Hot Drinks: New Products Focus on Premiumisation and Functionality

Strategy Briefing

About This Report

Oct 2016

The global hot drinks industry is enjoying strong growth, as the expansion of specialist coffee shops and tea specialists familiarises consumers with premium coffee and tea offerings. Rising health consciousness is also driving growth in functional hot drinks. The report identifies some of the most notable examples of global product development in hot drinks from Euromonitor International’s latest research.

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Hot Drinks: New Products Focus on Premiumisation and Functionality

Expansion of coffee shops has created demand for better retail coffee

As specialist coffee shops, including Starbucks, Costa Coffee and others, have expanded globally, more consumers have become familiar with better quality coffee and speciality coffee drinks, such as cappuccinos and lattes. Consumers are looking for milkier products like cappuccinos and lattes they can make at home.

Consumers want to know the story behind coffee

Coffee drinkers, especially millennials, increasingly want to know how, where and by whom their coffee was produced. Shoppers are looking for more transparency and are driving growth in coffee with an ethical label, such as Fairtrade, UTZ Certified, The Rainforest Alliance, or “direct trade”, where they can be assured that workers and the environment have been treated well.

Tea specialists have inspired more premium teas and unique flavours

Similarly to how coffee shops have raised consumer expectations about retail coffee, the expansion of tea specialists, such as Davids Tea, Teavana and T2, has served to educate consumers about quality in loose leaf tea, as well inspired unique flavour blends, such as Mango Fruit Punch and Pink Flamingo. In turn, makers of packaged tea have introduced multiple flavour blends and more premium offerings

Tea makers are focusing on the health benefits of tea

Tea has been viewed as a traditional remedy for a long time. As consumer awareness of health and nutrition rises, tea makers are increasingly highlighting the inherent health benefits of tea, as well as adding functional ingredients, such as probiotics and maitake mushrooms, to market additional benefits.

Coffee and other hot drinks are boosting functionality

Consumers are looking for additional functional benefits in coffee and other hot drinks, whether that is additional caffeine or antioxidants, or the addition of probiotics for digestive and immune system health.


Key findings

State of the Industry

Steady growth in global hot drinks

Coffee Shop Experience at Home

Coffee shops and other foodservice driving growth in coffee
Coffee shops are educating consumers about good coffee
Barista quality instant coffee to capitalise on interest in premium coffee

Coffee shop experience at home

Cappuccinos and lattes offer coffee shop experience
Coffee shop brands seek greater retail presence
Coffee shops encouraging customisation and flavour variety
Consumers will continue to want better, coffee shop quality coffee

The story behind the coffee

Coffee drinkers want responsibly produced coffee

The Story Behind the Coffee

More coffee producers touting environmentally friendly credentials
Fairtrade and UTZ certifications and “direct trade” labels reassure coffee drinkers
The “third wave” coffee shops have popularised single origin coffees
Companies linking single origin coffees with cause marketing
Coffee producers will expand efforts to tell the story about coffee

Tea Specialists Inspire

Expansion of tea specialists can raise tea’s image and value sales
Tea specialists attracting younger consumers via unique flavours
Tea specialists encourage making iced tea to capitalise on RTD tea
T ea producers are emphasising luxury in new flavour varieties
Makers of pod tea machines focus on premium experience

TEA specialists inspire

Tea producers will look to create luxury tea “experiences”

Tea Producers Focus on Health Benefits

Fruit /herbal teas to outpace other teas by emphasising health
Leveraging growing consumer health concerns to boost value sales
Green tea grows in India due to health positioning and celebrity tie-ins
Tata seeks to reach wider Indian consumer base with new green teas
Green tea makers add more functionality as health awareness rises
Tea producers add functionality through probiotics and charcoal
Tea makers incorporate unusual herbs and mushroom into drinks
Instant tea gets a health upgrade in Asia Pacific
Tea producers will continue to emphasise health benefits

Coffee and Other Hot Drinks Boosting Functionality

Functionality is key in other hot drinks but niche in instant coffee
Coffee producers outside Asia add more functional coffees
New coffees promote mental function and weight-loss benefits
New coffees compete against energy and sports drinks
Other hot drinks companies offer enhanced functionality
Nestlé continues to enhance Milo’s health benefits
Producers will add more functionality to coffee and other hot drinks


Key hot drinks trends to focus on


Ethical labels database: Category definitions

Appendix: Competitor Analytics

Competitor Analytics tool
Market Overlap
Overlap Matrices

Appendix: Industry Forecast Model

About Euromonitor International’s Industry Forecast Model
Soft drivers and the Industry Forecast Model
Growth decomposition explained
Significance and applications for growth decomposition
Key applications for Industry Forecast Models