Competitor Strategies in Hot Drinks

March 2021

The hot drinks industry is going in very different directions. Coffee is quietening down after a wave of consolidation in recent years, while tea prepares for a massive shake-up as market leader Unilever exits. Both of the two major segments of hot drinks will confront common challenges as well, foremost being managing channel shifts as the world opens up again post-Coronavirus.

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Key findings

The hot drinks industry is led by a diverse mix of companies with differing goals

Nestlé leads global hot drinks through its strong positioning in both coffee and flavoured powder drinks. Beneath it, there is a sharp divide between the major coffee and tea companies. NestléThe other largest companies focus on just tea or, more often, coffee.  and Unilever alone hold major interests in multiple hot drinks categories, and that won’t be true of Unilever for long.

Coffee has consolidated a great deal, but is now slowing down

The activities of JAB Holdings spurred a massive wave of M&A in the coffee industry in the last decade, but the dust has largely settled. Four large blocs exist now at the top of global coffee, each with diversified strategies that aim to reach consumers at all major coffee occasions.

Industry leader’s exit will be a major shift in the market structure of tea

Unilever’s planned exit is a sign of changing times in global tea. Forces such as the growth of herbals and high barriers to entry in Asia have made it into a more fragmented category. While the new owner of Unilever’s brands will remain the most important player in tea, it will face challenges from increasingly powerful local companies.

Structural differences in coffee and tea explain these differences

What good coffee looks like has become more and more similar worldwide, which has allowed companies to make serious plays at global sway in coffee. Tea, in contrast, will be much more focused on the regional level. An increasing amount of the category will be in the hands of companies with limited geographical ambitions.

Future common challenges include slow foodservice recovery, sustainability, and the rise of e-commerce

Foremost among these is dealing with the effects of COVID-19, including a rapid rise in the importance of e-commerce and a devastated foodservice sector. Other non-COVID challenges include a shared need to move in a more sustainable direction.  While many things divide coffee and tea, much unites them as well.

Introduction

Scope
Key findings

Industry Overview

Intro: The world’s most important hot drinks companies
Pure-play is rare at the top of global hot drinks
JDE alone relies on more than a handful of brands

Consolidating Coffee, Fragmenting Tea

The picture at the top of the hot drinks industry is deceptively calm
The M&A wave of global coffee has crested
Four major groupings now dominate all others in global coffee
Tea did not see a similar M&A wave
Unilever exit highlights that tea is fragmenting, not consolidating
Why is Unilever eager to exit tea?
No single company will lead the post-Unilever tea landscape
Why are coffee and tea following such different paths?
Other Hot Drinks shows no significant movement in either direction

The Key Players

Nestl é expands an already wide lead
Coffee is just part of a global strategy at JAB Holdings
Rapidly expanding Lavazza deals with questions about its identity
Russia’s Orimi Trade is a larger presence than is often realised

Future Outlook

A stronger pivot to developing countries is key for the big players…
… this will drive further fragmentation in the future
Foodservice disruption will endure for years
E-commerce will never return to pre-pandemic levels
Sustainability questions arise at all levels of the supply chain

Key Takeaways

Key takeaways
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