Hot Drinks: Quarterly Statement Q2 2017

Strategy Briefing

About This Report

May 2017

Q2 saw only minor revisions to forecast growth projections, with a global upgrade of just USD13 million from the 2021 baseline. JAB Holdings continued to actively build its coffee portfolio, contributing to the increasing consolidation of global coffee, while concerns grew about the threat of rising protectionist sentiment in the US.

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Hot Drinks: Quarterly Statement Q2 2017

Stability dominates in Q2 for the global hot drinks market, with only a very minor upgrade made to baseline forecast

The global hot drinks market saw an upgrade of USD13 million above the 2021 baseline in Q2; a negligible revision in the overall context of the global hot drinks market. Tea was the category that saw the most movement, with a positive upgrade of over USD80 million from baseline, while coffee and other hot drinks saw downgrades. However, in no case were these revisions especially significant compared with the previous baseline.

New demographic data about the number of households with children leads to a downwards revision for flavoured powder drinks

With economic forecasts largely stable in Q2, the largest source of revisions was new demographic data which indicated that several markets have a smaller number of households with children than before. Several countries that saw these downgrades are among the more important markets for the highly child-centred category of flavoured powder drinks, including Brazil, Mexico and Spain.

JAB Holdings continues to expand its presence in global coffee

In 2017, JAB Holdings purchased American fast-casual chain Panera Bread, and announced it was looking to sell luxury brand Jimmy Choo, while Jacobs Douwe Egberts (which is owned by JAB) bought several coffee brands in Brazil, and finalised a deal to acquire Singapore-based Super Group. These moves are putting pressure on other major coffee players, with particularly interesting results among several large Italian coffee companies.

Protectionism in the US is a large threat hovering over the category

Rising commodity costs forced US coffee market leader JM Smucker to raise prices in early 2017, while several companies with a major stake in the US market publicly expressed concerns about the threat of new trade barriers going up in the US. Should new tariffs be imposed, the effect would not only be significant on hot drinks sales in the US itself, but also on sales in countries reliant on the US as a trade partner, such as China and Mexico.

Introduction

Key findings

Q2 Macroeconomic Updates

Executive summary
GDP forecasts: Revisions over last quarter
Global risk scenarios
Major macro risks for the hot drinks market

Q2 Hot Drinks Updates

The global hot drinks market sees few revisions in Q2 2017
Uncertainty is relatively low in most key markets
Black tea sees the most significant revisions in Q2
The US sees the largest downgrade
Demographic changes play the largest role in Q2 revisions
New demographic data has a negative effect on children’s drinks
An ageing world poses a challenge to flavoured powder drinks
Nestlé is negatively affected in Q2, but well-positioned long-term
Brands look to hedge against demographic trends
Q2 revisions: The key takeaways
Corporate activity in early 2017: The key stories
JDE’s acquisitions move it into growth markets
Faster growth will come with a higher level of risk for JDE
Brazil’s resilience helps to explain its attractiveness
Continuous JAB expansion is putting pressure on competitors
Lavazza completes its acquisition wave
Massimo Zanetti squares off with JDE in Brazil
Illycaff è changes leadership and looks abroad
Trade restrictions in the US pose a major threat
Amidst slumping demand, JM Smucker raises prices in the US
Major activity in Q2: Key takeaways
Long-term trend drivers

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