Tea Bags: Staid and Stable

Tea bags are convenient, conserve tea, and, depending on form, sell at a premium. In several tea-drinking countries, notably the United Kingdom, 96 percent of the tea consumed is bagged.

Tea bags may be sedate, respectable, and unadventurous but they are gaining popularity globally and may be the key to increasing tea available for export in producing countries including India.

“Tea bags were the leading format type of global new hot tea launch activity in 2017. Indeed, 84 percent of all new tea launches in North America during this period were tea bags,” according to statistics compiled by Mintel International for its Global New Products Database (GNPD). In Europe, tea bags accounted for 75 percent of all new regional tea launches in 2017, and 45 percent in Asia Pacific, according to Mintel.

Mintel found India currently vies with China as the world’s biggest packaged tea* market. In 2017, India consumed a total retail volume of 678,200 metric tons of packaged tea, followed by China in second place at 576,800 metric tons. Meanwhile, Turkey (173,400 metric tons), Russia (134,200 metric tons), and Japan (92,900 metric tons) complete the top five global ranking.

China consumes far more tea than India, but most is consumed as loose leaf.

In the United States, tea bags are less common because so much of the tea (80 percent) is served iced. The bagged/loose leaf tea segment comprises approximately 23 percent market share, according to the Tea Association of U.S.A.

“Traditionally, Chinese consumers prefer fresh tea in loose formats, so it makes sense that our research shows that India is ahead of China as the world’s leading retail packaged tea market,” said Loris Li, Associate Director, Food and Drink, at Mintel.

“Most Asian consumers are, at the end of day, traditionally inclined to enjoy tea in loose formats—which is also likely the reason behind Asia Pacific’s lead in driving loose formats in packaged tea innovation. However, the tea bag category in China, and the wider Asia Pacific region, has definite growth potential as we see more and more tea bag innovations coming from Asian tea manufacturers,” added Li.

Indeed, Mintel research reveals that in 2017, most Chinese consumers (78 percent) were frequent users of freshly brewed loose tea. Ready-to-drink (RTD) tea drinks also enjoy high penetration in China, with half (49 percent) of Chinese consumers identified as frequent RTD tea drinkers. Tea bags, on the other hand, are frequently enjoyed by 45 percent of these Chinese respondents.

Hot tea launches in Asia Pacific accounted for 27 percent of all global new tea product launches in 2017. Hot tea introductions in Europe accounted for 30 percent of the world’s new tea launches in 2017. Meanwhile, North American hot tea launches accounted for 4% of the global pie of overall tea launches.

“Looking beyond top-level market sizes and consumption figures, there is an interesting new tea culture brewing in both hot and ready-to-drink tea, fuelling global and regional innovation activity,” commented Julia Buech, Global Food & Drink Analyst at Mintel.

“Although hot tea continues to be the biggest tea subcategory globally, RTD tea has started to build its base in the global tea market—following the same developments seen in the global coffee market.

The RTD tea landscape is changing dramatically; having suffered for years from a ‘cheap’ and unhealthy image, the category is now undergoing a lifestyle makeover. Artisanal production attributes, such as cold brew, are helping create a new premium tier in the segment. Our research shows that cold brew is just emerging as an upscale taste and quality descriptor in RTD tea. Better-for-you innovations from major beverage companies are further boosting the development of the RTD tea category,” continued Buech.

Tea bag efficiencies

Farhad Pirouz, managing director and CEO of DPH tea bag machine company in Germany, explains that “the greatest value addition in tea is the packaging segment.” Tea bags account for 12 percent of the volume of world production but “their sales value is much higher,” he says. In producing countries, tea bags are inherently efficient as they require only 1.5 grams of tea versus 3 grams of loose leaf and thus deliver higher value per kilo, says Pirouz.

Packaging a quarter of a producing country’s tea in tea bags would make available hundreds of thousands of metric tons for export, earning 30 to 35 percent more foreign currency, he observes.

“In order to meet growing demand, where growth in population and a decrease in production is forecast, is it wiser… (a) to invest in increasing production of tea or (b) invest in improving the infrastructure of our value chain?” asks Pirouz.

In India, strong economic growth is driving higher household spending leading to increased tea consumption.

Structurally, the Indian market has significant potential aside from its sheer size. Average consumption per head is lower than in China, at just 740 grams per year, which bodes well for longer-term demand growth. Currently, the out-of-home sector accounts for a little less than 50 percent of tea consumption, compared with 85 percent of the coffee market. The expansion of tea bars across many cities aims to lift this share, as well as fueling overall tea consumption growth, according the Economist Intelligence Unit Tea Forecast.

* Mintel defines the packaged tea market as household consumption of packaged tea that excludes out of home and unpackaged, loose tea formats

Sources: STiR coffee and tea, EIU, Mintel International