The convenience of ready-to-drink tea speaks volumes in the US tea market.
More than half of consumers (53 percent) quench their thirst at convenience stores where soda continues a 15-year decline and RTD tea is growing share.
In fact, RTD is the only tea category in 2018 to increase both in volume and value, reaching an estimated $10.75 billion, according to Beverage Market Corp. projections.
Units sold of tea bags, iced tea mix, loose leaf tea, and single-serve tea all declined in 2018, according to BMC. Total units fell to an estimated 3.66 billion from 3.68 billion units sold in 2017. Retail dollars earned were slightly better, growing by about $465 million. Increased sales of RTD tea contributed $397 million to the year-over-year gain with tea bags growing by $130 million in the grocery, drug, mass market, convenience, and dollar store channels. This reflects the continued consumer preference for premium tea at a price point 20 percent or greater than traditional teas. Prices for tea bags and loose leaf showed an average $0.3 cents per unit gain, a modest advance in a category that lost momentum as unit sales declined -0.8 percent, according to market research firm IRI’s multi-outlet report for the 52-week period ending Nov. 4, 2018.
Beverage Marketing Corp estimates tea sales in all formats will reach $19.66 billion in FY2018, compared to FY2017’s total sales of $19.19 billion.
Retail sales of all refreshment category beverages increased about 3 percent by volume and around 2 percent in value in 2017, according to BMC. Refreshment beverage volume reached 34 billion gallons in 2017 on sales exceeding $180 billion, “propelled both by exceptionally fast growth by small, niche segments as well as growth by bigger, established categories, such as carbonated soft drinks,” according to Gary Hemphill, managing director of Research at Beverage Marketing Corporation in New York City. That trend continued in 2018.
The Convenience Factor
Packaged beverages account for 16 percent of sales and 20 percent of the profit earned by convenience stores according to the National Association of Convenience Stores (NACS).
Sales margins for refreshment beverages averaged 42 percent last year and are higher for waters and tea — nearly double the 22 percent earned on beer. Liquid refreshment beverages accounted for $128 million in convenience stores sales in 2017, according to NACS.
Water remains the top-selling beverage in the U.S., with sales of 13.7 billion gallons in 2017, according to BMC. At the turn of the century Americans consumed nearly 50 gallons of soda per person. In 2017 per capita consumption of bottled water exceeded 42 gallons. Sales increased 8.8 percent last year to $18.5 billion.
While the volume of soft drinks, sports drinks, and fruit beverages declined last year, RTD tea showed a 3.9 percent increase in retail dollars and a 1.1 percent gain in volume, according to BMC. RTD accounts for 46 percent of total tea volume in the U.S. market, while tea bags represent 44 percent. Loose leaf accounts for less than 1 percent of tea by volume.
Teavana, which rolled out its premium tea in bottles in January 2018 saw a 573 percent increase to $25 million in sales from 10.7 million units, according to IRI. Unit sales averaged $2.30 per bottle. Teavana is bottled by Anheuser-Busch InBev and distributed to hundreds of thousands of retail outlets where it has consistently ranked among the top 10 selling brands. In June a line of packaged Teavana sachets in six flavors also launched in grocery stores, replacing slots filled by TAZO, a brand Starbucks sold to Unilever (Lipton).
Coca-Cola has been exceptionally successful with Gold Peak (the first tea brand to top $1 billion in sales in a single country) and Honest Tea, an organic offering that broke out of the natural channel into the major market. Honest Tea generated $47.5 million in the 52 weeks ending Nov. 4, according to IR. Coca-Cola continues to experiment. In December the company launched a new premium brand called Authentic Tea House tied to origins and competing with Ito En and other global bottled teas in Asia. The Da Hong Pao (oolong), Jin Ban (chrysanthemum), and Ayataka, Japanese green tea are RTDs with little or no sugar to meet restrictions in Singapore which now limits companies to 12 percent sugar content across their entire portfolio, enforceable in 2020.
The decision to begin home and office delivery in a deal with UberEats is a major development late in the year that will ultimately have a big impact on the growth of specialty tea. Starbucks will deliver Teavana and its growing line of hot and cold coffees from 2,000 stores initially, increasing to 3,500 outlets in 2019.
Bottles and cans are expensive to ship but Amazon’s acquisition of Whole Foods Markets, a major tea seller, opens the door to local pick-up in 479 locations in the U.S. with 12 in Canada and nine in the U.K. RTD tea from Republic of Tea, and Numi Tea are popular. Rishi Tea plans to launch a line of sparkling botanicals in 2019.
Several major brands introduced sparkling teas in 2017 including Pellegrino, Sun-Rype, Lofbergs, Sound Tea, Green Lady, Copenhagen Sparkling Tea Co., and Sparkling Ice. Forecasters at 360 Market Research project carbonated tea will grow an average 9.24 percent annually during the period 2017-24 from a small base. Revenue from sparkling tea grew 6 percent year-over-year in 2018, according to FACT.Market Research, which projects overall growth of 3.4 percent for the entire bottled tea category. Global consumption will surpass 41 million liters “as manufacturers ramped up the production of no-sugar tea varieties, the bottled tea market surpassed $ 47 billion in 2017 and the status quo is highly likely to continue in 2018,” says a senior analyst at Fact.MR.
Black tea remains the most popular bottled tea (30 percent) with green tea accounting for 25 percent largely due to preferences of health-conscious consumers. Millennials are choosing flavored teas and display “an increasing appetite for specialty teas,” according to Fact.MR.
Cold brew is another segment experiencing strong growth. Argo Tea, a Chicago-based retailer with strong presence in grocery, launched Single Estate Cold Brew tea in bottles, Arcadia Beverage in May launched Zumora, a clean-label tea concentrate for foodservice with 17 flavors including sweetened and unsweetened tea.
Five brands dominate the canned and bottled tea category in 2018 with the No. 1 selling PepsiCo-Lipton partnership earning $1.6 billion in omni-market channels, according to IRI. The company holds a 41 percent market share and grew 1.8 percent in the past 12 months, but volume is down -0.2 percent and unit sales average $2.10. Growth is uneven. Lipton Iced Tea is down 12.9 percent by volume with unit prices up 60-cents to average $4.02, according to IRI. Lipton Diet tea is down 8.6 percent by volume (unit price up 14-cents) during the past 52 weeks. In contrast Coca-Cola’s Gold Peak, which holds 10 percent market share in the canned and bottled teas category showed a 5.1 percent increase in value and 1.8 percent increase in volume to average $2.01 per unit.
Arizona Beverages is No. 2 in the category, squeezed between Pepsi and Coke with a tiny share advantage over Keurig Dr Pepper.
IRI reported $750 million in measured channel sales for the year with a 19 percent market share on falling volume (-3.6 percent) and facing Peace Tea, a competing Coca-Cola product that earned $87 million and is growing at 16.9 percent. Unit sales increased to 73.5 million at a lower price point $1.18 than Arizona’s $1.37 per unit average.
The company now offers 85 beverages and is a major distributor with brewing contracts in 70 locations earning $1.2 billion last year, a total that includes sales of 500 million 24-ounce cans of Arnold Palmer Half & Half.
“We’re seeing the beverage market increasingly fragment into more niche categories. Most of these newer categories are likely to remain niche. And the majority are healthier products often designed around some functional benefit,” Hemphill told World Tea News.
Sales of refrigerated teas, a category that includes kombucha, were $1.5 billion for the 52 weeks ending Nov. 4, according to IRI. Growth topped 10 percent on 655 million units. Top brands include Millennium ($249 million); Coca-Cola ($206 million); Turkey Hill ($152 million), and Milos Tea ($147 million).
Kombucha was a standout tea category in 2018. Sales grew by 37.5 percent to $556 million in 2017 in natural food channels according to natural products marketing researcher firm SPINS. U.S. sales were $80 million in 2008 and fewer than 15 percent of Americans had tried kombucha in 2016, according to Statista market research. Awareness has since exploded. In February kombucha topped the Google search list of top food trends.
“Kombucha is most definitely a bona fide, successful category and continues to grow,” says Hemphill. Sales confirm that the category is now large enough to be considered a successful fad, but not big enough to be considered a mass-market success. That could change in 2018 as Nielsen projects combined category sales will break $1 billion. Euromonitor International offers a more conservative prediction, estimating kombucha sales will reach $657 million by 2019.
Brands to watch include GT’s Living Foods (a top-seller in refrigerated at $159 million) with a new GT’s Enlightened tea that grew 272 percent according to IRI Omni-Channel, earning $11 million in the past 52 weeks. KeVita (owned by PepsiCo earned $63 million as the No. 2 best-selling kombucha brand, growing 54.5 percent), Health-Ade (Coca-Cola, up 199 percent to $36 million), Brew Dr Kombucha, (up 68.5 percent to $15 million); Buchi Kombucha, Revive Kombucha, Kombucha Wonder Drink, and Humm (up 32 percent to $20 million). Humm is brewed from a mix of green and black tea and claims to have stopped the production of alcohol after bottling. Sales overall are up 43 percent according to Nielsen. Original kombucha has quickly been overtaken by flavored varieties, often juice blends but some with edible flowers or spices such as ginger. Lumina Intelligence counted 76 brands globally.
Kombucha globally reached an estimated $970 million in sales in 2017 and will grow at a compound annual rate (CAGR) of 25.6 percent through 2023 to $3.8 billion, according to Orbis Research. Countries with the greatest penetration include China, the U.S., Japan, Germany, France, South Korea, and the UK.
Guayaki Yerba Mate is another example of a niche beverage showing strong sales. IRI reported $37.6 million in the 52 weeks ending Nov. 4 for the Sebastopol-Calif. based company’s traditional blend and $25 million in sales of various flavored yerba mate in bottles and cans. The brand grew its original Rainforest Certified Yerba Mate 39 percent in the past 12 months, selling 13.8 million units at an average $2.73 per bottle. Guayaki introduced sparkling classic, grapefruit, and cranberry-pomegranate. Sales of the 20-year-old company’s canned energy line grew 66 percent in 2017 attracting $6 million in outside financing from Sonoma Brands. In October Guayaki began developing its first factory in Brazil.
Danon Wave-owned Stok, launched a Yerba Mate Cold Brew in bottles in early 2018.
Brands to watch include Kraus, EcoTeas, Pure Leaf Naturals and Mate Factor. South Americans consume 87 percent of the Yerba Mate produced with exports totaling 30,000 metric tons. Growth in consumption is estimated at 1.95 percent during the period 2011-15, accelerating to 4.5 percent during 2018-25, according to Wise Guy Reports. They estimated the global market at $1.35 billion in 2017.
Global Outlook: Healthy Halo
In 2030 economists estimate 66 percent of the world’s middle class will reside in Asia, compared to 7 percent in North America. One thing everyone in the middle class seems to have in common a desire to maintain good health.
Carbonated soft drinks still account for four of the five top beverage brands by volume, with the category growing retail sales by 1.2 percent according to BMC. Total category volume dipped by -1.3 percent from 12.5 billion gallons in 2016 to 12.3 billion gallons in 2017, which lowered their market share to less than 37 percent.
In contrast Nielsen estimates RTDs teas were once again the top dollar growth category in 2017, increasing at 18.9 percent.
Various market researchers estimated RTD growth between 6-9 percent with the leaders in tea that include Ting Hsin International, Unilever, Uni-President and R. Twinings & Company expanding market share. In the U.S., Arizona Beverage Company and the PepsiCo-Lipton partnership along with Coca-Cola are marketing good-for-you teas and acquiring healthy formulations and clean-label brands.
Nestle Waters North America closed the sale of Tradewinds Tea and Sweet Leaf Tea Company in 2018 after assessing that stevia was not the sugar replacement once hoped. The big carbonated soda companies have reached the same conclusion, and since artificial sweeteners are out, flavor must carry the brand. Honest Tea, Gold Peak, Numi Organic, Republic of Tea and in the new year Rishi Tea all provide an alternative to sticky sweet lemon-flavored Lipton Brisk and Lipton Iced Tea mixes. These traditional bottled teas continue to lose share in competition with authentic tasting tea and natural botanicals.
Industrial markets globally have declared war on sugary drinks. Hong Kong is instituting strict labeling, India approved a 40 percent tax on sugary sodas, and New Zealand is likely to do the same. Saudi Arabia and the United Arab Emirates instituted a 50 percent tax on carbonated drinks. Outright bans are giving way to regulations, like those adopted in Singapore and Thailand, that apply across the brand’s entire portfolio. This gives some leeway to majors that depend on a declining base of soft drinks. Regardless of region or motive, the global effort to curb the consumption of sugar guarantees that RTD tea, especially in Asia, will experience a sustained boost that bodes well for all.