State of the Industry

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The State of the U.S. Tea Industry 2015 Tea Market Review

Prepared by Peter F. Goggi Tea Association of the U.S.A., Inc.

2015 continued to be a year of growth for the United States tea industry. While not all sections grew equally, the overall market shines and consumer interest, particularly from the Millennials and our old friends, the Baby Boomers, will ensure that tea is on the front burner for years to come.

Today, the United States is now the third largest importer of tea in the world, after Russia and Pakistan, according to statistics from ITC (International Tea Committee). We are only out of second place by some 9,000 tons (19,841,000 pounds), which is a small amount when considering the amount of tea traded in the world. We are still the only western country to grow in tea both imports and consumption.

Overall Market Continues to Grow; RTD and Specialty Tea Lead with Highest Growth Rates

The overall market continues to grow in the U.S., and for 2015 we estimate the total market growth to be around 4 5%. Looking forward, total retail sales for tea are expected to have a CAGR of some 5 6% over the next 5 years, according to Beverage Marketing Corporation.

Ready-to-drink tea still is the powerhouse, representing more than half the market in sales and growing some 4 6%. Growth here is varied, with the more premium teas advancing 5 7% and the more generic, low priced teas holding steady with little or no growth. Along with the portable convenience of RTD tea, the growing demand of health conscious consumers, is a predominant force driving its popularity.

Specialty Tea continues to be the star, as consumers exercise their grazing tendencies and their ATMs by trying offerings of high cost, unique and single origin teas. We are seeing the highest growth rates with RTDs and specialty teas, with specialty teas enjoying an 8 10% growth rate. Consumers, particularly Millennials, are becoming more engaged with products as they find delight in the discovery of new and differentiated flavors, ethnic or new cultural offerings and craft selections. Specialty tea sits in the bullseye of their target.

Tea Bags, as measured through Grocery and DMM, continue to lag with little or no growth. Private Brands are growing in both volume and dollars. Total category is growing in dollar terms, but lagging in volume. Tea Pods are a bit of a mixed story, with Private Brand sales exploding, some key brands growing and others declining. Innovation along flavor lines and new offerings appear to be a key driver in this segment.

Tea’s Popularity in Foodservice Continues to Grow. Foodservice continues to grow with tea becoming a more and more important offering in all types of restaurants.

Between 2010 and 2015, tea saw a 16% increase in menu occurrences, according to Technomic. Refrigerated iced tea remains a top tea beverage consumed away from home, and we see this trend continuing to grow. We estimate growth in this segment to be in the 2.5 4% range. The tea market represents almost $11 billion in consumer dollars spent in foodservice.

Marketing and Innovation in the Industry

Marketing and innovation in the industry continue to drive U.S. tea consumption. As consumer demand has grown, frequent innovation and the marketing of new products have helped keep tea top-of-mind for consumers. Many companies have started developing interesting new tea products and marketing tea in new and unique ways. Further, new delivery formats and flavored blends, refined messaging about tea, its origins and health benefits, as well as increased availability, offer opportunities for growth.

  • - Established bottled water and soft drink companies have expanded product lines to include ready-to-drink tea. This helps to combat their share losses in CSD’s.

  • - New flavors in both bagged and RTD tea varieties drive consumer experimentation. Companies have begun playing with new flavor profiles and creating better quality ready-to-drink teas, with characteristics and flavors of home-brewed tea.

  • - The long-banned Pu’erh tea (under the Tea Importation Act of 1896) is finding its way into the American market. Though still relatively unknown in the U.S., Pu’erh has significant promise for driving future sales because of its unique flavor profile and purported health properties. Continuing to educate consumers about Pu’erh’s, and all tea’s, history and health benefits will continue to boost overall category sales.

According to a forecast predicted by Packaged Facts, the foodservice tea market will likely have an edge in future growth momentum as sales are expected to increase through 2018 and beyond.

  • - Twenty years ago, green tea, was nearly impossible to find in supermarkets. Now it is widely available; even Oolong, White and other specialty teas are more available than ever, in both supermarkets and standalone shops.

  • - Millennials, more so than older generations, are seeking innovation and variety when it comes to current tea offerings. Start-up companies addressing this desire are pouring into the marketplace.

  • - 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 interest in tea.

  • - Single Serve Cups are now estimated to be ~ 13% of the Traditional Tea Category.

  • - Consumers want to know more about origin, types of tea, tea garden names, flavor description, etc., and tea shops and online vendors provide this to their customers.

  • - Tea continues to move beyond the traditional coffee & tea aisle. Standalone specialty tea and coffee shops, along with increased shelf space in supermarkets being dedicated to tea, has driven consumer accessibility.

  • - New versions of tea-infused alcoholic beverage specialties, such as microbrews and cocktails that incorporate tea, have opened an entirely new, young market.

    Innovation in packaging, form and product continue to excite the customer. These new offerings, underpinned by a great tasting, healthful product, means that tea will continue to grow in the U.S. Exciting times, indeed, for those of us in tea!

    ESTIMATED WHOLESALE VALUE OF THE UNITED STATES TEA INDUSTRY

1990

2013

2014

2015 (est)

Traditional Market (Supermarket, Drug and Mass Merchandisers)

$0.87 Billion

$2.40 Billion

$2.51 Billion

2.58 Billion

R-T-D

0.20 “

5.10 “

5.23 “

5.56

Foodservice

0.50 “

1.18 “

1.20 “

1.23

Specialty Segment

0.27 “

1.73 “

1.90 “

2.09

Total Sales

$1.84 Billion

$10.41 Billion

10.84 Billion

11.5 Billion

Food and Beverage Trends Motivating Consumers

There are several food and beverage trends that continue to be a driving force behind tea’s growing popularity in the United States.

  • - Health and Wellness Consumers continue to show an interest in health and wellness and there is a focus on consuming better-for-you foods and beverages. Thousands of published studies in leading medical journals support the benefits of drinking tea, and consumers continue to reach for tea as a healthier beverage alternative.

  • - The Intersection of Health and Convenience Convenience has been a driving trend for some time. Now, with health also top of mind, consumers are looking for simple ways that good-for-you foods can be incorporated into their busy lives. Ready-to-drink tea and Keurig Single Serve SKUs deliver on both convenience and health.

  • - Experience Consumers are excited by new experiences and discoveries. This includes the discovery of new and differentiated flavors, formats, and occasions. Tea shops provide more accessibility to many different and unique varieties of tea. In addition, consumers have shown a larger interest in product origins and histories, and tea has a great story.

  • - Transparency There is a demand for more transparency and foods that are closer to their natural state. Tea is a natural, simple and whole food.

    In short, we are bullish on tea and look for expansion to continue in the U.S. in 2016 and beyond.

    Peter F. Goggi, President
    Tea Association of the U.S.A., Inc.