

We are already seeing that the thriving volume sales of pods machines are not delivering the boost in value that manufacturers had once hoped for. Quite the contrary, in fact, as increased competition in the segment combined with model diversification is driving the price of pod machines down, while standard coffee machines, such as espresso and filter, are instead undergoing premiumisation.

So while it is true that, in absolute terms, consumption of coffee pods in Western Europe is expected to post the largest growth in the mid term, it is also true that fresh ground coffee and coffee beans combined still account for 74% of the total fresh coffee market value, and this predominance won’t change in the near future.

Western Europeans do spend more than anyone else on their coffee, and are prepared to pay for a coffee machine that does it justice it. So how can manufacturers make the most of this counter-intuitive trend in a tough economic climate?

Perhaps by investing more in open coffee brewing systems, manufacturers could find favour with consumers who might be willing to spend more for a coffee machine that offers them free choice rather than being tied to a brand for life. The coffee machines market has already proved itself responsive to innovation, and Western European love of coffee is certainly resilient enough to suggest there is scope for premium options beyond the pod.


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