Hot Drinks: Quarterly Statement Q3 2017

Strategy Briefing

About This Report

Aug 2017

Q3 saw only minor changes at the global level to EMI hot drinks forecasts, but it was an active few months for many of the large hot drinks players. JDE moved more aggressively into Nespresso-compatible pods, while Nestlé announced the expansion of Nespresso to third-party retailers. Meanwhile, Tata aims to turn Tetley into a billion dollar tea brand and Lavazza made a major purchase in Canada.

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Hot Drinks: Quarterly Statement Q3 2017

Q3 sees little revision to Passport baseline forecasts in hot drinks

Total revisions to EMI hot drinks forecasts for 2021 were raised about a tenth of one percent from baseline in Q3 (about USD180 million in absolute terms). Tea and coffee both saw upgrades, while other hot drinks was downgraded. In no category were the changes especially significant, however.

GDP forecasts stable at global level, but some individual markets are significantly affected

While GDP revisions in the world’s major economies were relatively minimal, they remained the leading source of forecast revisions in Q3. The most affected nations were Algeria and Nigeria, each of which lost about a percentage point from their forecast CAGRs due to stubbornly low oil prices hampering their economic prospects. This was outweighed in an absolute sense, however, by slight upwards revisions in the large markets of China, Germany and Brazil.

Changes to demographic data highlight the importance of Baby Boomers to tea sales in traditional markets

New demographic data regarding the ageing of the Baby Boomers highlights the reliance of certain categories on this large but shrinking demographic. Their decline will be especially felt in markets that are traditionally heavy consumers of tea. Younger consumers in most of these areas prefer a wider variety of beverages, rather than solely tea.

Nespresso-compatible pods in Europe see a great deal of action this quarter

Nestlé has been challenged by loosened intellectual property protections on Nespresso for some time, but in Q3 the matter accelerated. Global rival Jacobs Douwe Egberts introduced aluminium capsules with Nespresso compatibility, while low-cost, unbranded products appeared so quickly that one major player announced it was exiting the market because it had become too crowded to be profitable. Meanwhile, Nestlé fought back by deciding to allow sales of Nespresso at limited third-party retailers.

Q3 Macroeconomic Updates

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

Q3 Hot Drinks Updates

Q3 is another quarter of stability for global hot drinks
Upwards revisions in the BRICs are the major source of change
Adjusted GDP forecasts are the leading cause of Q3 revisions
Algeria sees one of the most significant revisions
Most oil-dependent economies are vulnerable to similar fluctuations
A rise in oil prices, however, would be negative globally
The benefits of high prices would go to a small number of countries
Downgraded economic forecasts in the US drive unit price effect
The fading influence of Baby Boomers affects sales of tea
Turkey is the country in which this will be felt most strongly
New confectionery data change coffee forecasts
Summary: Q3 forecast revisions
Corporate activity in Q3
Major shake-ups in coffee pods in Western Europe
Nespresso enters new retail channels in response
Tata aims to make Tetley a billion dollar tea brand
Green tea will need to be a key part of the strategy
Tata looks towards the massive Chinese tea market
A new “jewel” in Lavazza’s crown is added in Canada
Canada offers advantages that Lavazza’s core markets do not
Summary: Q3 corporate activity
Conclusion: The drivers of global hot drinks growth

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 Model