Tea Gets Hipper, Grows Faster

January 14, 2015

Tea’s image blossoms, and sales flourish in more areas of the supermarket – especially ready-to-drink.

The U.S. tea market could be ready to gush for many reasons.  For starters, aging Boomers want tea’s flavonoids for health.  And Millennials may graduate from energy drinks to tea as they mature. Tea is no longer grandma’s drink alone – marketers are trying to give the tea a cachet similar to what craft beer enjoys with younger consumers. 

Building on tea’s better-for-you reputation and global sourcing that appeals to many drinkers, tea now comes in many forms besides bagged and loose – which means multiple displays in the supermarket.  Think pods for single-cup brewing systems.  Water enhancers.  And the massive ready-to-drink tea segment – either tea alone or combined with lemonade, juice, water or energy formulas.  Indeed, the canned and bottled ready-to-drink tea sector has surpassed the $3 billion benchmark, and refrigerated teas now approach $1 billion in U.S. multi-outlet sales, according to IRi data.

Dollar sales of canned and bottled tea jumped 5.5% to $3.2 billion during the 52 weeks ended November 30, 2014 in supermarkets, convenience/gasoline stores, drug stores, mass market, military commissaries and select club and dollar retail chains, according to IRi.  In the same outlets and time frame, dollar sales of refrigerated teas leaped 9.7% to $968.3 million.

Moreover, note Joseph P. Simrany and Peter F. Goggi of the Tea Association of the U.S.A. in their latest State of the U.S. Tea Industry report:  “Ready-to-drink tea will continue to grow in popularity…with annual dollar increases in the range of 12% to 15%.”  They also predict annual dollar sales growth of 10%-15% for specialty tea and 2%-3% for traditional tea.

Winning over children, who influence purchases, and their parents, who make the actual purchases, will be pivotal to ready-to-drink tea growth, says Packaged Facts.   “To win over the kids, ready-to-drink tea varieties are key to leveraging convenience.  For example, liquid concentrates offer the opportunity to retain convenience, yet give kids the power to control their flavors and ‘play’ with their beverage.  At present, teas aimed specifically at kids and teens are underrepresented,” says research director David Sprinkle.

A wild card in tea overall is what Starbucks will achieve with the Teavana chain it bought a little over two years ago, says F3.  CEO Howard Schultz has said he wants to turn Teavana’s 300 mostly mall sites into 1,000 tea bars in more urban locations within five years. F3 expects this transformation to be a deliberate one, if it happens, since tea is more complex to merchandise and serve than coffee.  This past holiday season, Teavana promoted a new gingerbread tea and launched a gift of the week tea set program.

If Schultz’s playbook is similar to coffee, however, F3 believes this exposure could propel U.S. consumer awareness of tea - especially to many blends and tastes from far-off lands that sound natural, exotic and exciting.  It could also help develop new drinking occasions, and prepare people to pay premium prices for tea-drinking experiences.  This in turn could enable supermarkets to sell higher-end blends at somewhat lofty prices.