We may be a nation of tea and coffee drinkers, but if consumers are increasing their consumption of a cup of 'rosie lee' or a hit of strong black stuff, they are not drinking it at home.

While TNS figures show healthy value growth of 2.7% in the UK hot beverages market, which is a £1.3bn industry [52 w/e 18 June 2006], volume remains flat. In fact, the value of standard tea has dropped by 0.9%, largely due to heavy price deflation and supermarket price wars, and the value of standard coffee is experiencing only a slight increase, up 1.8%.

What is providing good cheer for the industry, however, is that consumers are prepared to pay more for premium-priced speciality products, and that rises in energy and coffee prices, in particular, are being passed on to consumers to some extent. A recent drought in Kenya has also affected tea prices, which is something that is likely to raise the value of the category if the multiples pass on the increase to consumers.

Ground coffee, speciality coffee and fruit, herbal and green teas, many of which are twice the price of standard lines, are in growth and this extra spend is more than compensating for the fact that consumers are not increasing their consumption.

Makers of standard tea are doing their best to generate sales. PG Tips has done well with on-pack promotions, Tetley has embraced stronger tea drinkers with the launch of Extra Strong, while Typhoo is enjoying increased sales thanks to its 'extra oo' TV advertising. Indeed, Typhoo sales director Keith Packer is confident that the outlook for tea is good and value growth will be put back in the market in the not-too-distant future.

Meanwhile, coffee drinkers have never had it so good. There's a Starbucks or Costa Coffee on every high street and technology is available to allow consumers to replicate their favourite frothy blend at home.

According to BMRB/TGI data, coffee shops are becoming increasingly popular. The research company says that since 2002 Costa Coffee has gained 57% more individual customers and Starbucks has 65% more. This is good news for retailers, as Douwe Egberts' MD, Grant Rosewarne, explains: "When Starbucks arrived there was a certain amount of frustration because consumers couldn't get the same quality coffee at home. There was this dramatic change happening on the high street but it was slow to filter into retail because there wasn't a convenient way to have speciality coffee at home. Now there is with coffee machines and pods."

Brian Chapman, MD of ethical coffee brand Percol, says that consumers are taking their coffee much more seriously. He adds: "There's no doubt that coffee shops are fashionable and sexy, and they lead consumers to hunt out different coffees to drink at home, but you have to remember that coffee shops sell more milk than coffee."

Health and wellbeing are important to consumers and the hot beverages market has not been immune to these changes. As a result, more decaffeinated varieties are being sold as well as green, fruit and herbal teas.

Simon Attfield, customer marketing manager for Tetley, says household penetration of tea (excluding fruit and herbal) is 86%, and consumers are increasing their repertoire and trying different teas.

Bruce Ginsberg, MD of Dragonfly Teas, says there is a ground shift in beverage drinking patterns and that trend-setters are following the expansion and experimentation experienced in the food and wine sectors, where certain products have become leisure pursuits. "We are enjoying a deepening awareness of the choice of teas and the rediscovery of the old British heritage of drinking fine teas, which has being dying out with the commoditisation of tea," he says. "Also there is some evidence that demand for very fine quality black and green and white teas, such as artisan, hand-made and single estate teas, is increasing."

He says that traditional black tea tends to be drunk by older consumers, whereas ­rooibos and green teas are being consumed by more affluent, younger shoppers and those with special dietary interests. "Fruit and herbal consumers sit between rooibos and green and traditional black tea drinkers. Fine-quality speciality and black teas are drunk by more widely travelled consumers."

There is a trend towards indulgence, too. The speciality coffees and roast and ground products fulfil this need, as do hot chocolate products. TNS data puts the latter in growth of 13% year-on-year to £95m, boosted by new entrants, most notably Aero hot chocolate drink from Nestlé and Green & Black's luxury drink.

Provenance and ethics are also important with consumers attracted to brands that are fairly traded and sustainable. The major players' entry into the ethical arena has yet to make a major impact so time will tell whether mainstream brands can make their name in ethical trading. Percol's Chapman says credibility is important. "It is the basis on which a successful brand is built," he says. "We have fair trade products because we believe in fair trade. The more we support our growers, the more they can supply. The more we sell, the more we support them."

He believes that as consumers become even more serious about coffee, it will be origin blends that will drive future growth. "Ordinary instant is no longer good enough - we have become a nation of 'coffee

fashionistas' who believe quality is more important than price. Rather than buying the cheapest coffee on the market, consumers would rather go for one that costs more but reveals its origins."

While most of the marketing noise

is coming from the brands, own label is

another area to watch in hot beverages. Nestlé's strategic planning manager Ruth Willis says she regards own label as the company's nearest rival. Keith Packer, sales director at Typhoo, adds that his company produces own label tea but from very different blends to the brand. He reckons it doesn't cannibalise sales of Typhoo but rather complements the brand.n

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