The Coca-Cola Co., already locked in a decades-long clash with PepsiCo Inc. for supremacy in the cold beverage business, may be about to pick a fight with the nation's No. 1 hot beverage powerhouse: Starbucks Corp.
For the past two years, Coca-Cola has been quietly investigating ways to brew high-quality coffee, espresso and teas quickly in individual servings, a review of the company's patent and trademark applications shows. The company filed five U.S. patent applications in 2005 for coffee and tea "pod" designs, single-serving brewing machines, and a system to steam milk to make hot espresso and cappuccino. Coca-Cola already has been awarded two patents.
Plus, Coca-Cola in late 2005 filed nine applications to trademark the name "Far Coast" for coffee, coffee grinders, hats, fruit tea and other products.
Coca-Cola tipped its hand at a Dec. 7 analysts' conference in New York at which Mary E. Minnick, president of worldwide marketing, mentioned a brand of coffee, tea and a "proprietary dispensing technology" called Far Coast that will be launched in four countries. Sometime in 2006, she said, Coca-Cola would invest in marketing the brand.
"To deliver a good cup of coffee, you need a barista [an expert coffee-maker] and a lot of average kiosks and cafes can't afford those, so we've developed a cost-efficient technology that dispenses a perfect cup of coffee, perfect latte, perfect tea, every time," Minnick told analysts.
Launching Far Coast would be Coca-Cola's first foray into brewable coffee, a business PepsiCo has yet to enter.
Potential customers would be restaurants, cafés and kiosks, Minnick said. Busy restaurants could quickly brew coffee -- Coca-Cola coffee -- for one customer at a time without making an entire pot, patent filings indicate.
Offices that already have Coca-Cola vending machine contracts could be a logical extension.
"There is no doubt they are looking really hard at this space," said Michael Coles, CEO of Caribou Coffee Co., the second-largest coffee chain in the country after Starbucks. "I would think for Coca-Cola, who is already providing machines for offices, to be able to provide coffee would give them an edge over their competitors."
Starbucks has cornered the market on all fronts. The company, which posted $6.4 billion in 2005 sales, operates more than 8,500 coffee shops worldwide, owns Seattle's Best Coffee and has dominated the ready-to-drink coffee market for years with partner PepsiCo. Once a small company, Starbucks has come to represent 7 percent of the total coffee consumption in the United States.
In 2001, Coca-Cola entered the ready-to-drink coffee market with Planet Java -- five years after PepsiCo and Starbucks partnered on their Frappuccino brand. In 2003, however, Planet Java flopped. Now PepsiCo's and Starbucks' Frappuccino and DoubleShot coffee beverages have gained a 93 percent market share.
However, 2006 could be a breakout year for Coca-Cola. Soon, the company plans to launch Coca-Cola Blak, a coffee-flavored cola that could compete this year against Frappuccino and DoubleShot. Plus, Coca-Cola is partnering with chocolate-maker Godiva on a ready-to-drink "indulgent" coffee drink due out this spring. In addition, the company is planning to introduce a tea drink called Gold Peak, according to published reports.
Lauren Torres, a beverage analyst at HSBC Global Research, said the addition of brewable coffee could become an important weapon in Coca-Cola's arsenal.
"It's hard to ignore brewed coffee," Torres said. "If Pepsi isn't on the forefront, maybe Coke can capitalize on it."
Consumers are straying away from soft drinks and toward coffee drinks, industry statistics show.
For the first nine months of 2005, Coca-Cola's sales of carbonated soft drinks fell 4.2 percent, according to industry newsletter Beverage Digest. And PepsiCo's carbonated soft drink sales fell 3.6 percent.
Overall, carbonated soft drink sales in the United States likely have dropped 1 percent in 2005, Beverage Marketing Corp. estimates -- the first decline in decades. In contrast, 2005 sales in ready-to-drink coffees are expected to increase 19 percent from 2004. Sales in the category have been growing substantially since 2002, while carbonated soft drink sales have remained relatively flat.
Overall coffee consumption also is growing. Daily coffee drinking in the United States in 2005 rose to 53 percent of adults, up from 49 percent the previous year, according to the National Coffee Association. And every month, 200 coffee shops are built.
"I'd say it's a very healthy industry," said Joe DeRupo, spokesman for the National Coffee Association.
Coca-Cola still dominates carbonated sales, with a 43 percent market share, compared with PepsiCo's 32 percent, according to Beverage Marketing. But Coca-Cola has been beaten to the market and in market share by its rival in bottled water, coffee drinks and other beverages. PepsiCo's Aquafina water was introduced first and in 2004 outsold Coke's Dasani by 28 million cases. As for sports drinks, Coca-Cola's Powerade was introduced years before PepsiCo acquired Gatorade, but Gatorade has since gobbled up 80 percent of the market. (Coca-Cola in 2001 declined to buy Quaker Oats Co., which owned Gatorade).
Torres said Coca-Cola's slow adoption of new noncarbonated beverages has been a problem.
Coca-Cola spokesman Ray Crockett said the company is looking at the brewable coffee industry "very closely" but declined to elaborate.
Coca-Cola's patent filings indicate the potential for a machine to hold multiple pods at a time. Some specifications call for vending machine applications.
As for where Coca-Cola would get its coffee, experts say the company has been close to the vest. On Jan. 13, a Coca-Cola subsidiary in Australia announced it was buying Grinders Coffee Group, a Melbourne company that roasts, grinds, packs and sells coffee and equipment to trade customers. Its 2006 revenue is projected to be about $11 million, according to published reports.
Caribou Coffee, which has 322 stores in 12 states, is researching ways to supply coffee to pod manufacturers, Coles said. He added that the company would consider selling the pods to consumers once the market was standardized. Right now, he lamented, nearly every single-serving machine comes with a different style of pod.
"I believe someone will step forward and standardize the pod," Coles said. "And who would be better to do it than Coca-Cola?"
© 2007 Atlanta Business Chronicle