State of the Industry
The State of the U.S. Tea Industry
Prepared by Joseph P. Simrany
President, Tea Association of the U.S.A., Inc.
Just when we thought the recession was behind us, there is growing evidence that the economy is continuing to struggle to break out of the doldrums. Unemployment remains stubbornly above 8%, retail sales are lackluster at best and while new housing starts are showing some signs of life they are still half of what is historically considered to be good. Adding to this somber mood is a federal government that has come to a virtual halt awaiting the results of an election year and State & City governments are struggling to balance their own budgets, with some actually declaring a bankruptcy as options evaporate. To make matters worse, as bad as things are in the USA, the global situation is even worse with multiple countries close to bankruptcy and even the growth countries watching a contraction of their GDP.
Thankfully, the USA Tea Industry has fared better than most others during the past three to four years and 2011 has seen yet another, albeit modest, increase in tea imports of just under one percent but still achieving record breaking total tea imports of over 281 million pounds! The dollar value of wholesale tea sales is also estimated to be up a modest 5% to $8.2 billion. Within the tea industry there are segments that are faring better than others with RTD and Specialty Tea on top of the list.
To further improve your mood the Sage Group has recently estimated the retail size of the USA tea industry in 2011 to be more than $27 billion; a number which is notoriously difficult to calculate but falls entirely within the realm of possibility.
Tea has always been considered to be nearly recession proof but the length and depth of these trying times is truly putting it to the test. Yet signs that tea is becoming ever more ubiquitous are all around us. 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 single distribution channel, change is pervasive and immediately apparent.
When walking through the supermarket, a noticeable new development is that tea can be found in several different locations throughout the store, not just in the "coffee" aisle. But, even in its traditional location, the amount of space devoted to tea has increased tremendously and the number and size of competitive offerings has changed dramatically. In addition, many new sections have been added within the supermarket to accommodate all the new forms of tea that have been introduced in recent years.
You may observe the significant amount of space now being devoted to ready-to-drink teas in the "soft drink" & “water” and “functional beverages” aisles. There are even separate sections for merchandising gallon jugs of room temperature RTD tea. This, of course, is only the beginning. Traveling around the store, you may also find tea in the dairy case in both bottles and gallon jug containers. Also, you will notice a number of new brands competing for space in this valuable refrigerated section. Additionally, depending on the size of the supermarket, you might encounter an additional refrigerated cabinet dedicated completely to tea.
More often than not you may spot some form of tea on a promotional display or in a vending machine near the entrance or exit. Most recently, organically grown tea is finding its way into special departments that have been set up to organize these products. Tea is even finding its way into the health and beauty aisle as an ingredient in other products or as a concentrate. Please don’t forget the juice aisle where tea is being added as a beneficial ingredient to several 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.
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 and 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, and even Oolong and White tea is occasionally found.
Additionally, Specialty Teas have also found their way into supermarkets in a greater variety than ever before and are available from large packers as well as from smaller regional tea companies and even imported brands from European and Asian countries. New shapes, sizes, and flavors abound as well as new consumer 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.
Look for the emergence of a new category of tea products. Tea infused waters and tea energy drinks. 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 spokespeople 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. Even for confirmed coffee lovers, tea has a new appeal in the form of a product called Chai - a blend of tea, spices, and milk. And for a new generation of tea drinkers, or simply the young at heart, bubble tea outlets are popping up in major metropolitan areas across the United States. Today, there are over 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. Just recently Starbucks has announced their intention to open up a tea shop under the TAZO name.
Of dubious value is even the emergence 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 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 40's & 50's.
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.
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 has grown in excess of $8.2 billion dollars in sales in 2011?
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
Given this as a starting point, the next logical question is where do we go from here? Does $8.20 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 heat up a bit in 2012 as consumers once again seek out exotic teas. We expect to see an annual dollar increase in the area of 5 to 8%.
- 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.