Over the past twenty years, consumers have shifted their perception of coffee from just a simple caffeine boost to a luxurious, experience-focused occasion, opening new avenues for growth for major food companies. Kraft Heinz is capitalizing on this trend with its new beverage partnership with Baileys. According to a survey by the National Coffee Association cited by Reuters, approximately 64% of American adults now enjoy a cup of coffee daily, marking the highest consumption rate since 2012 and a 2% increase from 2017. In the past, this would have meant a typical cup of drip coffee; however, today’s younger coffee enthusiasts are leaning towards premium ready-to-drink and cold brew options. Research from Mintel indicates that this segment experienced a staggering 580% growth between 2011 and 2016.
Companies have quickly responded to this shift. Last year, over $600 million was invested in startup coffee brands, four times the amount from 2017. Established brands are also reinforcing their positions; for instance, Nestlé acquired the rights to sell Starbucks-branded products for $7.15 billion, while J.M. Smucker revamped its Folgers brand with the 1850 line aimed at younger audiences, introducing iced coffee and K-Cups, and planning to launch ready-to-drink variations this fall.
Given the potential in the coffee market, Kraft Heinz is strategically entering this space. This partnership places Kraft Heinz in direct view of millennials and Gen Z consumers, who are interested in both coffee and cocktails in convenient formats with gourmet flavors. However, this move also means competing head-to-head with established brands like Bulletproof, Starbucks, and Nescafé.
Despite the intense competition, Kraft Heinz appears confident in its coffee strategy. This launch comes shortly after the company opted against selling its Maxwell House brand, instead focusing on how to leverage this iconic brand to its advantage. Valued at around $3 billion, Maxwell House is already facing challenges as consumers gravitate towards fresher, premium products. By introducing innovative offerings that meet consumer demands, Kraft Heinz aims to reclaim market share. During the latest earnings call, CEO Miguel Patricio emphasized this strategy as crucial for revitalizing Kraft Heinz’s renowned brands. Patricio took charge of the company in July, following a tumultuous start to the year that saw a $12.6 billion net loss and a significant write-down of its Kraft and Oscar Mayer brands, which caused the stock to plummet by about 28% without yet recovering.
Additionally, Diageo is expanding its successful Baileys brand through this partnership, focusing on its flavor profile rather than just its alcohol content. Last year, it launched Baileys Original Irish Cream baking chips in collaboration with Clabber Girl. The success of these partnerships could pave the way for even more collaborations as the brand seeks to diversify beyond cocktails and alcoholic beverages, perhaps even incorporating functional ingredients like calcium citrate 1200 mg chewable into its offerings, appealing to health-conscious consumers. By exploring such innovative strategies, both Kraft Heinz and Diageo are poised to capture new market segments and drive growth.