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Coffee? Coca-Cola thinks a java jolt will energize its business
Drummers kicked off a noon parade one Friday last month to herald the newest addition to Toronto's tony Bloor Street shopping district. Until nightfall the Far Coast store, a two-story emporium with a vaguely Asian exterior, served up 5,000 free espressos, chai lattes, and hot chocolates.
Far Coast isn't the newest competitor to Starbucks and other cozy coffeehouse chains. Instead, it's Atlanta-based Coca-Cola's splashy way of introducing the world to its new, experimental line of hot drinks. The Far Coast store was only for show. Most customers won't get to taste the hot-drink line at coffeehouses or buy the products at supermarkets. Coke is selling machines that make the drinks to outlets like hotels and art galleries.
For Coke, the Far Coast brand is a radical departure. The soft-drink maker spent five years trying to simplify fancy cappuccino and tea makers usually run in coffeehouses by trained baristas. The result is a machine that uses pods and has a refrigerated milk container so that any store clerk or waiter can brew beverages by pushing a button rather than measuring out beans and steaming milk. But it does mean that customers have to keep orders simple-machines use only one type of milk, for example, usually 2 percent. Coke plans to sell or lease the machines to businesses that want to boost their revenue without setting up an entire cafe.
Although the Far Coast venture is brand new, Coke is no stranger to the coffee business. It quickly shed a line of cold coffee drinks called Planet Java in the 1990s and recently came out with Coke Blak, cola mixed with coffee. It also owns Nestea and is selling a new cold tea drink called Gold Peak. This time, though, the company is going directly to business owners rather than to consumers.
It's not the only company using coffee in an effort to jolt revenue. After Starbucks proved that consumers were willing to shell out high prices for specialty coffee drinks, players like Dunkin' Donuts have started offering more than basic java.
Juiced up. After seeing soft-drink sales level off, Coke is pouring a number of new beverages, such as water, energy drinks, and juices. While it owns brands such as Minute Maid juices and Dasani water, Coke has focused mostly on soda.
That has allowed rival Pepsi's noncarbonated beverages, such as Aquafina water and Tropicana juice, to account for 35 percent of its business, while such drinks make up only 15 percent of Coke's, says Alton Stump, senior research analyst at Longbow Research in Ohio. Consumers are clamoring for new flavors and products, and energy drinks can be priced higher than soda, Stump notes.
Coke wants to narrow that gap by selling hot beverages to both low-end and high-end markets. Its low-end Chaqwa brand, destined for gas stations and movie theaters, has only one flavor each of coffee and tea. "People are already going in to buy coffee, but it's cheaper and worse quality," says Udaiyan Jatar, head of Coke's brewed-beverage business.
The Far Coast brand, with a menu of a dozen blends with names like Belegante and Tahaa, will go to high-end hotels and restaurants. Jatar says that a sit-down restaurant will welcome the chance to serve a consistent espresso without hiring a barista. "That's especially important when someone orders it at 4 a.m.," says George Friedmann, president of Toronto's Windsor Arms Hotel. He appreciates that Far Coast doesn't require someone trained at making espresso to run the machines. "The guy doing 24-hour room service may not be as good [at making espresso] as the person who works at 6 p.m." Windsor Arms picked up two of the Coke machines and started serving Far Coast just a few weeks ago. So far, the hotel's guests have liked the switch, says Friedmann.
Coffee "is a nice complement to our business model," says Coke's Jatar. Hot drinks bring in more morning and cold-weather customers and broaden Coke's appeal among older audiences. But for at least six months Americans will have to break out their passports to taste the new pick-me-ups. For now, Coke is selling the machines and launching Far Coast stores only in Toronto, Oslo, and Singapore-all cities where residents down a lot more coffee than Americans do.
This story appears in the October 16, 2006 print edition of U.S. News & World Report.
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