Hot Drinks: Quarterly Statement Q3 2016

Slowing hot drinks demand in Latin America

The latest quarterly revision (Q3 2016) of the global hot drinks industry forecast model suggests a modest downgrade in growth prospects. The global Passport baseline CAGR for 2015-2020 value growth has been revised down from 3.4% to 3.2%. A nearly half percentage point downward revision in Latin American growth is a major contributor to this weakness; the US and now Western Europe are impacting global prospects.

Brazil’s downgrade is most significant

A deterioration in Brazil’s GDP forecast for 2016 is the single biggest contributor to global weakness. In value terms, the Brazilian forecast for total hot drinks sales in 2020 is estimated to be US$270 million less than previously forecast.

Coffee hardest hit

The downgrade in global hot drinks prospects will not be felt equally across all categories. Coffee categories are disproportionately affected by downgrades for the US, Brazil and Western Europe, which together account for close to one half of global coffee retail value sales.

Local players still thriving in resilient Asian markets

Though a rebalancing Chinese economy remains an ongoing concern, a number of Asian markets – India above all – have thus far proven quite resilient in the face of a slowing global demand environment. This is a real boost for a number of local players, which have seen thriving sales, and a potential acquisition/partnership opportunity for global players looking to counter heavy exposure to slowing demand in the US, Latin America and Western Europe.

Emerging Asian demand powerful, but volatile

Whilst growing spending power in Southeast Asia represents a real opportunity for hot drinks players, volatility is inevitable in the near- to mid-term. Any pull-back in emerging Asia would be especially damaging for instant coffee players, with instant coffee demand notably sensitive to fluctuations in consumer incomes.