World Tea Media and experts say that tea’s trajectory continues its climb. With noteworthy trends in play, such as celebrity tea lines and growth on a retail level, tea reaches a new generation that includes men and Millennials.
Tea retailers with large selections, like The Tao of Tea in Portland, Ore., Teaism in Washington, D.C. and Samovar Tea Lounge in San Francisco, Calif., are grossing in excess of $1 million per store.
GIA’s Hot Beverages (Coffee and Tea): A Global Strategic Business Report predicts that “despite its relative smaller market size and low consumption levels, tea, is slated to score over coffee in the long run in volume terms, on account of factors such as economical pricing, new flavors and ‘healthy’ brand value, as new tea drinkers join the brigade.”
The hottest trends in tea
A preference for premium – Whole-leaf tea is evolving with more and more professionals and tea companies using the term “premium” when referring to high-quality tea versus tea that is simply whole leaf or scented. While sales of specialty tea remains a small portion of the U.S. market, this fast-growing segment is driving innovation and the growth of specialty retail ventures. Like cheese shops and wine merchants, tea retailers featuring 100 to 150 selections are appearing in markets with populations of 500,000 and greater and thriving in large high-rent regional malls.
A taste for green, now the fastest-growing tea segment – Up to 90 percent of tea consumed in the U.S. is black, but green tea consumption has doubled in recent years to about 10 percent, according to the Tea Association of the USA. Awareness of the health and wellness attributes of tea account for its popularity with Millennials and Baby Boomers alike. Green tea’s antioxidant-rich reputation makes it a key ingredient in juice blends and functional foods. “Considerable research has also been conducted into health benefits of compounds in tea, and some flavor firms have developed advanced tea flavor portfolios,” according to Euromonitor. Tea is currently a media darling touted by celebrities and fitness gurus. Companies are marketing low sugar and light ready-to-drink (RTD) tea to women and young adults concerned with their weight.
Rapid growth of ready-to-drink tea – Sales growth of tea in conveniently and widely available bottles and cans outpaced soft drinks in 2008, and sales growth continues to rise here and abroad. Sales of U.S. bottled RTD tea increased 29 percent to $118 million in Mexico in 2009 (America’s second largest export market) and Coca Cola is selling green tea flavored Sprite in China.
Specialty teas have also found their way into supermarkets in a greater variety than ever before, and they are available from large packers as well as from smaller regional tea companies and even imported brands from European and Asian countries, according to Tea Association of the USA President Joseph P. Simrany.
“It’s exciting to watch tea thrive and evolve beyond traditional tea models,” says Kim Jage, executive vice president of World Tea Media, organizers of World Tea Expo, June 24–26, 2011 in Las Vegas, Nev., as well as the North American Tea Championship and World Tea News. “At 2011 World Tea Expo, thousands of retailers will be turning to premium tea to help differentiate their business or product line and maximize the category’s profit potential. Whether it’s foodservice looking to incorporate tea across profit centers or a retail establishment that wants to add the newest tea products, 2011 is a key year as tea is on the mindset of a new generation.”
“The largest growth is in tea retail outlets that do not include food,” adds Jage. “The newer tea retailers that do offer foodservice present meals in modern decor, or they are Asian inspired, unlike traditional Victorian-era tea rooms.”
Some of the biggest names making strides in this arena include: Teavana, Atlanta, Ga.; Ten Ren Tea, Taipei, Taiwan; Argo Tea Café, Chicago, Ill.; DavidsTea, Town of Mont-Royal, Quebec, Canada; Adagio Teas, Chicago, Ill.; and Chado Tea Room, Los Angeles, Calif.
“I have heard of at least a dozen tea retail chain concepts that are in the planning and site selection stage that have talented management, unique concepts, and adequate capital to get off the ground,” says George Jage, president of World Tea Media.
Perhaps the biggest impediment to retail growth “is the uncertainty as to the most likely nature of the growth,” says Adagio’s Tea Business Development Director Charles Cain. “If, for example, the more than 25,000 coffee shops across the county began to carry more premium teas, the growth of tea shops would certainly be somewhat slowed,” he says.
Wes Herman, owner of Northwest-based The Woods Coffee, which recently opened its tenth store, is a big proponent of premium tea in coffeehouses. Herman sold branded bagged tea for years before offering eight varieties of store-branded loose leaf. Tea sales now account for three percent of total revenue.
“For years we have heard that tea sales will explode,” says Herman. “What we have learned is that the tea market has to be caressed with much lower expectations and then we see results. Not over the top results, but slow steady growth. With a clean, simple delivery method of high quality whole leaf tea, we have seen our tea sales increase by 100 percent over the last few years.”
Coffee Bean & Tea Leaf buys direct from growers and has promoted tea since its inception. Today, tea accounts for 15 percent of the company’s beverage sales, says David De Candia, the firm’s director of tea. “Sales continue to climb three to five percent each year,” he says. This increase is due to “internal education for team members and customers as well as social programs describing how we give back to growers.”
Consumer Tea Trends
Organics – The United States is the largest market for organics, with all major supermarket chains, including Wal-Mart, now selling organic foods, according to a 2010 report by Milwaukee-based Hauke Consulting. “Naturally, with the emphasis on global connectivity and an influx of younger people drinking tea, there is a strengthening demand for organic and sustainable tea products,” says Kim Jage. “We will surely see more natural product retailers selling private-label organic teas. Most big retailers already have their organic private label lines and teas will be included.”
Hip tea ware – Tea accoutrements and gifts that are modern, BPA free and user-friendly are highly appealing to today’s tea drinkers.
Celebrity teas lines – From Donald J. Trump and Lady Gaga to Padma Lakshmi, celebrity tea lines showcase tea’s heightened standing in the marketplace.
Men and Millennials – In the world of tea, the fastest growing demographic is between the ages of 18 to 28, and they are mostly men. “We’re not only seeing a younger generation of tea professionals at our events, we’re also seeing tea companies and retailers marketing to men and Millennials with specific products,” says Kim Jage.
Important, behind the scenes trends
Rising demand and a series of natural calamities in producing countries, such as severe droughts in India, Sri Lanka and Kenya, have driven prices to record levels. Tea consumption has been on the rise around the world in the past decade. The Food and Agricultural Organization of the United Nations (FAO) estimates a 0.8 percent growth in consumption between 2005 and 2009, while production growth was -0.6 percent. The gap between consumption and production growth was widest between 2007 and 2009, reaching 3.4 percent.
America is growing rapidly as a tea exporter as well. Exports from the U.S. more than doubled in 2008 from 51 million to 110 million pounds from a total supply of 370 million pounds, according to the USDA Economic Research Service (ERS). Per capita consumption among Americans fell slightly to eight gallons per year in 2008, down from 8 .4 in 2007. Tea consumption by weight was .9 lbs. per capita in 2008 according to ERS. Data from 2008 is the latest available. Consumption is nearing historical highs from the early days of the 20th Century, when a much smaller number of Americans consumed more than a pound of tea per person. In 2008, 304 million Americans consumed 260 million pounds of tea. Demand was sufficiently great to draw down three million pounds more tea than was imported, according to the ERS report released in February 2010.
Major retailers are improving their distribution systems for high-value imports and this is tipped to facilitate further growth. As better cold chain technology is part of this market evolution RTD tea is in line to benefit.
According to Euromonitor, highly saturated tea markets such as India, China and Indonesia, which tend to have lower prices, present an opportunity for future growth from a more distinct premium tea segment.
Tea comprises 13 percent of the manufacturing segment of the U.S. hot beverage market. Coffee roasters account for 75 percent of domestic manufacturing with concentrate manufacturers accounting for the remaining 11 percent. The top 50 of America’s 300 beverage manufacturing companies account for 90 percent of sales. Large companies have scale advantages in purchasing, distribution, manufacturing and marketing. Small companies can compete effectively by offering specialized products or serving a local market. The industry is capital-intensive: average annual revenue per worker is about $600,000, according to Coffee and Tea Manufacture, a report by First Research, Inc. that was released in February 2011.
Merger and acquisition activity on a global scale is likely to pick up, according to Euromonitor: “For major players, M&A activity could also prove to be a smart route to growth. At the moment, Unilever’s Lipton is the only big brand with a truly global presence, as others tend to focus on catering for specific regions and regional tastes.”
Tea proved resilient during the height of the economic downturn, but sales of less expensive fruit juices and flavored waters are expected to be a constraint on the growth of tea. Specialty tea drinkers are typically middle income households and the affluent, and continued economic growth is a prerequisite for significant long-term increases in tea sales.
Dan Bolton is with World Tea Media, the premier tea industry organization that produces the annual World Tea Expo, North American Tea Championship and World Tea News. Visit www.WorldTeaExpo.com.