March 10, 2021

“From hot coffee to cold”: Exploring RTD milk-based coffee

Ready-to-drink (RTD) milk-based coffee drinks entered the market not long after the creation of Starbucks’ Frappuccino in 1995. However, in the past few years, thanks to huge growth in the wider RTD segment, they have become incredibly popular.

The market shows no signs of slowing down, either. More and more companies are debuting RTD milk-based coffee drinks, and quality is becoming a greater focus. The global market value of RTD coffee is projected to be worth US $42.36 billion by 2027, fuelled further by coffee shop closures during Covid-19.

This raises a few questions. Why has the market grown so rapidly in such a short space of time? Why are these products so popular among consumers? And what happens next? I spoke to three coffee professionals to learn more. Read on to find out what they said.

You may also like our article on exploring RTD cold brew’s rising popularity.

Milk & coffee go RTD: A history

The concept can be traced back to Starbucks’ Frappuccino, a blended iced coffee drink first tested in 1993. George Howell, the founder of Coffee Connection (purchased by Starbucks in 1994 for US $23 million), worked with his marketing manager Andrew Frank to develop the beverage.

Starbucks launched the Frappuccino in 1995, and by 1996, the brand was netting more than US $52 million a year from the beverage alone.

Following this success, Starbucks teamed up with food and beverage giant PepsiCo to create an RTD Frappuccino to be sold in stores across the US. The drink contained brewed Starbucks coffee, low-fat milk, sugar, and thickening agents.

The inception of the RTD Frappuccino was revolutionary. It allowed consumers to enjoy the consistency of a mainstream Starbucks beverage in an ultra-convenient way.

Over time, other beverage companies soon followed suit and entered the market. In Europe, Illycaffé partnered with Coca-Cola to enter the UK RTD market in 2007. They debuted their “Illy Issimo” range of coffee and milk RTD beverages. Food company Mars released two Galaxy-branded coffee drinks five years later in the UK. And Jimmy’s Iced Coffee RTD beverages have been on the UK market since 2011. 

However, it would take a few more years for the RTD milk and coffee market to fully capture the attention of the wider coffee sector – including specialty coffee.

Where did the popularity come from?

In 2019, the global RTD coffee market was valued at US $22.44 billion. Consumer demand for RTD products is broadly driven by those aged 18 to 39. But what is it about RTD coffee and milk beverages that is so appealing, especially among millennials?

Kieran Power is the Coffee Taster and Innovator at private label coffee roaster Lincoln & York. He tells me why consumption has grown over the years.

“While cold brew still has some work to do penetrating the mainstream market, canned lattes offer consumers an experience closer to the milky espresso-based drinks they find in their favourite coffee shops,” Kieran says.

This “café-like” experience, combined with the convenience of purchasing the product at a grocery store has changed the way some consumers think about coffee. No longer do they need to pay a premium and wait for the barista; they can get a sweet, milky coffee drink from supermarket shelves.

Matthew Swenson is the Director of Coffee at Nestlé US and a Q-Arabica Instructor. He says: “It really allows the consumer to best replicate their favourite coffee shop experience on the go or from their fridge at home.

“We’ve seen a big shift from hot to cold in coffee shops over the past few years.”

These drinks are, understandably, more popular in summer. Research from Allegra found an estimated 170 million iced coffee beverages are consumed in UK coffee shops every year. Some 66% of people surveyed exclusively purchased these drinks during summer months. 

With the closure of global coffee shops due to Covid-19, RTD coffee also creates a thriving space in the market for existing coffee businesses to adapt.

“Canned products are in growth right now due to the booming retail sector (driven by the pandemic), an emphasis on take-away, and a lack of access to coffee shops during national lockdowns,” Kieran explains.

The international picture

“The US and Asia (Japan and South Korea) have rapidly growing markets [for canned milk and coffee beverages],” Matthew says.

The Asia-Pacific RTD coffee market was valued at US $14.75 billion in 2019, comprising more than half of RTD coffee’s total global market value. 

In particular, South Korea was the sixth-largest coffee consuming market in the world in 2016. Within the country, Coca-Cola-owned brand Georgia Gotica RTD coffee leads market sales.

China’s RTD coffee market is also rapidly developing. It is projected to grow by 32.9% over the next 2 years to be worth US $1.54 billion in 2023. Starbucks launched their Doubleshot Energy RTD drinks in China in June 2019 to appeal to younger demographics looking for an “energy boost”.

Todd Carmichael is the co-founder and CEO of La Colombe Coffee Roasters in Philadelphia, Pennsylvania. He emphasises how a consumer shift towards cold coffee has accelerated growth in the US.

“The demand has shifted from hot coffee toward cold,” Todd says. “This, combined with general market demand for [convenience] and mobile, and a focus on maintaining the café-quality experience has opened the door for canned lattes.”

La Colombe, along with larger coffee roasters such as Stumptown and Blue Bottle, have been contributing to the growth of the specialty RTD market in the US.

In particular, La Colombe launched their innovative “Draft Latte” in March 2016. Within 18 months of the launch, the Draft Latte comprised more than 1% of the total US RTD coffee market share by January 2018, making it the fastest-growing RTD coffee drink in the country.

The UK market has also seen some serious growth in the past two years. Costa Coffee launched its first range of RTD iced beverages in June 2019, the year after Coca-Cola bought the chain for £3.9 billion.

In January 2021, they released two more RTD milk coffees: “Vanilla Latte” and “Flat White”. Both are sold for £1.70, considerably cheaper than their coffee shop counterparts.

How are things changing?

Flavourings is one particular area of focus. Flavoured RTD coffee products have been in development since coffee first entered the RTD market segment. Much like the wider RTD market, flavoured drinks show no signs of slowing down.

Vanilla has been the fastest growing flavour in the UK RTD market with 314% year-on-year growth, while flavours like salted caramel and mocha remain popular.

Seasonal options, like pumpkin spice, also receive a solid amount of consumer interest – particularly among the younger demographics driving growth in the RTD market.

“[Flavourings allow] brand owners to cater to a much wider audience and broader consumer tastes and trends, while giving consumers more choice,” Kieran says. “At the same time, it offers a product they are familiar with.”

Meanwhile, Matthew says: “Companies are looking at milk sourcing and milk fat as a key component to deliver on the flavour, mouthfeel, and overall experience that you might otherwise expect at a coffee shop.”

La Colombe revolutionised mouthfeel in RTD with their Draft Latte. Todd explains that he partnered with Philadelphia-based Crown Holdings to create the “Innovalve”, which allows nitrous oxide to be injected directly into each latte can. This, he says, gives it a foamy, smooth texture, unlike nitro cold brew.

“Coffee and milk have always gone together, but the way they go together was where I directed my innovation,” Todd tells me. “After years of research, I found the perfect way to add texture to a cold, mobile cafe-quality coffee drink.”

Matthew adds: “[For the future], we’re seeing a lot of growth in the plant-based latte space, which [has] a lower environmental impact.”

Increasing consumer interest in dairy alternatives have seen a variety of plant-based RTD beverages enter the US market over the past few years. In early 2019, Nescafé launched two “Coffee Protein” smoothies, each containing 15g of plant protein per serving.

In February 2020, La Colombe partnered with food and beverage company Chobani to release an oat-based Draft Latte in three flavours, following the success of oat milk in La Colombe stores. They have since reported that 55% of in-store Draft Lattes have been sold with oat milk.

What does the future hold?

Innovation has been key to the growth of the RTD coffee market so far, and it seems like it will be an important part of its future. But how exactly will brands in this space innovate.

“The trade-up will continue in relation to quality,” Todd explains. “[Brands will aim to include] more real ingredients such as true dairy and ‘clean’ caffeine.

“[We also expect to see] increased pack sizes; multipacks, multiserves, and so on.”

For example, plant-based RTD beverage company Califia Farms have started sourcing their arabica coffee through a “blockchain-led” supply chain. Ultimately, this shows the desire for greater transparency and higher quality in the coffee sector spilling into the RTD market.

Health has also been an issue for RTD iced milk coffee drinks, and may be somewhere the market can improve. Allegra research indicated that more than half of UK consumers would purchase iced coffee drinks more often if they felt they were healthier.

The Starbucks Frappuccino contains approximately 68% of US consumers’ recommended daily sugar intake, so it’s no surprise that coffee drinkers are wary about the health issues. Less sugar and less fat could be an opportunity for brands looking to enter the market or diversify their offering.

Todd adds that La Colombe have been trialling “self-heating” canned lattes through something he calls ”HeatGen” technology. This creates an exothermic chemical reaction that warms the beverage to an optimal temperature in just two minutes. 

Kieran adds that there are benefits for roasters entering the RTD market, especially while coffee shops are limited during the pandemic.

“It gives roasters and brand owners an opportunity to flex their creative muscles and offer unique products,” he says. “As well as this, it keeps brand presence among their consumers in a world where on-the-go coffee might be less accessible.”

Matthew agrees, noting that canned latte products give the roaster more access to the end consumer.

“We have greater control over the full experience,” he says. “Unlike a wholesale roasted model where the consumer or barista have a significant impact on the final product, the RTD experience has the opportunity to be as close as possible to the way the product developers envision it. The possibilities are endless!”

Innovation seems set to drive growth in the fast-moving RTD sector. It will continue to drive this comparatively young market forward at a time where these products show no signs of slowing down.

The coffee industry is changing. Global coffee shop closures are commonplace, there is an increasing interest in plant-based products, and convenience is high on the agenda for consumers. With this in mind, RTD milk-based beverages could prove to be a significant opportunity for coffee brands in consuming markets around the world.

Enjoyed this? Then read our article on how café owners can tap into the cold brew market.

Photo credits: La Colombe, Chameleon Cold Brew, Illy

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