Inflation Surge in Hot Drinks: 2023 and Beyond

Delivery

This report comes in PPT.

Key findings

Inflation is moderating in 2023 but it is certainly not going away

Global inflation rates peaked in 2022, but they remain well over the recent historic norm and are unlikely to revert back anytime soon. Significant risks remain of high mid-term inflation, including potential energy price spikes, hesitant central bank policy and persistent labour issues.

Cost increases have boosted some industry trends such as automation and mental health functionalities

Some key long-term hot drinks industry trends have been accelerated because of rising cost pressures. One is automation, which is a more compelling option at a time of persistently high labour costs. Another is mental health functionalities in order to address an already stressed-out world to which inflation has been added.

Coffee prices at a commodity level should decline but consumers will likely see little of this

Improving prospects for the upcoming harvest, especially in Brazil, have moderated the cost of coffee as a commodity, but at the end of the value chain prices are unlikely to fall significantly for some time given the still-high price of many other key inputs. No major industry player has yet signalled an intention to reduce prices for consumers.

Tea has been less affected by inflation than most food and beverage products

Tea has avoided dramatic price spikes in recent years although it has been affected by common issues such as transportation shortages and trade conflict. Unlikely many agricultural commodities, the war in Ukraine has had a moderating effect on price as supply was untouched but demand was significantly disrupted.

Supplementary inputs such as dairy or packaging are a greater cost threat than hot drinks commodities

The prospects for coffee, tea and cocoa prices are relatively good in 2023 and 2024 but the same cannot be said for all inputs. Energy, labour, packaging and dairy costs all have significant chances of remaining high or rising, ensuring that at least some major cost pressures will continue to affect the industry in the immediate future.