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Tea and Other Hot Drinks - UK - February 2011

The tea market has seen a declining user base due to the failure of standard “English” breakfast tea to resonate among younger (under-35) consumers as it did with previous generations. Hot chocolate is a small but growing market. It has the potential to be much bigger but must overcome consumers’ perception that it should be only an occasional rather than regular treat.

  • More new product development which blurs the lines between hot chocolate as a liquid and as a solid can help reposition it as an everyday indulgence.
  • For the new generation of tea drinkers it is vital to link the benefits of particular teas to specific mood states.
  • The predominantly 18-34 year-old ‘white collar’ audience who like to drink speciality tea rather than just standard “English” breakfast (ie Tetley, PG Tips) are very open to premium marketing cues.
  • There is an opportunity to develop an energy-infused herbal tea to attract more young (18-34), male, ‘blue collar’ drinkers. This group are currently much more likely than average to be put off drinking herbal tea because over a quarter think of it as “just for women”.
  • To become more mainstream, herbal teas needs to continue innovating around flavour in order to improve its taste. Currently, 22 million of the UK population drink standard tea and over half (56%) have tried herbal tea but did not like the taste.
  • By focusing on specific occasions that they can be drunk at home, hot beverages can help younger consumers to understand how these products can fit into their lives. Malted drink Horlicks has been able to grow sales of a highly traditional product by marketing it to women as ‘made for evenings’.

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Table of contents

  1. Issues in the Market

      • Key themes
        • Definition
          • Excluded
          • Future Opportunities

              • Many Mes
                • Brand USA
                • Market in Brief

                  • Standard tea is in long-term decline
                    • Herbal tea is growing too slowly
                      • Rising commodity prices mean value of tea will outstrip volume sales
                        • A new younger generation of tea consumers with different tea needs
                          • The paradox of increasing hot chocolate consumption
                          • Internal Market Environment

                            • Key points
                              • Spiralling commodity costs
                                  • Figure 1: Trends for annual % change in price (measured in Retail Price Index) for tea and coffee/other hot drinks, 2000-10
                                • Consumers are still prepared to pay for small luxuries
                                  • Eco also means ego
                                    • Figure 2: Estimated UK retail sales of fair trade-certified products, by value, 1998-2009
                                  • Hot beverages can focus on a broader view of health
                                    • Figure 3: Trends in agreement with statements on health, 2006-10
                                  • Calories need controlling
                                    • Figure 4: Trends in agreement with the statement ‘I always think of the calories in what I eat’, 2006-10
                                  • The renaissance of Britishness
                                  • Broader Market Environment

                                    • Key points
                                      • No end to financial woes in 2011
                                        • Tea is failing to win over younger generations like hot chocolate is
                                          • Figure 5: Penetration of different hot drinks, by gender and age, 2009
                                        • Legislation tightens up on proving claims
                                          • More ABC1s behind the drive towards premiumisation
                                          • Competitive Context

                                            • Key points
                                              • Colder beverages are outperforming hot drinks
                                                • Figure 6: Trends for in-home value sales of non-alcoholic drinks, at current prices, by category, 1999-2009
                                              • Fizzy soft drinks are leading the way
                                                • The rise of coffee shops takes share away from in-home hot beverages
                                                  • Figure 7: Trends for spend in coffee shops compared to in-home spend on hot beverages, 2003-09
                                                  • Figure 8: Percentage point change in penetration of in-home hot beverages, by product, 2005-09*
                                                • Decline in alcohol drinking provides a greater sales opportunity
                                                • Strengths and Weaknesses in the Market

                                                  • Strengths
                                                    • Weaknesses
                                                    • Who's Innovating?

                                                      • Key points
                                                        • Herbal teas drive hot drinks innovation
                                                          • Figure 9: Trends for flavour components in new tea, hot chocolate and malted beverage products, 2008-10
                                                        • Improving the taste of green tea
                                                          • Organic claims dominate new product development
                                                            • Figure 10: Trends for main product claims of new tea, hot chocolate and malted beverages, 2008-10
                                                          • Targeting the kids
                                                            • Premiumisation in tea packaging
                                                              • Innovation in hot chocolate packaging and flavours
                                                                • The rise of chocolate pods
                                                                • Market Size and Forecast

                                                                  • Key points
                                                                    • Tea market rallies over past two years
                                                                      • Figure 11: Market size and forecast for volume and value sales of the total UK in-home tea market, 2005-15
                                                                      • Figure 12: Retail sales price per kg for the UK in-home tea market, 2005-15
                                                                    • Forecast Methodology
                                                                      • Volume sales likely to plateau over the next five years
                                                                        • Figure 13: Forecast of the volume sales for the UK in-home tea market, 2005-15
                                                                      • Hot chocolate drinks market still has plenty of growth potential
                                                                        • Figure 14: Market size and forecast of volume and value sales in the UK in-home hot chocolate market, 2005-15
                                                                        • Figure 15: Forecast of the volume sales for the UK in-home hot chocolate market, 2005-15
                                                                      • Horlicks shows there is still life in the ‘other malted drinks’ market
                                                                        • Figure 16: Market size and forecast for volume and value sales of the UK in-home other malted drinks market, 2005-15
                                                                        • Figure 17: Forecast of the volume sales for the UK in-home other malted drinks market, 2005-15
                                                                    • Market Segmentation

                                                                      • Key points
                                                                        • Segmentation of the tea market
                                                                          • Herbal tea is making only incremental gains
                                                                            • Figure 18: Trends for segmentation of the UK in-home tea market, by herbal and standard tea, 2009 and 2010
                                                                          • Teabags account for 96% of value sales
                                                                            • Figure 19: Segmentation in value sales of the UK in-home tea market, by format, 2009 and 2010
                                                                          • Segmentation of hot chocolate
                                                                            • ‘Full fat’ hot chocolate continues to drive market growth
                                                                              • Figure 20: Segmentation in value sales of the hot chocolate market, by standard and diet, 2009 and 2010
                                                                          • Market Share

                                                                            • Key points
                                                                              • Economic downturn allows PG Tips to consolidates its market dominance
                                                                                  • Figure 21: Trends for value sales of tea brands, 2008-10
                                                                                • Hot chocolate is dominated by Cadbury’s
                                                                                  • Horlicks grows sales on back of its TV campaign
                                                                                  • Companies and Products

                                                                                    • Key points
                                                                                      • Associated British Foods
                                                                                        • Cadbury/Kraft
                                                                                          • GlaxoSmithKline
                                                                                            • Nestlé
                                                                                              • Tetley
                                                                                                • Typhoo
                                                                                                  • Unilever
                                                                                                  • Brand Communication and Promotion

                                                                                                    • Key points
                                                                                                      • Tea brands drive increased investment
                                                                                                        • Figure 22: Topline adspend in the tea, hot chocolate and malted hot drinks markets, 2006-10*
                                                                                                      • Unilever comfortably outspends its rivals…
                                                                                                        • Figure 23: Top five highest-spending advertisers in the tea and other hot drinks market, 2008-10
                                                                                                      • …due to its huge investment in PG Tips
                                                                                                        • Figure 24: Top ten highest-spending brands in the tea and other hot drinks market, 2008-10
                                                                                                      • Is Tetley regaining interest in the tea market?
                                                                                                      • Consumer Usage of Tea, Hot Chocolate and Other Malted Drinks

                                                                                                        • Key points
                                                                                                          • Hot beverages are seeing a steadily declining pool of drinkers
                                                                                                            • Figure 25: Trends in usage of different hot drinks, 2005-09*
                                                                                                          • Frequency is an issue for all but standard “English” breakfast tea
                                                                                                              • Figure 26: Drinkers of tea, hot chocolate and other malted drinks in the past 12 months, by frequency, December 2010
                                                                                                            • Hot chocolate has a high penetration – and much potential still to grow
                                                                                                              • Only half of malted drink users consume them once a week
                                                                                                                • Standard “English” breakfast tea retains a stubborn user base
                                                                                                                    • Figure 27: Crossover in drinking different types of tea in the past six months, December 2010
                                                                                                                  • Standard “English” breakfast tea has a strong resonance with C2DEs
                                                                                                                    • Figure 28: Index (100=average) of solus drinkers of standard “English” breakfast tea compared to drinkers of “English” breakfast/speciality tea, by gender, age and socio-economic group, December 2010
                                                                                                                  • A new, more experimental generation of young professionals
                                                                                                                      • Figure 29: Index (100=average) of drinkers of any tea compared to drinkers of all three tea types (ie standard “English” breakfast, speciality and herbal), by selected demographics, December 2010
                                                                                                                    • Speciality tea in particular is tapping into the younger generation
                                                                                                                        • Figure 30: Index (100=average) of regular drinkers (ie at least once a week) of the three main tea types, by gender, age and socio-economic group, December 2010
                                                                                                                      • Hot chocolate is losing regular drinkers as they become older
                                                                                                                          • Figure 31: Index (100=average) of regular drinkers (ie at least once a week) of hot chocolate and other hot malted drinks, by gender and age, December 2010
                                                                                                                      • Attitudes towards “English” Breakfast Versus Speciality Tea

                                                                                                                        • Key points
                                                                                                                          • Comfort and refreshment are universal requirements for standard tea
                                                                                                                            • Figure 32: Attitudes towards standard tea, by solus standard “English” breakfast tea drinkers and drinkers of “English” breakfast and/or speciality tea, December 2010
                                                                                                                          • The new generation of tea drinkers are more open to premiumisation
                                                                                                                            • Figure 33: Attitudes towards standard, by drinkers of “English” breakfast and/or speciality tea and drinkers of both speciality and standard “English” breakfast tea, December 2010
                                                                                                                          • New generation of tea drinkers use English breakfast as an energy booster
                                                                                                                          • The Barriers and Benefits to Drinking Herbal Tea

                                                                                                                            • Key points
                                                                                                                              • Taste is the main barrier to attracting more herbal tea drinkers…
                                                                                                                                • Figure 34: Barriers to entry for tea drinkers who do not drink herbal/fruit tea, December 2010
                                                                                                                              • …but also cynicism about its merits
                                                                                                                                • Young men are desperate not to be seen with herbal tea…
                                                                                                                                  • Figure 35: Index (100 = average) of barriers to entry for tea drinkers who do not drink herbal/fruit tea, by age, December 2010
                                                                                                                                • …but are likely to be attracted to energy teas
                                                                                                                                  • Variety of flavours is the key selling point for herbal/fruit tea drinkers
                                                                                                                                    • Figure 36: Benefits of drinking herbal tea, December 2010
                                                                                                                                • Attitudes towards Hot Chocolate

                                                                                                                                  • Key points
                                                                                                                                    • Hot chocolate is considered even more comforting than tea
                                                                                                                                      • Figure 37: Attitudes towards hot chocolate, December 2010
                                                                                                                                    • A category that resonates with younger consumers
                                                                                                                                      • Figure 38: Net difference* between attitudes towards hot chocolate – under- and over-45s, December 2010
                                                                                                                                    • The younger generation are attracted by innovation and premium cues
                                                                                                                                    • Appendix – Internal Market Environment

                                                                                                                                        • Figure 39: Trends for annual RPI % change for tea and coffee/other hot drinks, 2000-10
                                                                                                                                        • Figure 40: Trends in agreement with selected lifestyle statements, 2006-10
                                                                                                                                        • Figure 41: Agreement with statements on diet/health, by gender, 2010
                                                                                                                                        • Figure 42: Trends in agreement with the statement “I buy good in my own country whenever I can”, 2006-10
                                                                                                                                    • Appendix – Broader Market Environment

                                                                                                                                        • Figure 43: GDP, PDI, consumer expenditure and savings, at constant 2010 prices, 2005-15
                                                                                                                                        • Figure 44: GDP quarterly percentage change, Q1 2004-Q4 2010
                                                                                                                                        • Figure 45: Trends in how respondents would describe their financial situation, February 2009-December 2010
                                                                                                                                        • Figure 46: Trends in the age structure of the UK population, 2005-15
                                                                                                                                        • Figure 47: Trends and projections in the UK population (‘000s), by age group, 2005-15
                                                                                                                                        • Figure 48: Forecast adult population trends, by socio-economic group, 2005-15
                                                                                                                                        • Figure 49: Forecast adult population trends, by lifestage, 2005-15
                                                                                                                                    • Appendix – Competitive Context

                                                                                                                                        • Figure 50: Usage of different hot drinks, by demographics, 2010
                                                                                                                                    • Appendix – Who’s Innovating?

                                                                                                                                        • Figure 51: Trends in agreement with the statement ‘It's worth paying more for organic food’, 2006-10
                                                                                                                                    • Appendix – Brand Communication and Promotion

                                                                                                                                        • Figure 52: Top ten highest-spending advertisers in the tea and other hot drinks market, 2008-10
                                                                                                                                    • Appendix – Consumer Usage of Tea, Hot Chocolate and Other Malted Drinks

                                                                                                                                        • Figure 53: Consumption of tea, hot chocolate and other malted drinks in the past 12 months, December 2010
                                                                                                                                        • Figure 54: Consumption of tea, hot chocolate and other malted drinks in the past 12 months, December 2010
                                                                                                                                        • Figure 55: Consumption of tea, hot chocolate and other malted drinks in the past 12 months, by demographics, December 2010
                                                                                                                                        • Figure 56: Consumption of tea, hot chocolate and other malted drinks in the past 12 months, by demographics (continued), December 2010
                                                                                                                                    • Appendix – Attitudes towards “English” Breakfast Versus Speciality Tea

                                                                                                                                        • Figure 57: Statements about tea in general, December 2010
                                                                                                                                        • Figure 58: Statements about standard “English” breakfast tea (ie PG Tips, Tetley), by demographics, December 2010
                                                                                                                                        • Figure 59: Statements about standard “English” breakfast tea (ie PG Tips, Tetley), by demographics (continued), December 2010
                                                                                                                                    • Appendix – The Barriers and Benefits to Drinking Herbal Tea

                                                                                                                                        • Figure 60: Benefits of drinking herbal tea, December 2010
                                                                                                                                        • Figure 61: Barriers to entry for tea drinkers who do not drink herbal/fruit tea, December 2010
                                                                                                                                        • Figure 62: Benefits of drinking herbal tea in general, by demographics, December 2010
                                                                                                                                        • Figure 63: Benefits of drinking herbal tea, by demographics (continued), December 2010
                                                                                                                                        • Figure 64: Barriers to entry to herbal tea, by demographics, December 2010
                                                                                                                                        • Figure 65: Barriers to entry to herbal tea, by demographics (continued), December 2010
                                                                                                                                    • Appendix – Attitudes towards Hot Chocolate

                                                                                                                                        • Figure 66: Attitudes towards hot chocolate, by demographics, December 2010
                                                                                                                                        • Figure 67: Attitudes towards hot chocolate, by demographics (continued), December 2010
                                                                                                                                        • Figure 68: Attitudes towards hot chocolate, by demographics (continued), December 2010

                                                                                                                                    Companies Covered

                                                                                                                                    • Apeejay Tea Limited
                                                                                                                                    • Associated British Foods Plc
                                                                                                                                    • Betty's and Taylors of Harrogate Ltd
                                                                                                                                    • Cadbury Schweppes Plc
                                                                                                                                    • Cereal Partners Worldwide
                                                                                                                                    • GlaxoSmithKline Plc
                                                                                                                                    • Green & Black's Ltd
                                                                                                                                    • Harvey Nichols UK
                                                                                                                                    • Kraft Foods Inc.
                                                                                                                                    • Kraft Foods UK
                                                                                                                                    • Nestlé UK Ltd
                                                                                                                                    • R Twining and Company Limited
                                                                                                                                    • Ryvita Company Ltd (The)
                                                                                                                                    • Tata Group
                                                                                                                                    • Tesco Plc
                                                                                                                                    • Tetley Group
                                                                                                                                    • The Redbush Tea Company Ltd
                                                                                                                                    • Unilever Bestfoods UK Ltd
                                                                                                                                    • Unilever USA

                                                                                                                                    Tea and Other Hot Drinks - UK - February 2011

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