A step forward

New York, Sept. 2 (Reuters): Competition in caffeinated drinks is about to heat up with Coca-Cola Co’s planned launch of premium brewed tea and coffee, a move it plans to announce next Wednesday in Toronto.

The world’s biggest drink company, which derives most of its revenue from carbonated beverages, has been experiencing sluggish sales in developed markets, as consumers shift from sugary sodas to healthier low- or no-calorie drinks such as flavoured waters.

Coke on Thursday invited reporters to next week’s preview event, confirming reports earlier this year that it was testing in Toronto a brand called Far Coast that would offer drinks such as coffee, tea and lattes.

A Coke spokesman on Friday declined to elaborate beyond the invitation’s details.

John Sicher, editor and publisher of industry newsletter Beverage Digest, told Reuters on Friday that sources said Coke would target restaurants and food-service outlets. He said it made sense since Coke is already the restaurant industry’s biggest beverage supplier, mainly through sales of fountain drinks.

“I don’t see Coke opening chains of retail stores,” which would compete directly with Starbucks Corp, Sicher said. “I see them opening a bunch of stores to showcase the brand, but long term I think it will be more of a brand and service they provide to restaurants.”

He said it was an untapped area of significant growth, which could eventually be a several-billion-dollar business.

If Coke does get into the food-service coffee and tea business, it would put more pressure on Sara Lee Corp as the food company, which also owns Senseo Coffee, restructures to pare down its portfolio.

“It can’t be good news for Sara Lee, which has struggled in this area,” said Gregg Warren, analyst at Morningstar.

In an e-mail, Coke said it had chosen Toronto as the launch site for its entry into the hot beverage category. Sicher said other likely markets include Norway and Singapore.

Rival PepsiCo Inc has been lauded by investors for its success at reducing its dependency on carbonated drinks by increasing its snack offerings. Pepsi owns Frito-Lay snacks, Quaker cereals, and sports drink Gatorade.