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Editor’s note: We updated the insights below on October 9, 2015, to reflect revised information following a more in-depth analysis of the data.

Australia’s love affair with coffee and our fanatical café culture has been long been documented. Our obsession with the flat white, cappuccino, macchiato, piccolo, double shot ristretto and endless other varieties leaves many Aussies disgruntled and cranky if we don’t get our morning hit.

Even at home, coffee is clearly still our favourite vice with 83% of households spending an average of $95 on coffee from grocery outlets in the 12 months ending January 2015 (up $2.8 versus the previous year).

Nielsen analysis found the coffee category in Australian supermarkets in the 12 months ending January 2015 to be worth $838.7 million, a slight decline on the previous year (down 0.4%, or $3.4 million).

The small decline in the category was driven predominantly by less households buying coffee – this may be the result of consumers opting for coffee outside the household. However, coffee buying households actually gained momentum as they increased purchase frequency and spent more per occasion. Despite less households purchasing coffee, the coffee capsules segment recruited over 132 thousand incremental households in comparison to last year, lured in by impressive choice and innovative experience options.

In fact, breaking down the coffee category’s performance by key segment, capsules is one of the biggest drivers of growth, capturing an additional 3.5 share points of the category in the past 12 months (from 7% to 10.5% in the 12 months ending January 2015) and, delivering an incremental $29.1 million in value sales in the past year. Sales performance for traditional coffee segments showed a slight contraction with the exception of the premium soluble segment that increased value sales by $5.5 million.

From a demographic perspective, there has been a clear evolution of the importance of Independent Singles, Established Couples and Senior Couples within the Capsule segment. These segments account for more than 50% of capsule sales.

The coffee category in Australia is a shining example of how the right innovation can drive profitability and growth, helping companies succeed even during tough economic times. Above all else, successful innovation – as we have seen with the capsules segment – hinges on an in-depth understanding of what drives consumer preferences.