The Coffee-ization of Tea

Experts incorrectly predicted that tea sales will eclipse coffee sales in 2017.

Christine Muhlke writing in GQ this month suggests “your next coffee should actually be tea.”

“About a decade ago, when cafés and coffee roasters became obsessed with bean origin, ideal milk temperature, and mouthfeel, ordering coffee began to seem like a lifestyle choice—a development tolerable only because the coffee itself got way, way better,” she wrote, adding, “Now, we’re seeing the same thing happen to tea, with an explosion of flavors and styles at a quality level that could give Sleepytime night terrors.”

She points to the expansion of tea programs at top-rated coffee houses, the popularity of matcha, and the growth in sales of oolong and aged puer.

An even more compelling argument can be made for iced tea in coffee shops, where Teavana is now a $1-billion brand due largely to its availability in 16,000 of the 25,085 coffee shops Starbucks operates in 75 countries.

Several years ago, World Tea Expo hosted a panel that predicted tea sales would one day eclipse coffee sales. During the discussion “Will Tea Ever Be as Big as Coffee,” George Jage predicted May 2017 as the date tea sales would exceed coffee sales.

Coffee shop owner and panelist Jack Groot said at the time that it was unlikely tea rooms (which numbered 3,500 at the time) would exceed sales at the 25,000 coffee shops in the U.S.

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Teavana has seen massive growth in recent years, and is available in 16,000 Starbucks locations.

In fact, specialty tea growth in 2012 was outpacing specialty coffee in 1991 when there were only 1,650 coffee shops in the U.S. During the 15-year growth spurt that followed the Starbucks IPO, that company alone built 12,000 shops, opening as many as 30 a month. Starbucks currently operates 12,938 stores in the U.S. (1,200 more in Canada). Dunkin’ Donuts operates 8,573 and Tim Hortons 658 in the U.S. with 3,834 in Canada.

The 26,784 chain outlets in the U.S. reported 3.1% store growth in 2016 and a 7.4% increase in revenue to reach $41 billion, making the coffee market about 4x greater than tea. Sales of dry tea are estimated at $2.58 billion, growing at 4–5%, according to the Tea Association of the USA. The $7.57 billion RTD segment drives most tea growth.

Today, the number of specialty tea shops remains about the same as in 2011. Teavana is the largest with 358 stores. Sales continue to rise, especially in the refrigerated and ready-to-drink category, but something quite dramatic has occurred in the retail beverage mix.

Contrast that to specialty coffee, which is offered at an estimated 131,000 outlets, including convenience, grocery, drug store, and even big-box locations. While highly visible and trend-setting, coffee shops account for only 25% of the total market, according to Allegra World Coffee Portal’s Project Café2017 USA.

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Intelligentsia Coffee sells an array of different organic teas, sourced from tea gardens in China, Japan, India, Taiwan, and Nepal.

Beverage chains and restaurants that recently considered tea a minor segment (under 10%) say that tea now contributes 20%+ to beverage revenue.

Jurgen Link, a pioneer in specialty tea (and a senior executive at Teavana), observed that even today you cannot always find a tearoom with good quality tea in every U.S. city of say, 25,000. To reach its full potential, specialty tea will require “a lot more distribution, many, many more outlets, points of sale, and a lot more education,” he said.

It is clear that coffee shops are acting on that advice.

Source: Allegra World Coffee Portal, Starbucks, GQ