With food and fuel prices spiralling due to the ongoing Russia-Ukraine conflict and inclement weather conditions, Australians are paying more for hot drinks such as coffee and tea. However, the COVID-19 pandemic has spurred the demand for health and wellness tea blends and herbal/fruit infusions. Consequently, the Australian hot drinks market is set to grow at a compound annual growth rate (CAGR) of 5.4% from AUD3.6 billion ($2.7 billion) in 2021 to AUD4.6 billion ($3.4 billion) in 2026, forecasts GlobalData, a leading data and analytics company.

GlobalData’s report, ‘Australia Hot Drinks – Market Assessment and Forecasts to 2026’, reveals that the hot drinks sector’s growth will be primarily driven by hot coffee, the largest category, while the other hot drinks category is set to register the fastest value CAGR of 5.7% over 2021-2026. The hot coffee and hot tea categories will record a CAGR of 5.5% and 4.8%, respectively, over the forecast period.

Naveed Khan, Consumer Analyst at GlobalData, says: “Hot drinks manufacturers, retailers, and foodservice operators are under pressure to raise prices to cover the rising input costs. However, the relaxation of the pandemic restrictions unleashed the pent-up demand and propped up consumer spending.”

Consequently, the per capita expenditure (PCE) on hot drinks in Australia increased from $33.4 in 2016 to $50.7 in 2021, surpassing the regional level at $11.1, and the global level of $17. Australia’s PCE on hot drinks will surge to $61.7 in 2026.

Khan continues: “Experimentative consumers are seeking new ways to enjoy hot drinks at home and out of the home. This is spurring the demand for specialty coffee, functional teas, and hot chocolate drinks. Concurrently, the increasing public outdoor mobility and reopening of offices and institutions is fueling the demand for instant coffee, coffee capsules, and tea bags.”

According to the report, hypermarkets & supermarkets was the leading distribution channel in the Australian hot drinks market in 2021, followed by convenience stores and food & drinks specialists. Nestlé, JAB, and Cantarella Bros were the top three companies in the Australian hot drinks market in value terms in 2021, and Nescafe and Moccona were the leading brands.

Khan concludes: “With the easing of COVID-19 curbs, the on-premise and on-the-go consumption of hot drinks is on the rise. However, the prolonged inflationary pressure is compelling foodservice operators to raise prices. Manufacturers are launching new products with innovative brewing methods and distinctive flavors to attract the young consumers, who are willing to spend more for novel consumption experiences.

“Tea manufacturers are focusing on functional blends with immunity strength and mental relaxation claims to help consumers cope with the stress of the economic and health crisis. Hot drinks companies are also embracing sustainable packaging designs with low environmental impact to gain goodwill among eco-conscious consumers.”