'Tis the Season for Peppermint Coffee

The holiday-themed espresso drink has become a retail juggernaut

In the retailing precincts of Big Coffee, seasonal flavors like peppermint and pumpkin swirl together every winter into a blizzard of high-calorie, lily-gilding espresso drinks—and it works like a charm. Starbucks (SBUX) officially rolled out its so-called holiday beverage platform on Nov. 16 with great expectations. Such drinks, which cost more than double the price of a regular "tall" cup of joe, accounted for 10 percent of all hot beverages sold during last year's holiday season.

Too much is never enough when it comes to holiday coffee drinks. In addition to top-seller Peppermint Mocha Latte and powerhouses Gingerbread Latte and Eggnog Latte, which made its debut in 1985, this year Starbucks is testing a 100-calorie "skinny peppermint mocha" in California and four Southern states. Dunkin' Donuts, which got into the holiday drinks game mid-decade, is launching a less caloric gingerbread-flavored drip coffee.

The holiday drinks arms race has now descended to regional brands and supermarkets—and what once seemed like a frivolous fad has become a thriving sub-industry. Caribou Coffee (CBOU), a Minneapolis-based retailer, offers Fa La Latte and Ho Ho Mint Mocha. Maxwell House offers a Peppermint Mocha Latte mix, and Coffee-mate creamer sells flavors such as Eggnog Latte and Gingerbread Latte. Even Jittery Abe's, a café aboard the naval carrier USS Abraham Lincoln, parked off the coast of Pakistan, serves the Starbucks seasonal flavors during the holidays.

This isn't a surprise, given Starbucks' growing holiday success. Last season it sold 30 percent more seasonal drinks than the year before, according to Julie Felss Masino, Starbucks' global beverage vice-president. "The consumer has been in this comfort mood for a long time," echoes Stan Frankenthaler, executive chef at Dunkin' Brands. "We keep growing our offerings for this time of year."

Still, the recipe for success can be complicated—particularly for gingerbread. Starbucks had a New Coke moment a few years ago when it altered its Gingerbread Latte recipe. "Customers didn't like it," Masino says. "We heard, 'Bring back our favorite,' so we did." In 2006, Dunkin' Donuts added a gingerbread latte, but only after experimenting with between 6 and 12 variations, from "mustardy" to "spice cake." After customer taste tests, it chose one. "That's the exciting stuff for us," Frankenthaler says. "We're like, 'You like that? All right, let's dial up more nutmeg!'"

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