Growth in the tea market is projected to reach $25 billion by the end of 2014, with roughly $6.2bn projected to come from retail sales and the rest from foodservice, according to the report titled “Tea and Ready-to-Drink Tea in the U.S.”. Household penetration of tea is strong, at about 77%, and growing—up 1.9% between 2008 and 2013.
Tea competition stiff at retail
Within the retail segment, supermarkets continue to dominate tea sales, with an estimated $2.8bn in 2014 sales. Convenience stores are expected to generate more than $1.5bn in tea sales. Walmart alone is expected to contribute some $900 million to tea category sales, followed by club stores with just over $400 million. Using IRI multi-outlet data, 2013-2013 trends by segment suggest slight-to-moderate sales growth, with category sales growth of 2.1%. However, flat sales in RTD canned and bottled tea and declines in instant tea mix present challenges.
IRI volume sales also indicate that only refrigerated tea grew volume sales above 0.4%, and instant tea volume sales declined by 8, suggesting that tea is facing stiff competition at retail. (Growth projections are much stronger for foodservice establishments, as consumer visits are up and pricing power gives tea a notable advantage.)
The power of ‘Mom, can we get this?’
RTD iced tea usage penetration among US adults has grown 5% during 2009 to 2013, reaching 47%—but among those with children age 6-11 and 12-17 in the home, usage penetration has risen more strongly and overall usage penetration is higher, suggesting the influence kids have on their parents’ purchasing decisions, Packaged Facts found.
Indeed, two-thirds of grocery shoppers with children agree that their kids’ preferences influence which groceries they buy, according to Packaged Facts’ February/March 2013 Food Shopper Insights Survey. To win over the kids, ready-to-drink tea varieties are key to leveraging convenience. For example, liquid concentrates enable convenience, yet give kids the power to control their flavors and “play” with their beverage. Currently, Packaged Facts says teas aimed specifically at kids and teens are underrepresented.
But despite its formidable size (estimated at $23bn), the kids food and beverage market is a tricky one, as companies and brands must first win over the buyer (parent). For tea marketers, this means leveraging tea’s healthful properties to promote it as a healthy alternative to popular sugary kids’ beverages (i.e., sports drinks, soda), while also appealing to the Millennial penchant for social responsibility platforms by underscoring ethical farming and production practices.
Tea marketers must also harness the internet, social media and the blogosphere when specifically seeking to connect with Millennial moms, given the powerful influence technology has in everything they do, from online purchasing and checking Facebook to posting photos and their location on Instagram. Engagement of Millennial moms through relevant dialogue will keep them loyal and spreading the word to their social circles.
One startup manufacturer, Little Me Tea, has positioned itself in the kids' market as an alternative to sugary juice boxes with its organic, caffeine-free tea sweetened with fruit and vegetable juice (and no added sugar, to appeal specifically to moms). The labels contain pictures of children instead of cartoon characters, which the founder says provides more of an emotional connection for the buyer. The product is set to roll out nationwide.
Tea consumption skews female—a point driven home by tea’s association as “healthy” and even “dainty” (think porcelain tea cups and tiny finger sandwiches) But tea marketers could take a page from the “macho yogurt” book tomake tea drinking appear a bit more “masculine.”RTD iced tea can help pave the way, as men are already almost as likely as women to drink it.
Brand acceptance by gender indicates that men are looking for more masculine tea products. AriZona and Nestea are currently the only brands that seem to resonate as much with men as they do with women, as Packaged Facts found. Indeed, AriZona’s association with golf legend Arnold Palmer has helped its cause, along with its packaging—with checkerboard design and bold colors.
Tea in the morning (duh?) and the single cup phenomenon
Tea offerings already exist that target daypart usage (i.e. breakfast and nighttime teas); yet, tea is surprisingly underutilized as a morning beverage—though not for lack of tea drinkers, Packaged Facts found. A proprietary survey by the market researcher found that 21% of respondents drink at least once per day compared to 45% who are daily coffee drinkers.
That said, marketers should leverage the positive side of caffeinated tea, which has lower levels of caffeine compared to coffee. At the same “energy teas” could also offer suitable replacements for the morning cuppa. And with use of RTD tea rising, manufacturers should consider campaigns that invite consumers to use bagged tea to create iced tea at home more often—suggesting consumers blend their own flavors to appeal to the desire for customization.
It’s hard to ignore the impact of single brewer cups on the market: roughly three in 10 adults now have access at home to a single-serve pod brewer. And some 7% of consumers say they have an electric tea maker for just tea, illustrating that tea equipment has forged a solid niche within the American household.
Bagged/loose tea marketers can’t deny that Green Mountain single-cup tea is taking share: in 2013, its teas generated 6.5% of sales in the bagged/loose tea category. Its licensing/branding partnerships with Snapple, Lipton and Tetleys are starting to gain ground, which will likely mean even stronger sales in 2014.
But single-serve pods aren’t just driven by coffee—Packaged Facts finds that other beverages also play a significant role, contributing 30% of overall equipment use. And tea has gained a solid foothold in the single-serve/pod segment of the market: about 22% of at-home users say they make tea about 22%, versus 8% for other beverages and 70% for coffee.
The future is premium, innovative and minimally processed
Not unlike the rest of the food and beverage industry, premium characteristics (i.e.,quality, ingredients/flavor, and functional benefits) and new formats (i.e.,beverage blends, single pods, and liquid concentrates) are likely to drive new and existing users to enter the tea market. Premium certifications such as organic or Fair Trade provide differentiation among such manufacturers as Honest Tea’s Unsweet Lemon Tea, Rishi Tea’s organic and Fair Trade certified loose-leaf teas, and Third Street’s RTD iced teas.
Unique ingredients also help brands to differentiate their products and align with quality. Examples include The Republic Of Tea’s Hibiscus Superflower TeaPineapple Lychee Hibiscus Tea, which provides unusual fruit and floral flavor profiles via product marketing that includes recyclable packing, kosher certified, gluten- and caffeine-free, sustainability, and even explanation of functional benefits.
Elsewhere, innovations in form include tea powders and RTD drinks with minimal processing, single-cup innovation, liquid concentrates (instant tea in a mess-free bottle), and blending tea with other beverages for crossover appeal.