Tea Equilibrium Presents Opportunity

Globally tea is in rare equilibrium with supplies and demand in sync.

In November Kaison Chang, senior economist and secretary of the United Nations Intergovernmental Group on Tea, presented a positive opening report at the biennial gathering of tea officials, hosted by the Indonesia Tea Board. Kaison said that consumption worldwide was up 5% in 2013 with the greatest gains in tea consuming countries such as China where growth has been “spectacular” reaching 1.6 million metric tons in 2013.

The United States recorded an impressive 5.7% sales gain in grocery and natural foods channels in 2013 and in Canada, where the market value of specialty tea exceeded conventional for the third year in a row. Hot tea in the US has experienced a 4% increase in value from 2011 to 2012.

3634380491_cfd5bca78aThe American Botanical Council’s inaugural Tea Market Report, released in November, notes that almost half of Americans drink tea. Among tea drinkers, 84% consume black and 15% drink green tea. The remainder chooses oolong and white teas. Tea bags account for 94.3% of tea purchases in 2013, compared to 9.1% for loose leaf tea. Two fast-growth segments include chai teas which are up 21% and liquid tea concentrates, up 44.3%. Green and white loose leaf teas gained 25.1% compared to 2012. Tea sold in single-serve capsules accounted for 6.5% of the market last year and is projected to reach 10% in 2014.

In 2014 total sales are expected to reach $25 billion. Retail sales, largely in grocery and multi-outlet department stores are projected at $6.2 billion (or 25%). Market research firm Packaged Facts estimates a $900 million increase in total tea sales across the industry in 2015 with the most substantial increase attributable to food service sales. Currently food service makes up slightly more than 75% of total tea sales with $18.8 billion to come from a newly energized category.

Tea and Ready-to-Drink Tea in the U.S.: Retail and Food Service, 5th edition report 

Restaurants and fast-serve outlets are embracing tea as an alternative to carbonated soda. Hundreds of specialty tea outlets are opening across North America with selections as large as 200 teas and herbal infusions. In addition to Teavana which already has built 375 of 500 stores; major players include Canadian-based DAVIDsTEA and Chicago-based Argo Tea as well as Taiwan-based Ten Ren and newcomers T2 (an Australian chain owned by Unilever) and Le Palais des Thés from Paris, France.

Sales of ready-to-drink (RTD) tea comprised $5.1 billion of total sales in 2013, and are expected to rise by 6% per year through 2018, according to Mintel International.

Consumption is rising and production is keeping pace, but Kaison described a market in transition. The export value of commodity tea is declining. ‘There is an excess of supply at current levels leading to further weakening in prices to clear the market. The projected trajectory is downward, dropping 2% in 2014. Tea prices should bottom out in 2015, at $2.59 per kg and increase to $2.81 by 2023. However, Chang pointed out, this is a nominal increase.  “In real terms, prices will decline.”

India, Kenya and Sri Lanka are producing too much black tea in CTC (crush, tear curl) grades. Black teas, chopped and blended in teabags and packets are falling out of favor due to gains in green, oolong and specialty tea. Prices paid for Orthodox (full leaf) and specialty grades are rising. These teas are better known for the health attributes, confirmed by almost 5,000 scientific studies.

The emphasis on health benefits, which are viewed in the West as the second most important of tea’s desirable qualities, are following a pattern established centuries ago in China where taste and distinctiveness due to processing ultimately add the greatest value.