the shifting u. s. beverage landscape and the role of tea€¦ · eighth annual north american tea...

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

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-2- Copyright © 2017 Beverage Marketing Corp.

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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


Beverage Marketing Capabilities

All data in this presentation is supplied by:


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


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



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



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



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



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



U.S. Total Beverage MarketVolume and Wholesale Revenue

(Millions of Gallons and Wholesale Dollars)2011 – 1H 2017


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



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



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



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



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




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


Evolution of Beverage Need-States1970s to Present

Since the 1970s, beverage consumers have grown in sophistication, with increasingly complex motivations for consuming beverages


• Milk & Juice• CSDs• Coffee &

Alcohol


Alcohol• RTD Teas• Juice Drinks• Isotonics• PET Waters• Flavored CSD's


Alcohol• RTD Teas• Juice Drinks• Isotonics• PET Waters• Flavored CSD's• Fresh-packed

Juice• Smoothies• Coffee Drinks


Alcohol• RTD Teas• Juice Drinks• Isotonics• PET Waters• Flavored CSD's• Fresh-packed

Juice• Smoothies• Coffee Drinks• Nutrient-

enhanced• Energy


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


Expanding consumer motivations for beverage choices has resulted in a steadily broadening array of beverage categories

Evolution of Growth of Beverage Categories1970s to Present


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




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%




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



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


Smaller Packaging Sizes Home Dispensers


Consumer health and variety demands negatively impact CSD consumption. CSD category performance is further impacted by other external factors that contribute to consumption declines


● 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



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






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%


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



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



2016


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



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


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



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



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


All combined these emerging categories are showing exceptional growth from a relatively small base but hold promise for the future



$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


Thank You

• Strategic Associates

• Research

• Advisors

[email protected]

Beverage Marketing Corporation

the shifting u. s. beverage landscape and the role of tea€¦ · eighth annual north american tea...

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