Taco Bell’s iced coffee test signals a growing competition in the categoryTaco Bell’s iced coffee test signals a growing competition in the category

The demand for cold brew and iced coffee is surging, evidenced in part by last year’s double-digit growth of cold brew makers.

In fact, according to the National Coffee Association, one in five Americans under 40 consume a cold brew at least once a week, versus 2015, when cold coffees were “virtually unknown.” This uptick has become crystal clear at Starbucks, which now generates 75% of its sales from cold beverages.  The company’s “cold category” has grown 10% throughout the past two years.

Taco Bell seems to be looking for a bigger piece of that market. The company is testing three new iced coffee flavors – Dulce de Leche, Mexican Chocolate Mocha and Sweet Vanilla – in the Fresno, California, and Philadelphia markets for a limited time. According to a company spokesperson, the Mexican-inspired offerings are priced at $2.99.

Taco Bell is constantly testing new items, so a two-market pilot may not turn a lot of heads, but there is a bigger narrative here should these beverages roll out nationally. The chain has been offering iced coffee since the launch of its breakfast daypart in 2014. Just recently, however, has it started exploring variations, including a Cinnabon Delights Coffee introduction in March. That, along with this new test, signals the nascent category is primed for a deeper marketing and innovation push.

Consider Tim Hortons, which didn’t add cold brew until last year, while Chick-fil-A introduced a mocha cream cold brew in 2020. McDonald’s now has 10 iced coffees available, while Dunkin’ now offers six iced coffees on its permanent menu, as well as a standard cold brew, and regularly adds seasonal variations. Consumers are making it clear they want more cold brews and iced coffees, and brands are responding with more offerings accordingly.

But there’s more opportunity here than simply attracting a captivated and growing audience. A deeper cold beverage lineup presents the chance to create habituation and therefore frequency. Beverages also add tend to be highly profitably and add to check sizes. For Taco Bell, a more robust coffee lineup offers the chance to beef up the chain’s afternoon snack and breakfast sales. That morning daypart in particular could use a boost as competition intensifies in the space. Wendy’s, for instance, jumped back into breakfast in 2020 and offers a highly differentiated Frostyccino line.

New data from The NPD Group finds that quick-service breakfast is recovering from a pandemic lull, with August visits up by 5%, representing a 1% increase over 2019 levels. This is good news for those who play in the daypart, as breakfast is the most profitable part of the quick-service business, according to Credit Suisse analyst Lauren Silberman. In 2020, the daypart generated $35 billion in sales. Driving most of those profits and sales? Coffee.