State of the Industry

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The State of the U.S. Tea Industry - 2013

Prepared by Joseph P. Simrany & Peter F. Goggi

Tea Association of the U.S.A., Inc.

The State of the U.S. Tea Industry

2013

Thanks to the emergence of a political party known for its controversial stands, the phrase “Tea Party: has taken on a new meaning. In a quiet, simpler time, it evoked visions of a sophisticated gathering of genteel people whose sole purpose was to enjoy tea and each other’s company. While the words may have taken on some new meaning there is absolutely no doubt that the Tea Industry in the U.S. has enjoyed a prolonged period of increased demand, innovation, and popularity. The obvious question remains, how long will the party last?

Ever since the economic downturn of 2008, the U.S. economy has been struggling to get back on an even keel. Because of the tumultuous financial conditions and the resulting political maneuvering designed to restore some semblance of normalcy, business conditions have been far from ideal. Despite this less than ideal business climate, the tea industry in the USA continues to flourish, building on a trend that started over two decades ago which has seen the total wholesale value of tea sold in the USA grow from under $2 billion dollars to well over $10 billion today.

The growth of the tea industry over this period of time is even more impressive on a pound basis with ~ 170 million pounds imported during 1990 compared to the nearly 277 million pounds imported in full year 2012. This represents a 2.5% compound annual growth rate. This real growth of the tea industry in the USA is even more impressive with the last three year rolling average for tea imported into the USA growing more than 4%.

The prospects for future growth of the Tea Industry in the U.S.A. remain exceptionally good. Some industry forecasters are predicting that the wholesale $ value of the Tea Industry will double over the next several years. What are the factors responsible for such a bullish prediction? We will examine them in the following report.

Tea has always been considered to be nearly recession proof, but the length and depth of these trying times has truly put tea to the test. Yet tea continues on its march towards ubiquity. If anyone believes that the United States Tea Industry is not undergoing a dramatic period of change, they should take a quick tour of their local supermarket and observe what is happening. Even within this large and mature distribution channel, change is pervasive and immediately apparent.

In supermarkets, a noticeable new development is that tea can be found in multiple locations throughout the store, not just in the traditional "coffee & tea" aisle. But even in its traditional location, the amount of space devoted to tea has increased and the number and size of competitive offerings has dramatically expanded. Additionally, new sections have been added within the supermarket to accommodate all the new forms of tea that continue to interest and excite tea consumers.

Significant shelf space is now being devoted to ready-to-drink teas in the "soft drink", “water” and “functional beverages” aisles. There are even separate sections for the merchandising room temperature gallon jugs of RTD tea. Traveling around the store, you will find tea in the dairy case, in bottles, wax and gallon jug containers. New brands abound, competing for space in this valuable refrigerated section. Depending on the size of the supermarket, you may even encounter an additional refrigerated cabinet dedicated solely to tea.

More often than not, you may spot some form of tea on a promotional display or in a vending machine near entrances and exits. More recently, organically grown tea is finding its way into specialized departments focused on these types of products. Tea is more and more commonly found in the health, wellness and beauty aisles as an ingredient in other products or as a concentrate. Please don’t forget the juice aisle, where tea is added as a beneficial ingredient to a variety of juices. You may even find tea in the candy aisle in the form of tea-infused chocolate bars and even chewing gum. Tea is so ubiquitous that you will even find its presence in the pharmaceutical departments in the form of Green Tea supplements and extracts. Consumers are now beginning to understand that tea is one of the original energy drinks and, coming soon to a supermarket near you, will be energy drinks using tea as the base of their formulations.

During this supermarket tour other changes become obvious. Among them is the number of new companies marketing tea in new and unique forms. Traditional packers of black tea now offer herbal blends as well as specialty teas. Traditional herbal packers now offer new black and green tea blends. Bottled water and soft drink companies have expanded their product lines to include ready-to-drink tea and new startup companies are pouring into the marketplace. Green tea, once nearly impossible to find in conventional supermarkets, is now in widespread distribution; even Oolong and White teas can be easily found.

Specialty Teas have found their way into supermarkets in a greater variety than ever before and are available from large packers, smaller regional tea companies and even imported brands from Europe, Africa and Asia. New shapes, sizes, and flavors abound as consumers ramp up their interest in the tea category. Even the tea bag has jumped the barrier from Traditional to Specialty Tea in new materials and new shapes. Also the long banned Pu-erh tea (under the Tea Importation Act of 1896) is finding its way into the American market.

The emergence of new categories of tea products including tea infused waters, tea energy drinks, tea based ice cream and other foods fortified with tea continue to drive tea’s interest. In addition, look for new versions of tea infused alcoholic and malt beverage specialties such as Hard Tea.

Venturing outside of the supermarket environment, the casual observer continues to be bombarded with changes taking place within the Tea Industry. Thanks, in large part, to the ready-to-drink version of tea, the availability of tea in non-traditional outlets has increased dramatically. Today, tea may be found in warehouse clubs, mass merchandisers, gas marts, drug stores, and convenience stores. Also, the availability of tea has benefited from large distribution increases in the vending sector and in the foodservice sector.

Even if you don't shop in supermarkets, mass merchandisers, convenience stores, or use vending machines, you're probably still exposed to the changes taking place within the Tea Industry. Evidence of tea’s many contributions to health can be found on television in the form of increased advertising and publicity and even endorsements from TV personalities such as Oprah and Dr. Oz; in newspapers and magazines through paid advertising; on radio through famous spokesperson endorsements; news announcements and interviews; and published in medical journals in ever-increasing numbers.

Even if you're a coffee lover, there is no escaping the fact that tea’s popularity is ever-increasing. One only has to note the growing availability of Specialty Teas in the thousands of coffee shops across the country. Chai - a blend of tea, spices, and milk, continues to satisfy those seeking a richer mouth feel. And for a new generation of tea drinkers, or simply the young at heart, bubble tea outlets are still popping up in major metropolitan areas across the United States. Today, there are more than 4,000 specialty tea rooms and retail shops in big cities and small towns across America with an ever increasing number in Canada as well. In addition, nearly all upscale hotels offer an Afternoon Tea service. Starbucks opened up a tea shop under the TAZO name and post their Teavana acquisition, are already expanding that brand’s reach with the opening of Teavana’s first non-mall, stand-alone store in New York.

As we mentioned at the beginning of this report, tea is so ubiquitous that it has even spawned the development of a new political party called the Tea Party. While this political movement has virtually nothing to do with consuming tea, it still serves to keep the “tea” name uppermost on consumers’ minds.

Obviously, most Tea Industry insiders view all of these changes positively because they are serving to make tea more readily available and convenient to millions of potential consumers. More importantly, these changes are useful in raising top-of-mind awareness among consumers. As any marketer will tell you, top-of-mind awareness is critical to future growth.

Why, after so many years, is change so rampant in the Tea Industry? What has occurred to cause a beverage that has been commonly available for hundreds of years in the United States to behave as if it were introduced yesterday? These answers are found by examining the changes, by questioning the trade, by reviewing overall food and beverage trends, and by understanding consumer motivation.

A predominant force driving tea’s new popularity is its convenience. Ready-to-drink tea in bottles, cans, aseptic packaging, plastic containers, or any other packaging configuration, brings the ultimate in convenience to consumers. Ease of preparation has never been a strong selling point for tea and, in a nation that demands convenience, has served to act as a constraint on sales, until now. It was this same demand for convenience that caused the Tea Industry to introduce the tea bag in 1904 and to create instant tea and iced tea mixes in the 1940’s. One of the most important breakthroughs in the area of convenience is the development of pods, originally developed for coffee but now quickly being adopted for tea. While the current sales increases attributed to this format for tea are truly dramatic, future prospects are incredible as this category has the potential to revolutionize the market for tea, much as the teabag did in 1904.

Closely linked to convenience is availability. Ready-to-drink bottles and cans make tea more readily available to consumers than ever before, particularly at the point of consumption. Both the convenience and availability factors are entirely compatible with basic trends at work in the business world, specifically the erosion of free time available to American consumers and the resulting trend towards eating meals “on the run.”

An important secondary factor contributing to the popularity of tea is the increasing health consciousness of American consumers. While this trend has been developing over the last three decades, it received a tremendous boost from the NLEA (Nutritional Labeling and Education Act) implemented in May 1994.

The American consumer's concern for health has already had a dramatic effect on the Food & Beverage Industry. Examples of manufacturers trying to meet the perceived needs of this “healthy” consumer are found in every aisle of the supermarket and range from the introduction of bottled water to the use of exotic ingredients to replace fat and recent legislation designed to reduce the salt content of prepared foods. Tea is uniquely positioned to flourish in this kind of environment because of the positive consumer perception from which it already benefits and because of the abundance of new scientific research that serves to reinforce that perception. The concern for health is a trend that will be with us forever and in some cases government attempts to mandate positive consumption habits will drive ever increasing numbers of consumers to tea. An example of this sort of activity can be found in Federal government efforts to ban sugary beverages in our school systems and even in large and small cities where local government officials are attempting to cap purchases of large-sized sugary beverages.

Another reason why tea has become so popular is linked to the marketing programs in which millions of dollars have been spent to launch ready-to drink teas. This effort has served the entire industry well; not only has it ensured the success of ready-to-drink teas, but also has helped to communicate the positive intrinsic attributes of tea in general.

Tea has always been a versatile drink. Its versatility includes the many uses for the leaf as well as the many different benefits derived from its consumption. The range of these uses and benefits is broader in tea than for any other food or beverage.

Given this market environment for tea, is it any wonder that the ready-to-drink sector has been consistently ranked as one of the fastest growing “new product” entries over the last several years? Additionally, is it any wonder that the total category grew to be more than $9 billion dollars in sales in 2012?

The last several years have not been kind to most businesses and tea has not been excluded. However, the long term consumer trends for tea are so strong that it has been less affected by the bad economy than most other industries. Traditional tea available in all retail outlets remains about the least expensive food or beverage available on a per serving basis. RTD teas are priced competitively with other beverage options and offer a much greater value because of their multiple contributions to health. Even Specialty Tea is within reach of virtually all consumers and remains an affordable luxury in both good and bad business cycles.

The following sales estimates are derived from hard facts from both inside and outside sources as well as informed judgments from Tea Industry experts.

ESTIMATED WHOLESALE VALUE OF THE UNITED STATES TEA INDUSTRY

1990

2012

2013 (projected)

Traditional Market

(Supermarket, Drug and Mass Merchandisers)

$0.87 Billion

$2.30 Billion

$2.40 Billion

R-T-D

0.20 “

4.80 “

5.10 “

Foodservice

0.50 “

1.12 “

1.18 “

Specialty Segment

0.27 “

1.57 “

1.73 “

Total Sales

$1.84 Billion

$9.79 Billion

$10.41 Billion

Given this as a starting point, the next logical question is where do we go from here? Does $10.41 billion represent the zenith or simply the foundation upon which the Tea Industry will continue to build? Fortunately we are dealing with tea and with industry people who know how to read the tea leaves. What they see is a long period of growth based on their past experiences as well as their assessment of what opportunities remain to be discovered. Let's take a look into the bottom of their teacups and see what there is to see:

  • Ready-to-drink tea will continue to grow in popularity and rebound from the recent recessionary period with annual dollar increases in the range of 12 to 15%.
  • Foodservice sales will continue to grow slowly, spurred by an increase in operator interest because of the promise of high profitability and increased promotion. This stimulus will be partially offset by difficult economic conditions leading to a reduction in how often consumers will eat away from home. We expect an annual dollar increase in the range of 2.0 to 3.0%.
  • Specialty Tea will continue its upward climb in 2013 and continue into 2014 as consumers continue to seek out exotic and unique teas. We expect to see an annual dollar increase in the area of 10-15%.
  • While not immune from negative forces in the economy, traditional tea, because of its relatively low price point, will be most resistant to those forces. Annual dollar growth in the area of 2 to 3% is expected in this segment.

Given the experience of the last several years, the intrinsic qualities of tea, and the lifestyle and consumption trends that appear to have become firmly established in the marketplace, only one logical conclusion seems possible; the future for both iced and hot tea in the United States looks very hot indeed!

Updated 12/20/13

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362 Fifth Avenue
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Tel: 212-986-9415
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E-mail: info@teausa.com

Suite 801
362 Fifth Avenue
New York, NY 10001 

Tel: 212-986-9415
Fax: 212-697-8658
E-mail: info@teausa.com