Sri Lanka is Primed to Supply Premium Iced Tea

Premium tea, Barnes Watson

A client list of more than 500 hotels and resorts was the prize in 2011 when Sri Lanka-based Maskeliya Tea Exports purchased Seattle’s Barnes & Watson Fine Teas.

Owner Ken Rudee, then chairman of the Specialty Tea Institute, had carefully cultivated restaurant and resort clientele who were unusually discerning about the quality of their tea. It was a given hotels like the Conrad Hilton in Chicago, the Phoenician Resort in Phoenix and the Fairmont in San Francisco ― all charging top prices for afternoon tea ― insisted on quality house blends, but Rudee also set a high standard for iced teas. The Tom Douglas restaurants in Seattle which include Serious Pie (Pizza), the Carlile Room (American), Etta’s (Seafood) and the original Dahlia Lounge (that in 1989 launched the eclectic collection of fine restaurants) all feature quality tea supplied by Barnes & Watson.

Iced teas were almost universally flavored in 1997 when Rudee joined Barnes & Watson. Restaurants and hotels fresh brewed coffee but not iced tea. A food poisoning incident involving tea dispensers spooked restaurants into switching to concentrates and bag-in-a-box tea, which were more convenient, and delivered consistent results with less labor and less mess.

Barnes & Watson’s Exper-teas iced tea program went a step further, with flavored iced teas in tea bags large enough to make either a quart or gallon. Examples includes SunSplash, an award-winning fusion of black, oolong, green, and white teas; spiceberry herbal, and sweetberry (berry and currant) iced teas. At events like the Northwest Tea Festival the company offered samples of its popular Tahitian blend, a black tea made with natural tropical flavors, citrus, and rose petals sold in tea bags to make 1 quart or 1 gallon. Barnes & Watson differed in another way.  Their classic blend iced tea bags, sourced in Sri Lanka, contain broken tea leaves (not fannings and dust).

Restaurant teas today are more commonly brewed in filter paper packs or pods designed to make 1.5 gallons, 3 gallons and 5 gallons in sophisticated commercial brewers. Now managed by Ravi Kumararanthne, Barnes & Watson has convinced many other fine restaurants to brew their tea fresh and then pour the tea over ice.

Premium Iced Tea

Dilhan C. Fernando is director of Dilmah Tea, Sri Lanka’s best-known tea brand. He says that “every time I have tasted what passes as iced tea in Europe, the USA, and many other countries, it has been tea by name only.  Real tea offers an entirely different dimension of taste, provenance, purity and wellness.”

“As a new generation rediscovers the richness of tea, the future of the tea category will be in the hands of brands that value that heritage and the unique relevance of tea in the 21st century,” writes Fernando. “That future belongs to brands which are genuinely dedicated to tea. The key ingredient of success in tea is passion ― not profit,” he said. Dilmah has grown to global prominence with distribution in 100 countries since 1974 under the direction of founder Merrill J. Fernando.

“The fortunes of tea and the gross commoditization that has devastated tea globally to the detriment of consumers began when passion was replaced by profit with the acquisition of once great tea companies,” says Dilhan Fernando.  “The trend towards quality is a prelude to a reversal of those changes,” he said.

Export Opportunity

Americans drink more of their tea iced than any country. Bottled and foodservice teas account for billions more in sales than hot teas and the segment is growing. Sales of hot tea are flat in grocery segments where most tea is purchased. Contrast that with the $1 “any size” offers of iced tea at McDonald’s which makes $70 million a day and sells $1 billion per year. Arizona Tea, a c-store staple at 99-cents also pockets $1 billion annually in sales.

“Iced tea is a fast-growing import segment that grew 9.7% to $1.35 billion in the U.S. market,” writes Premala Srikantha, director (promotion), Sri Lanka Tea Board. “Sri Lankan tea exporters should focus on this growing segment to expand their exports,” she says.

Sri Lanka’s leading exporter to the U.S. market is Walters Bay which sells more than 1.5 million kilos of value-added iced teas to US market and has won multiple awards for premium Ceylon iced teas.

Argentina is the major supplier of iced teas to the United States. The South American country shipped 53,681 metric tons in 2016 (64% of total harvest goes to the U.S.). Sri Lanka shipped 2,516 metric tons to the U.S. during the same period, according to International Tea Committee (ITC) statistics.

Since the 1960s Argentina has provided North America with virtually all the tea leaves used in making iced tea (85 percent of tea shipped to the U.S. is consumed as iced tea). Black teas from Argentina are bright, clear, and brisk but cultivars there and processing for iced teas assumes the addition of flavors during the blending process. Increasingly it is the desire to avoid these additions and to strive for natural instead of neutral flavor that drive sales of premium tea.

Each year the Natural Marketing Institute queries a national panel of typical consumers. In the 18th Annual Health & Wellness Trends Report the following attributes showed the “strongest growth by percentage of total growth of all attributes for the period 2013-2016.”

Desirable Food Attributes  
Natural 22%
No artificial ingredients 19%
No preservatives 17%
No artificial colors 16%
Fair trade certified ingredients 16%
Organically grown 16%
USDA certified organic 16%
No artificial flavors 13%
Free range/Cage free 13%

Source: 18th Annual Report, 2017 Natural Marketing Institute Health & Wellness Trends in America

Sri Lankan Tea is Well Suited to Making Iced Teas

Niraj de Mel, far right, The Mel’s Tea Academy

In the American tea market product diversification is underway with a preference emerging for diverse flavor profiles, says Srikantha. “Sri Lanka produces some of the finest teas in the world spread over seven diverse agro-climatic tea growing regions. These varied regional teas produce diverse character, color, aroma, and strength which is a distinct advantage for Ceylon tea to contribute to the diversification that is taking place,” said Srikantha.

Niraj de Mel founded The Mel’s Tea Academy to train Sri Lankan youth for employment in the country’s tea industry. The school accepts aspiring tea professionals of all ages. The objective of the Academy is to build up a base comprised of trained personnel for the different sectors of the tea industry, says de Mel, who has a distinguished 36-year career in tea.

He recommends teas from Dimbula to make iced tea that will appear to the American palate, “ideally a BOP (broken orange pekoe). BOPF and smaller grades can “cloud” the glass when iced, a harmless but distracting chemical reaction involving a suspension of calcium, caffeine, and theaflavin known as tea cream or creaming down.

“Blends would benefit from a mix of sweet liquoring Ruhuna or Sabaragamuwa, Uva, or Uda Pussellawa depending on the water of the region in which it is to be brewed,” he said.

Equally important, the teas must be matched to water supplies or made with filtered waters. Walters Bay provides brewing machines and water filtration systems to guarantee the premium flavor profile of Ceylon iced tea.

“Modern tea brewers with water filtration are critical in the fresh brewed iced tea segment in the U.S.,” writes Srikantha.

 Return on Investment

Sri Lankan tea is some of the most expensive in the world to produce. The Colombo Tea Auction consistently records the highest prices for commodity lots of black teas (CTC and orthodox). The July 2017 average for mid-elevation teas was $3.40 per kilo. The average export price for Argentine tea is about $1.70 per kilo.

Americans ordering a cup of café coffee in 1990, when Starbucks operated only 84 stores, Americans paid 75 cents (equivalent to $1.46 in 2016 dollars). In 2016 a fresh brewed cup sold for around $2.10. Back then brewing coffee at home on a Mr. Coffee drip brewer cost 11 cents per cup (coffee was $2.97 a pound in 1990). Today coffee drinkers spend about the same ― 18 cents per cup (based on a yield of 27 12-oz cups or 320 ounces of coffee per pound).

Until 2010, customers ordering tea at Starbucks were handed a Tazo teabag of their choice and a mug of water cooled to prevent lawsuits due to scalding. They paid $1.50 for the often stale 1.5-cent blend in a teabag. Walk into a Starbucks today and order a shaken Teavana peach green tea lemonade and you can expect to pay $2.75 for a small; $2.95 (trenta); $3.25 (grande), and $3.75 for a venti (large). The cost is much higher overseas. In Shanghai breakfast cost 36 yuan ($5.50) at the airport and the Teavana Ruby Grapefruit iced tea sold across the hall cost 40 yuan ($6) per glass.

Food service distributors typically charge $50 to $75 for a box of 50 1-gallon tea bags, about $1.50 per gallon of tea. The cost per serving is 15 cents for a 12-oz glass and 18 cents for a 16-oz. Ice adds a penny or two. Labor costs vary.

Fast food chains like McDonald’s sell tea for as little as $1 per 16-oz glass to attract summer business but the retail price in cafes and coffee shops is at least $1.75 and often as high as $2.50. Premium teas sell for as much as $3.50 per glass (garnished with fruit, added flavor). In the southern United States cane sugar is added to tea at a ratio of 1 lb of per 1 gal. tea.

Using 12 grams of tea (double dose, single steeping) restaurants brew about 80 cups per kilo. Many use lesser amounts of tea. Sold at $1.75 per cup that will gross $140 per kilo from a raw product that can be delivered for under $5 per kilo and certainly less than $10 per kilo. Tea (often flavored) wholesales for around $35 per kilo in the U.S. and Canada. This means that importers are at least doubling their price and more likely tripling what they paid for the imported tea, including the price of labor, duties, storage, packaging, and delivery.

The financials vary but margins are very favorable and demand is growing.

“I am confident that Sri Lankan exporters will make a significant impact in this fast-growing market in the near future,” writes Srikantha.

Source: Cheat Sheet,