China saw a small revision in Q4 ,with a rise in forecast CAGR over the next few years of around a 10th of a percentage point. Because of the size of the Chinese market though, this tiny change was still enough to make it the single largest source of absolute revisions to the global market this quarter. This is reflective of China’s major role in global hot drinks, which has grown considerably in recent years, as large numbers of Chinese consumers have switched from loose teas to packaged, branded products.
Positive revisions in China are the leading source of change in Q4
China saw an upgrade of only about a 10th of a percentage point to its annualised hot drinks growth rate over 2016-2021, but because China is the largest hot drinks market in the world this translated into an absolute revision of USD131 million to the 2021 baseline. Other major hot drinks markets, like Brazil and Germany, also saw minor upgrades that had an outsized global impact because of the size of their hot drinks markets. The US saw the largest downgrade, for similar reasons. While the change to its forecast growth rate was minimal, because the US trails only China in importance to the global hot drinks market its downward revision was the largest in the world, despite the much more significant revisions to smaller markets like Nigeria and Algeria.
Q4 highlights China’s growing importance to global hot drinks
China is the world’s largest market for tea and for hot drinks overall. As a result, it has a large degree of influence over global topline growth figures. This was made clear in Q4, when a revision of sixth tenths of a per cent from the 2021 baseline was the largest absolute revision globally by far. China’s importance has grown quite considerably in the last two decades. In 2002, it was responsible for less than 9% of global hot drinks sales. In 2016, that was up to 13%.
China is still a relatively minor player in global coffee (at just about 1% of global retail sales), and while it is a major market for other hot drinks, its global importance there has remained consistent. It is in tea that China’s importance has really taken off, as large numbers of Chinese consumers have shifted from low-value unpackaged products to branded teas. The results of this shift have been dramatic: 27% of all retail sales of tea worldwide now take place in China, up from just 14% in 2002.
Source: Euromonitor International
Continued income growth is essential to category expansion in China
Growth in Chinese hot drinks is reliant on continued economic growth that will allow more Chinese consumers to afford to enter the packaged tea category. While tea consumption is strongly engrained in Chinese culture and resistant to economic fluctuations, consumption of packaged, branded products is not. In the event of an economic slowdown, consumers looking to cut costs would halt their shift into branded products and stick to inexpensive unpackaged tea leaves. Trading up within packaged tea and population growth are also positive drivers of tea value growth, although they are playing less significant roles than rising consumer incomes. Growth is split between black, green and “other” forms of tea, such as pu-er. Not all forms of tea are benefiting. Instant tea is falling rapidly out of favour with Chinese consumers, and is expected to contract considerably during the forecast period.
China leads revisions, showing the growing importance of China to the global hot drinks market
China is the world’s largest market for hot drinks at retail, and even small fluctuations in its growth forecasts can have significant effects globally. This is primarily due to its tea market, which is the world’s largest by some distance, at USD11.7 billion in annual sales in 2016. China now accounts for over a quarter of global tea sales, thanks to a large-scale consumer shift into packaged products.