The U.S. packaged tea market is a freight train that remains on the rails, climbing 5% in 2016 to $7.62 billion with sales projected to reach $8.01 billion in 2017 and $9 billion by 2020.
Growth in 2016 was uneven however, with dollar sales of tea in single-serve capsules dropping 23.6% and dollar sales of tea bags and loose leaf flat at 0.2% with a decline of 2.7% in volume sales.
Declines in commodity tea do not signal the market is cooling. It is apparent that consumers are simply buying less tea in grocery and more tea online and at specialty retail outlets.
“Brands are moving upscale, modernizing, and leveraging the natural, organic, and functional trends. Consumers are also turning to premium specialty tea brands, which are growing at a faster rate than mass market brands,” according to Packaged Facts, which annually compiles a market assessment released this week. Tea and Ready-to-Drink Tea: U.S. Retail Market, 6th Edition, is a review of packaged sales including the internet.
The report includes valuable consumer behavior from a National Consumer Survey of 2,000 conducted in July/August along with the Experian Simmons panel, an ongoing survey describing household preferences. Note that the numbers in this report are solely from teas sold in supermarkets, drugstores, mass merchant and military commissaries, and select club and dollar stores (FDM). Beverage tea sales in foodservice locations are tallied as a separate segment.
“Eighty-seven percent of retail sales occur in just four channels,” according to the Packaged Facts report. “Grocery is the most important sales channel for tea, accounting for 42% of dollar sales. Convenience stores account for more than a fifth of sales. Mass and club round out the top four,” writes Packaged Facts.
IRI tracks tea sales in five segments, grouping the category into canned and bottled tea; teabags and loose leaf pouches, boxes and tins; refrigerated teas; single-cup teas (K-Cup and other private label offerings) and instant tea mixes. IRI estimates sales in FDM totaled $4.69 billion from sales of 1.89 units. Dollar sales overall grew by 3.7% but sales of single-serve tea plunged 23.6% and instant tea sales fell 6.3%.
Growth was most evident in refrigerated teas, which crossed the $1 billion threshold for the first time in FDM. Sales increased 9.2% compared to a year ago, closing the once large gap between sales of tea bags and loose leaf. Unit sales of tea bags and loose leaf tea declined 1.2% and volume sales dropped 2.7%, according to IRI. Price increases boosted dollar sales by 0.2% in FDM this year totaling $1.157 billion.
Two cornerstones apparent in any assessment of the market are flavor and format innovations and the investment in specialty/premium teas. The growth streak that began almost 30 years ago continues. Package Facts projects increases through 2020.
Household usage hovers from 72–77%, according to Experian. The Packaged Facts survey found 75% of consumers drink tea with 19% reporting they drink only hot tea and 17% saying they drink only cold. The majority split their consumption.
The fast growth segments this year are bottled teas and refrigerated teas, the latter showing a 9.2% increase in dollar sales. Examples include offerings by Japanese bottler Ito En and the non-sweetened chilled teas sold in grocery by Argo Tea, which contributed $25 million in sales last year. There is also a spike in sales of large-volume containers of sweetened tea sold in gallon bottles and in tea lattes.
Sales of single-serve capsules fell last year with coffee brands even reporting sluggish growth. The unexpected decline in sales of tea in capsules can be attributed in part to the wasteful packaging but is also evidence that suppliers are not achieving minimum thresholds in taste. A new generation of brewers from Unilever (T.O by Lipton) and machines such as the Teforia and Qi Aerista brewers may remove complaints about taste by incorporating a brewing chamber, temperature, and steeping settings more suited to specialty teas.
Product innovation in the commodity segment is limited but specialty tea suppliers are definitely benefitting from the introduction of functional teas. Packaged Facts labels the trend “the next wave.”
“Tea producers are exploring many new renditions of functional benefits,” writes Packaged Facts.
The timing for functional and condition-specific offerings is good and the medical science is solid when it comes to health claims by tea suppliers.
The Natural Marketing Institute reports that a healthy lifestyle is growing in importance among the population, increasing 23% in importance since 2007 (consumers indicating it is extremely/very important to lead a healthy, balanced lifestyle). In addition, a little more than two-thirds of the population (69%) indicates they will take whatever means necessary to control their own health. In its continuing research, NMI finds that “84% of consumers are taking more responsibility for their health today compared to 10 years ago.” The most important drivers of this behavior is the desire to be in one’s best mental health (98%) to live a long life (94%) and to remain independent in their later years (96%).
Another important aspect of the U.S. market is the growing diversification in suppliers. Package Facts identified 18 companies that have at least 1% of the market, a group that has been expanding of late at the expense of traditional tea suppliers.
“Still, the top five marketers account for 56.1% of all tea sold in FDM as calculated by dollar sales,” according to Packaged Facts. Four of the top five brands are heavily vested in bottled tea with the Lipton PepsiCo partnership tops. Lipton Brisk, Pure Leaf, and Coca-Cola’s Gold Peak and FUZE along with Snapple and Arizona Tea are all $1 billion brands.
Packaged Facts identified several themes that are resonating in the tea category: “most important, the long-term trend toward premium products continues. Natural and organic ingredients, and the absence of artificial ingredients, excess sugar, and preservatives, are premium features. Functional ingredients add value, and exotic tea varieties and flavors also set a product apart. These trends can be found in both the cold and hot tea arenas.”
The report presents details on the expanding premium tier, new product activity around sweetening levels and natural attributes, the introduction of new sparkling teas, and the proliferation of tea lattes.
Source: Packaged Facts