State of the Industry

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The State of the U.S. Tea Industry

2016-17 Tea Market Review

Prepared by Peter F. Goggi

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

2016 continued to be a year of growth for the United States tea industry. Millennials and our old friends, the Baby Boomers, will ensure that tea is on the front burner for years to come.

The U.S. remains the third largest importer of tea in the world, after Russia and Pakistan, according to statistics from ITC (International Tea Committee). We are still the only western country to grow in both tea imports and consumption.

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

The overall market is healthy and continues to grow in the U.S., with a 1% increase in total imports. Black tea imports rose 2.3%, but green tea imports are down. Overall cost of tea is anticipated to rise as the industry experiences price increases in items used in tea production including cardboard and paper.

Ready-to-drink (RTD) tea is having the greatest growth in the overall tea market, growing about 4% and accounting for 45.7% of the tea market share in 2016, according to Beverage Marketing Corporation. Category volume exceeded 1.7 billion gallons in 2016. While more expensive than bagged tea, consumers continue to reach for RTD teas for their flexibility, convenience and as a healthier alternative to sugary beverages. Interestingly, the U.S. is seeing the beginnings of a market separation between high quality and good quality RTDs. Other formats including loose, bagged, mixes and pods are down 1.2%, accounting for just 54% of the tea market share in 2016, as compared to 60% in 2015. Private Brands are growing in both volume and dollars. Of particular note is the slight decline of growth in this sector, now showing around 4% – 5% vs. previous years of 6% – 10%. The fact that tea continues to grow in an environment in which water has now surpassed CSD’s in sales further underlines the perception of health associated with tea.

Specialty Tea is driving interest in the category. As consumers become more open to trying new and different beverage options and flavors, specialty tea is positioned for growth and the wine analogy is stronger than ever. While on a smaller base, specialty teas continue to enjoy high single/low double digit growth. In fact, specialty iced tea came in at #4 on the National Restaurant Association’s (NRA) What’s Hot Culinary Forecast list of top non-alcoholic beverages for 2017.

Artisanal teas, in particular, are on the fast track. Consumers are becoming more engaged with their teas and want to learn more and more about where their teas come from; how they are harvested and manufactured; how the product supports the livelihoods of those making it; and, how friendly the product is to the environment. Tea growing is expanding in the U.S. (albeit at VERY small volumes), answering the call of locally grown and farm to table trends. Countries of origin are also protecting and advertising their teas through geographic designations and terroir trademarks.

Foodservice continues to grow with tea becoming a more and more important offering in all types of restaurants. According to a report, Tea and Ready-to-Drink Tea: U.S. Retail Market, 6th Edition, from market research firm Packaged Facts, growth can be attributed to a continued interest in tea culture at foodservice.

ESTIMATED WHOLESALE VALUE OF THE UNITED STATES TEA INDUSTRY

 

1990

2013

2014

2015

2016

Traditional Market

(Supermarket, Drug and Mass Merchandisers)

$0.87 Billion

$2.40 Billion

$2.51 Billion

$2.58 Billion

$2.60 Billion

R-T-D

0.20 “

5.10 “

5.23 “

5.56 “

5.80 “

Foodservice

0.50 “

1.18 “

1.20 “

1.23 “

1.35 “

Specialty Segment

0.27 “

1.73 “

1.90 “

2.09 “

2.25 “

Total Sales

$1.84 Billion

$10.41 Billion

10.84 Billion

11.5 Billion

12.0 Billion

 

 

 

 

 

 

 

 

 

 

Food & Beverage Trends Impacting the Industry

Several food and beverage trends are motivating consumers to choose tea and are a driving force behind its growing popularity in the U.S. Consumer interest sparked by tea’s healthfulness, variety, availability and sustainability, will continue to hold steady in 2017.

  • Health and Wellness – There continues to be a focus on foods and beverages with functional benefits and naturally healthy offerings. According to FMI’s 2016 U.S. Grocery Shopper Trends, “shoppers aspire to have healthier diets, and many recognize food as medicine that can improve their overall health.” Many consumers understand the functional health benefits of tea and reach for tea as a better-for-you alternative to sugar-laden beverages. In fact, green tea made the list of top 10 superfoods for 2017 from the What’s Trending in Nutrition survey of more than 1,700 registered dietitians.
  • Natural Foods – There is a demand for foods that are closer to their natural state. Consumers, especially in millennials, demand “less processed” food and drink, driving companies to remove artificial ingredients. This trend will also encourage consumers to reach foods in their most natural, original form, such as true teas, for health benefits, instead of supplements and nutraceuticals. Tea is a natural, simple and whole food.
  • Variety and Availability – 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.
  • Transparency – Storytelling is key. Consumers want to know as much as they can about what they are eating and drinking. From product origins, histories and flavors, consumers are interested in the story behind the products, and tea has a great story.
  • Sustainability – Environmental sustainability continues to be an important factor for consumers when making purchasing decisions. U.S. consumers are seeking out foods that are flavorful and minimally impact the environment. Further, social and economic sustainability are being recognized as being equally important. The growers must be benefiting from the product they sell and can preserve their social morals and customs.

Marketing & Innovation

As consumer demand grows, frequent innovation and the marketing of new products will be a key driver for the category. According to Beverage Marketing Corporation, innovation is of increased importance in the beverage category. Innovation will focus on a consumer-centric approach through the creation of new moments of consumption, new levels of sophistication, new ways of interacting with consumers, and more “lifestyle beverages.” Many companies have started developing interesting tea products and marketing tea in new and unique ways.

  • Cold-brew Teas – The U.S. is an iced tea drinking nation, and cold brewing is carving out a new segment within the RTD coffee and tea beverage category. Cold brew tea has become increasingly popular as it creates a more mellow, sweet, iced tea.
  • Kombucha Tea – An up and coming category that is expected to grow 19% in the next four years, per Beverage Marketing Corporation. Kombucha tea is becoming more widely available at retail and restaurants. Marketed as healthy, the fermented beverage is intriguing to today’s health-conscious consumer.
  • Whole Leaf Teas – Whole leaf teas that include natural flavors are continuing to increase in popularity among consumers, especially millennials. This is because this demographic is open to experiencing and sampling new, bold and innovative whole leaf tea flavors. We anticipate the interest in whole leaf teas to grow as the beverage industry develops more creative beverages using whole leaf teas that are healthy and taste great.
  • Matcha Green Tea – Matcha is another type of tea that is currently driving consumer demand as it has become a favorite among health conscious consumers and beverage drinkers. Social media has also played a role in helping to make it a very trendy and widely known type of tea. In fact, Matcha tea can often be seen in the social media posts of health/wellness influencers who use creative angles and filters to share images their freshly brewed cups of Matcha tea. Matcha is also very versatile and can be prepared and enjoyed in so many different ways.
  • Sweeteners – The FDA Nutrition Facts Label change is set to go into effect this year. This change could encourage companies to incorporate and invest in alternative sweeteners and natural ingredients such has fruits and vegetables.

 

All in all, tea continues to be well-positioned for growth in the U.S.A.!

 

Peter F. Goggi, President

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