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Hot Drinks Quarterly Briefing Q2 2018

May 2018

Q2 of 2018 was a positive one for the global hot drinks industry, with all major subcategories seeing upwards revisions from baseline thanks to good economic news in Brazil, China, and the US. In corporate news, cold coffee, sustainable approaches to to-go coffee, and the Indian subcontinent were among the areas that saw particularly high levels of activity in Q2.

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Q2 sees minor, but positive, revisions to 2022 baseline

Positive economic news in many key hot drinks markets led to upwards revisions of 2022 forecasts by three quarters of a billion dollars over baseline. All three major subcategories saw positive upgrades, with coffee seeing the largest. Overall, this remains a small change in a relative sense though, and amounts to less than half of a percent deviation from the baseline forecasts.

Revised GDP projections were the largest source of change

Most changes to baseline forecasts were caused by new GDP growth projections, especially in large hot drinks market like the US and China. Hot drinks demand exhibits an observable relationship with GDP growth, although one less strong than in seen in many consumer goods industries because of the nature of hot drinks consumption.

Cold coffee attracts attention from the big players

With the slowing growth of coffee pods in much of Europe and North America, cold coffee has become a leading source of coffee growth, especially in the United States. The newly formed Keurig Dr Pepper looks to take advantage of its combined hot and soft drinks capabilities to enter this expanding market, while Nestlé adds new nitro RTD cans onto the Nescafé brand to capitalize on this trend.

To-go cups become the new front in hot drinks sustainability

The slowing growth of pods and the pledges of the major players to make their pods recyclable means that the sustainability of pods is less of an issue than it used to be. Instead, sustainability concerns have shifted to single-use to-go cups. While campaigners failed to pass the “latte levy” in the UK, similar measures are being debated elsewhere and many companies are pre-emptively taking action to encourage the use of reusable or recyclable cups.

Introduction

Scope

Q2 Macroeconomic Update

Executive Summary
GDP Forecasts: Revisions Over Last Quarter
Global Risk Scenarios

Q2 Hot Drinks Update

Key findings
Minor positive revisions for the global hot drinks industry in Q2
China and the US saw most absolute change in Q2
GDP revisions were the largest driver of change
Hot drinks are relatively resistant to economic shifts
Within hot drinks coffee pods are the most GDP-elastic category
Coffee pods get bigger boost from good news in Italy than instant
Conclusions: GDP growth and its effects of hot drinks
Key areas of hot drinks activity in Q2
Keurig Dr Pepper will compete in both hot and soft drinks
KDP is heavily exposed to slow-growing soft drinks categories
A pivot to RTD coffee is likely for the new company
Nescafé launches premium line extensions
Nestlé also ups its presence in cold coffee formats
Orimi enters the capsule market as Russian demand revs up
GSK looks to divest from its large malt-based business in India
Long-term demographic challenges face any buyer of Horlicks
Çaykur opens new tea factory in Pakistan
Black tea is the cornerstone of Pakistani tea growth
“Latte levy” fails in the UK
Action against to-go cups is being taken outside the UK as well
Conclusions: Activity in Q2 and global hot drinks growth

Appendix

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
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