Hot Drinks in Australia

Hot Drinks in Australia

EXECUTIVE SUMMARY

Hot drinks enjoys healthy growth in Australia in 2009

In 2009, hot drinks experienced a healthy off-trade current value growth in Australia. Manufacturers contributed through the introduction of new product developments that propelled consumer interest and product trials. Despite the economic slowdown, hot drinks continue to be essential to consumers in Australia and as finances tighten, the indulgence of an enjoyable cup of hot drink is especially attractive due to its affordability as compared to other forms of indulgences. In addition, products providing convenience and health and wellness benefits continue to appeal to consumers who are time poor and increasingly health conscious.

New product developments spark consumer interest

Over the span of 2009, numerous product launches sprung up across hot drinks, especially in coffee and tea. In coffee, single-origin products such as Douwe Egberts Pty Ltd’s Moccona Reserve Colombia High Mountains Dark Roast and Moccona Reserve Brazil Highlands Medium Roast were introduced. The uniqueness of these products is that the coffee beans are only sourced from one specific region. Tea also had a variety of new product launches, focusing heavily on flavours and health and wellness benefits. For example, Australian Fruit Tea Co Pty Ltd introduced a range of green tea products, infused with natural fruit flavours. These products blended consumers’ demand for flavours as well as health benefits largely present in green tea.

Multinational companies continue to dominate hot drinks in Australia

Global manufacturer Nestlé Australia Ltd maintained its leadership position in hot drinks in 2009, contributed by its consistent stronghold in coffee and other hot drinks. Its extensive brand portfolio encapsulating Nescafé and Milo, as well as its continuous innovation efforts aided in its successful domination in Australia. Overall, hot drinks remain dominated by a string of multinational corporations and leading brands are mostly global brands widely available worldwide. Smaller manufacturers find it especially difficult to gain increased presence as the large-scale multinational companies are especially active in advertising campaigns to raise awareness for their brand portfolios.

Supermarkets are where consumers shop for hot drinks

In 2009, consumers continued to head to supermarkets such as Coles and Woolworths to buy their desired hot drinks. Supermarkets/hypermarkets accounted for an especially significant 91% off-trade value share of hot drinks in 2009. In addition, new products are usually launched through leading retailers, in an attempt to maximise distribution and reach out to as many consumers as possible. For example, in 2009, Australian Fruit Tea Co Pty Ltd launched its range of green tea products infused with natural fruit flavours exclusively at Woolworths, which has a nationwide presence in Australia.

Positive projection continues as hot drinks remain a daily staple

A daily staple to most consumers across all households, hot drinks in Australia are forecast to achieve a positive constant value CAGR of 1% over the forecast period. In the face of intensifying competition, manufacturers are expected to continue being especially active in innovation. With new product launches, consumers are therefore likely to be drawn to try new hot drink products, encouraging a positive projection over the forecast period of 2010-2014.

KEY TRENDS AND DEVELOPMENTS

Taste continues to be a key element in hot drinks

Taste continues to be a key decision-making factor when consumers shop for their hot drinks. Whilst health and wellness benefits are a great added value, taste is essential and is a product element that cannot be neglected.

Therefore, in 2009, numerous manufacturers such as Nestlé Australia Ltd and Douwe Egberts Pty Ltd were observed to focus heavily on introducing products with new flavours or richer blends to attract consumers. This was evident across tea, as well as coffee products.

On the consumers’ end, it was also observed that despite the economic downturn, some consumers are still sticking by their fresh coffee because they are not willing to compromise on taste. With this, fresh coffee continued to be popular amongst consumers in 2009.

Current Impact

In 2009, Nestlé Australia Ltd improved its range of Nestlé Gold products. With an understanding that consumers desire richer flavour, Nestlé Australia Ltd proceeded to revamp its Nestlé Gold range by changing its coffee beans to Arabica beans in order to provide consumers with a more intense coffee experience.

With the economic slowdown, an indulgence such as a good aromatic cup of well-brewed coffee is affordable in comparison to more luxurious indulgences such as a vacation getaway. As a result, home espresso machines continue to rise in popularity amongst households. Concurrently, fresh coffee continues to prove popular amongst consumers because of its premium quality and taste.

Pertaining to tea, Australia Fruit Tea Company Pty Ltd aimed to attract consumers by introducing a range of green tea products that are enhanced and infused with natural fruit flavours. In other hot drinks, AB Food & Beverages Australia Pty Ltd launched a new indulgent flavour known as Mocha Truffle under its Jarrah range of chocolate-based flavoured powder drinks. In addition, two of its products, namely Jarrah Cheeky Cino and Jarrah Vanilla Thriller, are improved in their formulations, to create a creamier and more intensified flavour profile.

Outlook

This trend is expected to continue over the forecast period as hot drinks are meant to be enjoyed and indulged in by consumers, as opposed to being a beverage with a key functionality to quench thirst.

The trend is expected to become even more prevalent as the economy picks up and more consumers have the financial ability to test and try new and more premium hot drink products.

Future Impact

Over the forecast period, new product developments focusing on the enhancement of flavour and taste profiles of hot drinks are expected to remain plentiful.

Firstly, as competition intensifies, manufacturers will find it necessary to compete based on price points as well as the quality and taste of its hot drink products. Secondly, as the competitive scene is dominated by multinational companies, these large-scale firms have the financial capacity to invest in product innovation and are thus expected to remain active in product development.

With regards to consumers, as the economy gradually picks up over the forecast period, consumers are likely to become more affluent and thus likely to be drawn to products of higher quality and taste.

Health and wellness remains a drawing factor

Over 2009, health and wellness remained a significant trend, as the population of health-conscious consumers expands and grows in number.

Riding on this, numerous manufacturers introduced different products featuring health and wellness benefits to attract the growing number of health-conscious consumers. Innovations were observed particularly in coffee and tea.

Current Impact

Green tea is consistently perceived by consumers to be one of the nutritious hot beverage options, for numerous reasons such as the high level of anti-oxidants it contains. Following this, Australia Fruit Tea Company Pty Ltd expanded beyond its fruit/herbal tea range to tap into the arena of green tea. In 2009, it introduced a range of green tea products infused with natural fruit flavours, where the latter is the expertise of Australia Fruit Tea Company Pty Ltd.

Even for coffee products that are generally viewed to be a less healthy option for tea, manufacturers are observed to place efforts on increasing the healthfulness. As an example, Trialia Foods improvised on its range of coffee products and in 2009, its Klassno range of instant coffee was improved to become gluten free. Its range contains indulgent flavours such as Irish Cream as well as Caramel, where the latter was newly introduced in 2009. On top of producing new flavours to entice consumers, its core goal is to cater to consumers who are health conscious but do not want to compromise on taste.

As manufacturers have made conscientious efforts to introduce healthier variants across numerous hot drink products, consumers have also shown rising interest in trying other healthy hot beverage options. Therefore, the growth of green tea slowed down in 2009 as more hot drinks featuring some form of health benefits began to emerge.

Outlook

Projecting ahead, the trend of rising health consciousness amongst consumers in Australia is likely to develop further. With increased health education in schools and government-driven initiatives, this trend is also expected to become more widespread. Manufacturer-driven campaigns are also likely to promote these healthier products, informing consumers that they have the choice of healthier options and thus encouraging consumers to pick up such products.

As this trend penetrates further into Australia, there will be more room for innovation in hot drinks, since nutritional benefits were not a significant product attribute during the earlier parts of the review period of 2004-2008. Increased awareness will also drive consumers to choose their hot drinks based on a different set of selection criteria. Consumers could well consider the nutritional benefits they can obtain from the drinks as well as the enjoyment derived from the flavour.

Future Impact

Consumers, as they become more aware of nutritional benefits that can possibly accompany hot drinks, will become more selective when it comes to purchase. Impulse purchases may be reduced as they explore new offerings and launches. Manufacturers will also have to work on packaging and product labelling to fully inform consumers of the products’ nutritional benefits.

This will be a major development, as most hot drinks in Australia are currently focused on flavour and sales of many long-established brands are heavily dependent on repeat purchase from their loyal customer base.

Therefore, there is an opportunity for manufacturers to expand their portfolios or even for new entrants to innovate intensely, differentiating from each other through product elements such as health benefits. Potentially, consumers can step out of their comfort zones and trial new brands or variants.

Advertisements and campaigns continue to place global brands in the lead

Dominated by multinational companies, television commercials and print advertisements remained a common sight for hot drink products in 2009. Product launches were consistently accompanied by advertisement campaigns as well as promotions to generate consumer interest and trial. Similar to 2008, advertisement budgets of these global companies were in the generous range of millions of Australian dollars.

Smaller manufacturers do not have the financial capacities to allocate much monetary investment to advertising. Therefore, their products generally have a much lower level of brand awareness amongst consumers, and thus hot drinks continued to be dominated by multinational corporations in 2009.

Current Impact

Throughout 2009, global brands such as Moccona introduced new variants. For example, Douwe Egberts Pty Ltd launched a range of new products that thrive on the uniqueness of being from a single origin. Products included Moccona Reserve Colombia High Mountains Dark Roast and Moccona Reserve Brazil Highlands Medium Roast. Supported by a generous A$1 million advertising budget, consumers were made aware of these new products via the nationwide television commercials as well as in-store promotions. These advertisements generally covered different media such as print and television, and were therefore especially effective in reaching a wide audience of consumers.

Another interesting campaign was “Go Red for Women” led by Tetley Australia Pty Ltd, which supports the Heart Foundation. For this, Tetley Australia Pty Ltd specially changed two of its products’ packaging to the colour red and added the “Go Red for Women” logo on its products, in order to raise awareness of women and heart disease. Such campaigns serve to improve consumers’ impression of a brand, and also draw consumers to buy these products in support of the campaign.

In contrast, this creates an adverse impact on the performance of small manufacturers, which are unable to afford such aggressive and extensive advertising support for their product portfolios.

Outlook

Moving forward, multinational companies are still expected to dedicate a consistent and significant level of investment in advertising. Therefore, such campaigns and commercials are projected to continue over the forecast period.

With this ability to advertise, global brands are likely to continue in the lead, posing an increasing threat to smaller manufacturers, who will find it especially difficult to draw consumers to their own products when they are masked by the numerous advertising campaigns held across key media mediums such as television and print advertisements on behalf of multinational products.

Future Impact

Niche and smaller manufacturers are likely to refrain from head-on competition with these multinational companies. Therefore, it is expected that smaller players will increase their focus on niche areas, as opposed to mainstream areas that are populated with global brands from the leading manufacturers. These global brands, supported by extensive advertising efforts, have an especially high level of brand recall in consumers’ minds and also generally command significant shelf space at the supermarkets.

In response, it is likely that the leading manufacturers may look for opportunities to acquire domestic manufacturers that are active in innovation and thus worth investing in. Merger and acquisition may be a common sight as local manufacturers start to be sought out and acquired by global players in an attempt to strengthen their brand portfolios in Australia.

Consumers continue to demand sustainable products

Across 2009, the issue of sustainability was increasingly discussed and it is becoming a worldwide trend; this is especially apparent in Australia, where consumers are generally concerned about the environment.

Sustainability is emphasised by associations such as Rainforest Alliance, which takes extra steps to spread the importance of sustainable practices, ensuring that businesses do not neglect their environmental and social responsibilities. Consequently, in hot drinks, Unilever Australia Ltd’s Lipton took a leap and committed to being the first brand of tea to be certified by Rainforest Alliance.

As a result, ethical consumerism rose across Australia over the span of 2009.

Current Impact

In 2009, multinational company Unilever Australia Ltd pledged to commit its Lipton range of black tea products to being sustainable. With this, Unilever Australia Ltd pledged to reduce the level of environment impacts caused by producing its products. As of 2009, Lipton’s range of black tea products featured the Rainforest Alliance logo on its packaging in Australia. On a global scale, Unilever Group aims to have its entire range of Lipton products certified as sustainably sourced by 2015.

In coffee, numerous new sustainably sourced brands were introduced in 2009. One example was from Coffex Coffee Pty Ltd, which introduced its range of Global Café Direct Fair Trade Organic products through the nationwide chain of Woolworths supermarkets. Riding further on this social responsibility trend, Coffex Coffee Pty Ltd also aims to show its social responsibility by partnering with PLAN to help and care for children in Africa.

It is becoming clear that both small and global manufacturers are active and moving towards the trend of having their products sustainably sourced.

Outlook

There are awareness programmes launched by organisations such as Fair Trade and Rainforest Alliance. Aimed at increasing consumer awareness of an alternative approach to conventional trade, these alternative methods seek greater equity for producers and workers in the developing world, and also ensure that farmers get a fair price for their products. For commodities such as coffee and tea, sustainable products are especially possible with numerous coffee and tea farms located in Third World nations. With the support of awareness programs, consumers’ level of awareness and demand of sustainable products will be a deepening trend over the forecast period.

However, as the element of sustainability can come at a cost, leading manufacturers may not be willing to increase the retail prices of their products for fear that a rise in end prices may result in a consumer backlash. Therefore, it may take these large-scale manufacturers time to search for providers or sources of sustainable ingredients and switching to sustainable production will likely be done in phases. Regardless, with leading manufacturer Unilever Australia Ltd taking the first step in 2009 to commit to sustainability, more manufacturers are expected to continue.

Future Impact

With healthy consumer support for product sustainability, this will become a common product attribute as Australia moves into the forecast period. As this is a global trend, leading manufacturers are likely to enjoy economies of scales and thus be able to provide a much higher level of price competitiveness as compared to the existing smaller manufacturers.

As environmental issues continue to become more crucial over the forecast period due to global warming and other factors, product sustainability may become an attribute that all consumers expect across all brands and products in regular consumer goods such as hot beverages.

Consumers continue to be value conscious

As the economy remained relatively slow in 2009, consumers continued to find it necessary to be value conscious and seek cost savings. However, as the state of economy in 2009 appeared to be much better towards the end of the year, most consumers continue to consume their preferred brands or products even if they came at a higher price point.

However, as the economic recession gradually affects consumer behaviour, with a stronger impact on lower- income consumers and families, larger pack sizes are becoming increasingly popular. These more economical pack sizes provide consumers with substantial cost savings without the need for them to change to a different brand.

Current Impact

Leading manufacturers have been extremely quick to pick up on consumers’ increased preference for larger pack sizes. Across brands and products, manufacturers have been seen to launch larger pack sizes in various distribution channels, thus enabling consumers to make cost savings.

In 2008, Lavazza introduced three 1.5kg multipacks, which contain three separate 500g packs of fresh coffee. These multipacks allow the individual packs to remain fresh. This continued to be popular amongst consumers in 2009. Additionally, manufacturers were active in terms of packaging innovation, which aided the ability to introduce these larger pack sizes without compromising on the quality and freshness of a product.

In Lavazza’s case, an improvement in packaging, known as one-way valves, was introduced for fresh coffee beans and aids in maintaining their freshness. These packaging innovations were led by key manufacturers, such as Cantarella Bros Pty Ltd, and were well received by consumers.

Outlook

As these packaging innovations are highly sustainable and can deliver products to consumers in excellent condition and make storage convenient and long-lasting, these packaging formats are likely to remain and continue to be favoured by consumers.

Additionally, as these packaging formats are also easy to store in retailers’ warehouses as well as on store shelves, retailers are also likely to favour these as permanent pack sizes. As larger pack sizes may also induce increased consumption, retailers may choose to allocate a larger portion of the shelves to them.

The economic recession will strengthen this trend’s sustainability in the short term as financial or unemployment woes lead many consumers to tighten their belts and carefully consider each dollar they spend.

Future Impact

Once the economy recovers it is likely that larger pack sizes may gradually lose their appeal. Under this scenario, branded hot drinks are likely to evolve into smaller pack sizes, making them convenient for consumers to purchase, whilst economy brands will remain focused on larger pack sizes to enhance their value for money.

With regard to consumers, it is also likely that preference will be determined by family size. Smaller families are likely to switch away from large pack sizes due to slower consumption, whilst larger families will continue to welcome larger pack sizes due to their greater consumption needs.