Air and water might be the necessities of life, but ask any of the fellow Seattleites around me and they'll tell you that coffee is just as essential for existence as any air we breathe!
Apparently the feeling is mutual throughout the rest of the country, too. A 2011 survey by The Huffington Post notes that 49% of coffee drinkers would rather give up their cell phone for a month than go without coffee. Perhaps scarier, 52% would rather go without a shower than give up coffee. Try not to wrap your head around that thought for too long.
The point being Americans love their coffee, and they're more than willing to spend a pretty penny on it in both coffee shops and at home. According to data aggregator Statista, the average American spent a whopping $21.32 per week on coffee in 2013. Over a calendar year it means the average American drops more than $1,100 on coffee.
For coffee producers this last figure marks a gigantic opportunity to rake in significant profits. As we recently examined, out-of-home coffee shops are very profitable. But the same can be said for packaged coffee producers, such as those you can buy in the grocery store (or coffee shops themselves).
Of course, deciding which coffee brand to buy can sometimes be overwhelming. I've been down those grocery store coffee aisles and they can go on for a veritable mile. Based on data from Fair Trade USA, there are nearly 500 different coffee brands to choose from just in North America. Thankfully, not all of them wind up in your grocery store, but it still doesn't make consumers' choice easy. This is where the ability to build a loyal customer base would come in handy.
Brewing brand loyalty
In order to decipher which packaged coffee brand is the best at driving consumer loyalty we'll turn to research firm Brand Keys and its 19th annual Customer Loyalty Engagement Index.
For the packaged coffee industry loyal customers play two key roles. First, they act as ambassadors to the brand, sometimes without even knowing it. Packaged coffee companies can advertise to their heart's content, but the recommendation of a friend or family member will almost always hold more weight than any advertisement, regardless of media channel. If packaged coffee producers can create a loyal following, they can probably gain new customers fairly cheaply.
The other important aspect of loyal customers is that they're usually less price-sensitive than occasional packaged coffee buyers. Loyal customers aren't reliant on sales to buy a specific brand of coffee, and are thus more likely to be a higher margin customer for both the supermarket and the packaged coffee producer.
Now that you have a better idea of why brand loyalty is important for the packaged coffee industry, let's take a closer look at which coffee brands missed the mark, and ultimately what brand Americans are most loyal to.
Missing the mark
In total, Brand Keys ranked 10 packaged coffee companies after listening to responses from some 36,000 North American consumers. Perhaps the biggest disappointment on the list was the sixth-place ranking for Keurig Green Mountain's (NASDAQ:GMCR) packaged Green Mountain coffee.
The Keurig single-brew system actually revolutionized the at-home coffee industry, making it easier than ever for consumers to brew the perfect amount of coffee, as well as change flavors at a moment's notice. Keurig Green Mountain also has partnerships with some of the nation's top coffee shops.
But Keurig's downfall are its premium prices and a brand that just isn't as well-known as America's leading coffee shops. Keurig Green Mountain has had difficulty in differentiating its packaged coffee from some of the higher-ranked brands we'll visit in a moment, and it's struggled with the fact that you'll typically only find its product in grocery stores and not in coffee shops. Having a broader retail presence has probably helped its competitors rein in loyal customers.
If there is a consolation here, it's that Green Mountain ranked higher than Chock Full 'O Nuts, Eight O'Clock, Lavazza, and Peets, which ranked seventh through 10th, respectively.
A genuine surprise
Another potential shocker, especially considering that Starbucks (NASDAQ:SBUX) tied for the top spot in the out-of-home coffee category, was the coffee behemoth's third place finish in packaged coffee. Apparently consumers love going to Starbucks' coffee shops so much that it's actually hurting consumer loyalty when it comes to packaged Starbucks coffee. Ultimately it's not a bad trade-off as long as Starbucks' sales head higher.
What might be harming Starbucks' packaged coffee appeal? I'd argue that it could be the premium price that it charges relative to most other brands. Within Starbucks' coffee shops patrons expect a premium price based on the experience that its baristas can provide. However, buying a static package in a grocery store of Starbucks branded coffee doesn't have that same experience effect, and I believe price could become a factor.
What ranked above Starbucks at No. 2 you wonder? That would be J.M. Smucker's (NYSE:SJM) Folgers. The secret to ranking ahead of Starbucks in packaged coffee has been a beefed up social media campaign targeted at millennials, as well as constant innovation. For instance, Folgers has been utilizing its Folgers concentrated liquid coffee for its food service providers to help improve brew consistency, which in turn could be swaying people's taste buds toward the brand. More importantly, Smucker has been taking to social media to promote its "The Best Part" ad campaign for Folgers. On Facebook Folgers has racked up nearly 1.4 million likes.
This brand is tops in packaged coffee brand loyalty
But edging out both Starbucks and Folgers in customer loyalty for packaged coffee is the East Coast-dominant Dunkin' Donuts, which is a part of Dunkin' Brands (NASDAQ:DNKN).
To begin with, Dunkin' Donuts prides itself on being affordable. Dunkin' Donuts' coffee shops don't have nearly the same upscale vibe that you get from Starbucks, which is a bonus because it translates into a cheaper cup of coffee. The same is true for Dunkin's packaged coffee, which is more reasonably priced compared to many of its peers.
Another key point is that Dunkin' Donuts packaged coffee is offered in multiple outlets and in a variety of ways. Dunkin and Keurig Green Mountain have a partnership to produce single-serve K-Cups for the Keurig with Dunkin' Donuts branded coffee inside, which certainly appeals to single-serve Keurig owners. Additionally, it offers traditional blended coffee in both its stores and in grocery stores, giving consumers more avenues to buy its packaged coffee.
Like Folgers, Dunkin' Donuts also has a huge social media presence. The brand boasts nearly 12.5 million Facebook likes and 881,000 Twitter followers. It, too, is also following close to 57,000 people, which demonstrates it's actively engaging its customer base in a one-on-one level. Brands that are more personable are certainly easier to form an emotional attachment with, as is the case with Dunkin's branded coffee.
Although brand loyalty alone is no complete determinant of a great investment, these rankings certainly would imply that prospective investors looking to take advantage of America's love for coffee would be wise to consider Dunkin' Brands. As the leader in packaged coffee brand loyalty, and the co-leader in out-of-home coffee brand loyalty, Dunkin' Donuts has nearly mastered the formula to hooking customers for life, which could make it a solid stock to buy and hold over the long term.
Sean Williams has no material interest in any companies mentioned in this article. He needs both a shower AND coffee every morning. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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