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Eighth Annual North American Tea Conference:ThirsTea in the Desert
The Shifting U. S. Beverage Landscapeand the Role of Tea
September 14, 2017
For more on RTD Tea trends, see our RTD Tea report –https://www.beveragemarketing.com/shop/rtd-tea-in-the-us.aspx
-2- Copyright © 2017 Beverage Marketing Corp.
Unique Beverage Industry Expertise for Providing “Added-Value” to Selected Clients
Beverage Marketing Capabilities
Cutting Edge Insights: New Age Emergence, Multiple Beverage Competition, Specialty Beer Opportunity, Bottled Water Dominance, Hyper-Category
Competition, Micro-Marketing Age
Beverage Marketing Corporation utilizes an integrated model for providing information, analysis and advice to beverage industry clients
-3- Copyright © 2017 Beverage Marketing Corp.
Beverage Marketing Capabilities
All data in this presentation is supplied by:
-4- Copyright © 2017 Beverage Marketing Corp.
The Shifting U. S. Beverage Landscape and the Role of Tea
Agenda
I. Overall Beverage Landscape
II. Category Updates: Tea and its Competitors
III. Projections
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State of the Industry – The Good and the Bad
Beverage Headlines
● Liquid refreshment beverage market grew for third consecutive year in 2016 after flat performance in 2013; growth has continued into the first half of 2017
● Carbonated soft drinks experienced another modest sales decline in 2016 and in the first half of 2017
● Bottled water surpassed CSDs as largest beverage category in 2016, led by continued solid growth of single-serve water segment
● Niche categories continue to outperform traditional mass-market categories with exception of bottled water
● Wine and spirits led alcohol growth in 2016, and beer experienced essentially flat performance
The Shifting U. S. Beverage Landscape and the Role of Tea
-6- Copyright © 2017 Beverage Marketing Corp.
Source: Beverage Marketing Corporation; Bureau of Economic Analysis, Department of Commerce, Department of Labor
Quarterly GDP Change2011 – Q2 2017
Unemployment Rate2000 – July 2017
2011 2012
4.0%
4.7%
5.5%
5.1%
9.0%
8.1%
7.4%
6.2%
4.3%
6.0%
9.6%
4.9%
5.8%
5.3%
4.6%4.6%
5.8%
9.3%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 July'17
2013 2014 2015
The economy continues to move in a positive direction with improved GDP growth and lower unemployment, a key to successful beverage market performance
2016 2017
The Shifting U. S. Beverage Landscape and the Role of Tea
-7- Copyright © 2017 Beverage Marketing Corp.
Annual U.S. Consumer Sentiment Index1995 – 1H 2017
Source: Thompson Reuters/University of Michigan
92.2 93.6
103.2 104.6 105.8 107.6
89.2 89.687.6
95.2
88.687.3 85.6
63.866.3
72.668.0
76.479.2
84.1
92.9 91.896.7
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H17
Consumer sentiment surpassed pre-recession levels in 2015 for the first time, but dipped slightly in 2016
The Shifting U. S. Beverage Landscape and the Role of Tea
-8- Copyright © 2017 Beverage Marketing Corp.
Thou
sand
s of
SK
Us
New Beverage Product Introductions2001 – 2016
Source: Beverage Marketing Corp.; Mintel
New product introductions have risen since 2001 due to the emergence of new categories and heightened consumer demand for variety
1.7 1.6
2.0
2.92.6 2.6
3.2
3.8
2.7
3.9 4.04.4
4.74.5
4.3 4.4
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
The Shifting U. S. Beverage Landscape and the Role of Tea
-9- Copyright © 2017 Beverage Marketing Corp.
U.S. Total Beverage Market2011 – 1H 2017
Source: Beverage Marketing Corp.
Vol
um
e C
han
ge
The U.S. beverage market has experienced modestly accelerating growth since declines occurred during the recession, but the first half of 2017 was softer
• The market has now experienced three consecutive years of modest growth
The Shifting U. S. Beverage Landscape and the Role of Tea
-10- Copyright © 2017 Beverage Marketing Corp.
U.S. Total Beverage MarketVolume and Wholesale Revenue
(Millions of Gallons and Wholesale Dollars)2011 – 1H 2017
Source: Beverage Marketing Corp.
Post-recession beverage revenue growth has consistently outpaced volume performance due primarily to price increases, trend toward premiumization, and packaging mix shifts
Cha
nge
-0.1%
1.6%
-0.1%
1.1%
1.7%
2.2%
1.3% 1.2%
2.4%
3.7%
1.6%
3.1%
2.5%
2.1%
1.7%
2.4%
2011 2012 2013 2014 2015 2016 1H 17 11/16CAGR
Volume Wholesale Revenue
The Shifting U. S. Beverage Landscape and the Role of Tea
-11- Copyright © 2017 Beverage Marketing Corp.
2.7%
-1.1%
-0.2%
-4.2%
RefreshmentBeverages
TraditionalBeverages
Beverage Alcohol Tap Water
U.S. Beverage Market – 1H 2017V
olu
me
Ch
ange
Refreshment beverages have been the star performer in the U.S. beverage market in the first half of 2017
• Bottled Water• CSD• Energy Drinks• Fruit Bevs• RTD Coffee• RTD Tea• Sports Drinks• VA Water
• Hot Coffee• Hot Tea• Milk
• Beer• Spirits• Wine
Source: Beverage Marketing Corporation
The Shifting U. S. Beverage Landscape and the Role of Tea
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2016 Category Winners and Losers
* Volume increases** Volume declines
WINNERS*
• Bottled Water
• RTD Coffee
• RTD Tea
• Sports Drinks
• Energy Drinks
• Valued-Added Water
LOSERS**
• CSDs
• Milk
• Fruit Beverages
More non-alcoholic beverage categories grew in 2016 than declined, and niche categories generally outperformed large traditional categories
The Shifting U. S. Beverage Landscape and the Role of Tea
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IMPROVED
• CSD
• Bottled Water
• Milk
• Value-Added Water
WORSENED
• RTD Coffee
• RTD Tea
• Fruit Beverages
• Sports Drinks
• Energy Drinks
2016 Beverage Report Card
Fewer categories experienced improved performance in 2016 compared to 2015
The Shifting U. S. Beverage Landscape and the Role of Tea
-14- Copyright © 2017 Beverage Marketing Corp.
Decade Comparison 2006 – 2016
Which Categories Gained, Which Lost Volume?
4.5%
4.8%
9.9%
1.6%
3.6%
11.1%
-2.6%
-1.9%
0.8%
Category Millions of Gallons 2006/16 CAGR
4,528
641
230
164
84
-939
-2,628
2,482
402
Total LRB
CSD
Fruit Beverages
RTD Coffee
Value-Added Water
Sports Drinks
Energy Drinks
RTD Tea
Bottled Water
Bottled water has gained the most volume over the last 10 years while carbonated soft drinks have lost the most, and fruit beverages have also lost significant volume
Source: Beverage Marketing Corp.
The Shifting U. S. Beverage Landscape and the Role of Tea
-15- Copyright © 2017 Beverage Marketing Corp.
1970s
• Refreshment• Basic Function
1980s
1990s
2000s
Today
• Pick me up• Social & Fun• Active & Portability• Sweet Indulgence• Healthy Alternative
• Pick me up• Social & Fun• Active & Portability• Sweet Indulgence• Healthy Alternative• Fortified Fuel• Flavorful Health• Portable Hydration• Purifying
• Pick me up• Social & Fun• Active & Portability• Sweet Indulgence• Healthy Alternative• Fortified Fuel• Flavorful Health• Portable Hydration• Purifying• Mood enhancement• Natural• Guilt-negation
• Pick me up• Social & Fun• Active & Portability• Sweet Indulgence• Healthy Alternative• Fortified Fuel• Flavorful Health• Portable Hydration• Purifying• Mood enhancement• Natural• Guilt-negation• Herbal• Relaxation
Key Motivations for Beverage Choices
The Shifting U. S. Beverage Landscape and the Role of Tea
Evolution of Beverage Need-States1970s to Present
Since the 1970s, beverage consumers have grown in sophistication, with increasingly complex motivations for consuming beverages
-16- Copyright © 2017 Beverage Marketing Corp.
• Milk & Juice• CSDs• Coffee &
Alcohol
• Milk & Juice• CSDs• Coffee &
Alcohol• RTD Teas• Juice Drinks• Isotonics• PET Waters• Flavored CSD's
• Milk & Juice• CSDs• Coffee &
Alcohol• RTD Teas• Juice Drinks• Isotonics• PET Waters• Flavored CSD's• Fresh-packed
Juice• Smoothies• Coffee Drinks
• Milk & Juice• CSDs• Coffee &
Alcohol• RTD Teas• Juice Drinks• Isotonics• PET Waters• Flavored CSD's• Fresh-packed
Juice• Smoothies• Coffee Drinks• Nutrient-
enhanced• Energy
• Milk & Juice• CSDs• Coffee &
Alcohol• RTD Teas• Juice Drinks• Isotonics• PET Waters• Flavored CSDs• Fresh-
packaged Juice• Smoothies• Coffee Drinks• Nutrient-
enhanced• Energy• Functional• Health &
Wellness
1970s
1980s
1990s
2000s
Today
The Shifting U. S. Beverage Landscape and the Role of Tea
Expanding consumer motivations for beverage choices has resulted in a steadily broadening array of beverage categories
Evolution of Growth of Beverage Categories1970s to Present
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Cal
orie
s P
er C
apit
a P
er D
ay
U.S. Refreshment Beverage Calories Per Day1990 – 2016
212.5
251.6263.0
243.7 238.0230.3
222.7 214.8 210.9 206.6 203.4199.2 198.6 198.5 197.0
1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Caloric intake from refreshment beverages has been steadily declining since 2000 despite negative publicity the industry has received
• The growth of bottled water and lower-calorie options have contributed to the caloric decline
Source: Beverage Marketing Corp.
The Shifting U. S. Beverage Landscape and the Role of Tea
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U.S. Carbonated Soft Drink Volume Growth2012 – 1H 2017
Carbonated soft drink volume declined for the 12th consecutive year in 2016 and was surpassed by bottled water as the largest beverage category in the U.S.
• Declines have continued through the first half of 2017
• Today’s consumers are migrating to healthier options and want more variety
-1.0%
-3.2%
-1.8%-1.5%
-0.8% -0.9%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
2011/12 2012/13 2013/14 2014/15 2015/16 1H 17
11/16 5-Year CAGR -1.7%
Source: Beverage Marketing Corp.
The Shifting U. S. Beverage Landscape and the Role of Tea
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Search for zero-calorie sweeteners continues; ideal sweetener should be natural, stable, in good supply, cost effective, and taste like sugar
Stevia/Erythritol Stevia/Erythritol Stevia/Erythritol/Monk Fruit
Sugar/Stevia Sugar/Stevia Stevia
The Shifting U. S. Beverage Landscape and the Role of Tea
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Craft Soda
Beyond the search for improved diet sweeteners, companies are looking for other ways to bolster sales including craft sodas, smaller package sizes, and home dispensers
The Shifting U. S. Beverage Landscape and the Role of Tea
Smaller Packaging Sizes Home Dispensers
-21- Copyright © 2017 Beverage Marketing Corp.
Consumer health and variety demands negatively impact CSD consumption. CSD category performance is further impacted by other external factors that contribute to consumption declines
Source: Beverage Marketing Corporation
● Reasons for reducing CSD consumption:
o Health
o Variety
● Legislation and messaging from government and regulatory agencies
● Tax threats aimed at reducing consumption
● Negative commentary from medical studies and other organizations
● Steady drumbeat of negative press
The Shifting U. S. Beverage Landscape and the Role of Tea
-22- Copyright © 2017 Beverage Marketing Corp.
50
60
70
80
90
100
110
120
130
140
150
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
CSDs PET Single Serve Bottled Water
Wholesaler Dollars Per Gallon Indexed to 2000
Inde
x
2016 Absolute Price$4.27
$1.21
Modest pricing increases in carbonated soft drinks coupled with significant pricing declines in bottled water have contributed to respective category performances
Source: Beverage Marketing Corp.
The Shifting U. S. Beverage Landscape and the Role of Tea
-23- Copyright © 2017 Beverage Marketing Corp.
Source: Beverage Marketing Corporation
The Shifting U. S. Beverage Landscape and the Role of Tea
7.4%
4.8%
6.5%
7.9%
8.6%
7.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2011/12 2012/13 2013/14 2014/15 2015/16 1H 17
U.S. Bottled Water Volume Growth2012 – 1H 2017
Bottled water has experienced healthy growth each year since the recession
• Aided by its positioning as a healthy beverage, it surpassed carbonated soft drinks in 2016 as the most popular beverage in the United States on a volume basis
• Category growth has accelerated each year since 2013 but is likely to moderate somewhat in 2017
11/16 5-Year CAGR +7.0%
-24- Copyright © 2017 Beverage Marketing Corp.
Advances in Supply Chain Costs
While stable, single-serve water pricing continues to be historically aggressive and is likely to remain so at least through 2017
• Every-day pricing has been as low as $2.49-2.99 for 24-packs at retail
● High-speed bottle filling in a range of 15-18 million cases per year per line
● Mostly stable resin costs with the exception of a recent uptick
● Continued bottle light-weighting
● Stable fuel costs but may rise this year
The Shifting U. S. Beverage Landscape and the Role of Tea
-25- Copyright © 2017 Beverage Marketing Corp.
Enhanced Waters
PH Balanced Water Plant WaterEssence Water
Essentia Trader Joe’sHint
Structured Water
Penta
Enhanced waters of all types are now proliferating and gaining traction in all parts of the country
• These premium-priced, craft type waters are adding additional benefits to consumers’ water experience, and offer variety beyond plain water
The Shifting U. S. Beverage Landscape and the Role of Tea
-26- Copyright © 2017 Beverage Marketing Corp.
2016
The Shifting U. S. Beverage Landscape and the Role of Tea
The total U.S. tea market in all forms has seen modest growth in recent years but declined slightly in the first half of 2017• After a dip in the first quarter of 2017, the category grew slightly in the second quarter• Since 2012, the U.S. tea market has grown at an average annual rate of just .04%
0.1%
-1.1%
0.8%
-0.7%
1.3%
-0.3%
2.3%
-0.1%
0.8% 0.8%
-0.5%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
2012 2013 2014 2015 Q1 Q2 Q3 Q4 Q1 Q2 1H
U.S. Tea Annual and Quarterly Volume Growth2012 – 1H 2017
2017
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The Shifting U. S. Beverage Landscape and the Role of Tea
Innovation is playing a key role in the category with new tea products and tea-like products frequently emerging
• Matcha, an enhanced green tea, has become trendy in hip neighborhoods
• Yaupon drinks are showing up in upscale stores like Whole Foods
• As the RTD tea category continues to grow, entrepreneurs are likely to continue to seek innovative ways to enter the category without directly competing against the category
-28- Copyright © 2017 Beverage Marketing Corp.
Beyond traditional mainstream categories and newer niche categories, a host of emerging categories have entered the market and most boast health and wellness attributes and/or promise specific functional benefits
HPP Juice Cold Brew Coffee Plant-based Water
Kombucha
Select Offerings and Categories of Today’s Emerging Beverages
Coconut Water
The Shifting U. S. Beverage Landscape and the Role of Tea
-29- Copyright © 2017 Beverage Marketing Corp.
Emerging beverages have provided excitement to the marketplace although not all segments will prove successful in the long run
Dairy Alternatives
Probiotic Matcha
Select Offerings and Categories of Today’s Emerging Beverages
Protein/Sustenance
Chia
The Shifting U. S. Beverage Landscape and the Role of Tea
-30- Copyright © 2017 Beverage Marketing Corp.
Category 2015 2016 15/16RTD Protein Drinks $571.9 $611.9 7.0%Kombucha 379.2 534.5 40.9%Plant Water 420.0 493.4 17.5%HPP/Cleanses 415.5 486.2 17.0%Probiotics 259.9 280.7 8.0%Cold Brew Coffee 58.8 112.4 91.2%Functional Bevs 87.0 87.9 1.0%Premium Mixers 55.0 56.5 2.7%RTD Mate/Guayusa 21.0 22.7 8.1%
TOTAL $2,268.4 $2,686.1 18.4%
Up and Coming Categories vs. Traditional LRB Categories 2015 - 2016
(Wholesale Dollars and Wholesale Dollar Growth)
Traditional LRB 97.5%
Up and Coming2.5% Share
100% = $109.5 Billion
Source: Beverage Marketing Corp.
All combined these emerging categories are showing exceptional growth from a relatively small base but hold promise for the future
The Shifting U. S. Beverage Landscape and the Role of Tea
-31- Copyright © 2017 Beverage Marketing Corp.
$1B
Projected Value
High Growth
Energy
Enhanced Fruit Drinks
Enhanced Water
SS Dairy Drinks
Low Growth
$500M
20%
0%
-5%
Bulk/HOD Water
Milk
Soy
(2011-2016 CAGR)Hard Cider
AlcPouches
Table Wine
Imp. Beer
Malternatives
Craft Beer
Enhanced RTD Teas SPFJ
100% JuiceFruit
Drinks
Flavored Water
$250M
Diet CSDs
Reg CSDs
$35B $50B$25B$10B$5B
Prem CSDs
PET Water
Organic Juices
10%RTD Coffee
Sparkling Wine
Straight Whiskey
Sports Drinks
Tequila
Coconut WaterAlmond Milk
Vodka
RTD Teas
In the future, the marketplace will be characterized by numerous high-value, low relative volume opportunities
The Shifting U. S. Beverage Landscape and the Role of Tea
Thank You
• Strategic Associates
• Research
• Advisors
GHemphill@beveragemarketing.com
Beverage Marketing Corporation
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