Coca-Cola may take on Starbucks

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?"

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