State of the Industry

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The State of the U.S. Tea Industry

2018-19 Tea Market Review & Forecast

Prepared by Peter F. Goggi

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

2018 was a challenging year, not only for the U.S., but also globally. Consumption of tea in the U.S. continued strong in most tea categories and across all demographics, but total imports were down some 5.5% on a volume basis. Green tea showed some year-on-year strength with imports increasing some 4.1% and Green Tea now represents 14.6% of total imports. 2018 weakened the 3 year averages as well, with a rolling volume decline of 2.7%. Preliminary figures, however, indicate that dollar values actually increased, implying that the teas brought to the U.S. were marginally more expensive and theoretically, of higher quality.

This volume weakness was seen across most origins. Even the “traditional origins”, China, Japan, Taiwan, India and Sri Lanka were impacted, with the notable exception of Sri Lanka which grew some 10% year on year.

In that vein, Sri Lankan Low Grown’s and higher quality leafy Orthodox teas, in general, held their own. However, medium/low-medium CTC types (due to a glut of East Africans) dragged down the global market over the course of the year. This has always been a vulnerable sector due to perennial over-supply, and the last 12-15 months was particularly impacted.

The very bottom of the CTC market remained fairly firm but eventually was forced down due to the pressure from cheap med/low-med East Africans by the end of the year. East Africa appears to be increasing Orthodox production in East Africa as well, but it will take some time to achieve critical mass and to impact the soft CTC market.

Interestingly, India has attempted to limit tea production in Assam during December & January in order to remove ~25 MM Kg of poor/plain tea from the market and boost quality. This aligns with a strategy to increase Orthodox production and exports to the Middle East in particular.

Argentina, the largest importing nation to the U.S., continues to be under price and inflationary pressure.

RTD, Foodservice and Specialty Tea continue growth – Pressure on Traditional/Grocery

Ready-to-drink (RTD) tea continues to grow and is still exhibiting growth – some 3 – 4% growth in 2018 and continued growth at these levels going forward in 2019. However, challenges even for RTD are clear: as they compete across other categories, e.g., health, refreshment and hydration, their ability to innovate and compete with other products will remain a key factor in continuing growth in both volume and dollars. While more expensive than bagged tea on a per-serving basis, consumers continue to reach for RTD teas for their flexibility, convenience and as a healthier alternative to sugary beverages. We continue to see separation and segmentation between premium, high quality RTD’s and the value, CSD replacement segment.

Other formats including loose, bagged, mixes and pods continue to struggle, although share declines have slowed. Private Brands are growing in both volume and dollars.

Specialty Tea continues to be a star, driving growth, both volume and dollars across various outlets. Consumers across all demographics continue to seek new and different beverage options and flavors. Interest in terroirs, flavors, origins, bush to brand and sustainability of these high quality, higher priced teas, continues. Trends in Artisanal teas remain the same and continue to grow at a fast clip, albeit on small volumes. 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. Buyers of Specialty tea are seeking to engage with their products of choice. They want to know that the dollars they spend are going to support the grower, workers and “brand” as a reward for a job well done in manufacturing quality products.

While still very small and generally non-commercial, tea growing continues its expansion in the U.S., in some instances, serving to answer the call of locally grown and farm-to-table trends. Countries of origin are also protecting and advertising their teas through geographic designations and copyrighting terroir trademarks.

Specialty iced tea continues in the top 10 on the National Restaurant Association’s (NRA) What’s Hot Culinary Forecast list of top non-alcoholic beverages. At the Natural Products EXPO WEST the trends are all plant-based and whole foods driven. Tea is the perfect beverage as health is a huge driver of food and beverage purchases. Additionally, WebMD lists tea as one of its 10 Superfoods offering Super Health Protection.

The foodservice market continues to grow with tea becoming a more and more important offering in all types of restaurants. Foodservice establishments that are creating and leveraging “tea culture” are experiencing both solid growth and loyal, repeat customers. Refrigerator tea, which is partially captured in this segment, continues a very strong upward trend.

So, despite general weakness in 2018, the fact is that the overall tea market tea continues to hold its own, driven by its healthy positioning; being a good source of hydration; leveraging the plant-based trend and demonstrating a strong link to positive sustainability.

ESTIMATED VALUE OF THE UNITED STATES TEA INDUSTRY

1990

2015

2016

2017

2018

Traditional Market

(Supermarket, Drug and Mass Merchandisers)

$0.87 Billion

$2.58 Billion

$2.54 Billion

$2.58 Billion

$2.33 Billion

R-T-D

0.20

5.56

5.80

6.00

6.20

Foodservice

0.50

1.23

1.35

1.50

1.55

Specialty Segment

0.27

2.09

2.25

2.50

2.58

Total Sales

$1.84 Billion

11.5 Billion

12.0 Billion

12.5 Billion

12.66 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 hold steady, if not grow throughout 2019.

  • Health and Wellness – There continues to be a focus on foods and beverages with functional benefits and naturally healthy offerings. 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 continues to be on the list of top 10 superfoods for 2018 from the What’s Trending in Nutrition survey of more than 2,050 registered dietitians.
  • Healthy Foods – Registered Dietitians (RD’s) predict that a "healthy" label will begin to surpass cost and taste when it comes to consumer purchase drivers. Tea fits perfectly into this trend, along with clean eating and plant-based foods. Tea is on trend as the perfect beverage as it is from a plant and has a clean label.
  • Natural - Consumers across all demographics are seeking “less processed” food and drink, incentivizing companies to remove artificial ingredients. This trend will also encourage consumers to reach for 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.
  • Product Engagement – Storytelling is key. Tea has a great story to tell, from its history, countries of origin, manufacturing techniques, and unique flavors, to its varied colors and shapes. Tea satisfies consumers’ need to know as much as they can about what they are eating and drinking.
  • Sustainability – Environmental sustainability continues to be an important factor for consumers when making purchasing decisions. U.S. consumers choose foods that are seen to be natural and having minimal impact on the environment. Social, environmental and economic sustainability are now seen as being equally important. Tea growers will seek to not only benefit economically from their product, but must work to preserve their social mores and customs.

Marketing & Innovation

To continue to attract consumer interest, frequent innovation and new products are key drivers 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.” Some emerging Beverage trends are:

Cold Brew Plant Based Protein Functional Values Added Dairy

Kombucha Probiotics Bio-Hacking CBD Special Diets

Sustainability & Eco-Friendly Package Innovation

Additionally:

  • Whole Leaf Teas – Whole leaf teas and naturally flavored teas are not only continuing to increase in popularity among consumers, especially millennials, but across all demographics. Consumers who are looking for the “story” behind their favorite products have a treasure trove of history, terroir and tradition to investigate with tea.
  • Green Tea – Green tea continues to drive consumer interest. Americans appreciate this beverage for doing something good for their body, specifically:
    • Calming them down when they’re feeling anxious
    • Boosting their immune system
    • To maintain a healthy weight
    • To look less physically stressed
    • Reduce skin redness
  • Sweeteners – The FDA Nutrition Facts Panel change is now in effect, encouraging companies to invest in and incorporate alternative sweeteners and natural ingredients such as fruits and vegetables in their offerings.

Beverage Trends – Beverage Marketing Corporation offers the following Trends to Watch in 2019:

    • Emergence of Gen Z
    • Blurring of Beverage Categories
    • Rise of Craft Beverages
    • New Technology-Enhanced Beverage Delivery Systems
    • Amazon-Led Retail revolution
    • The Digitized Corporation
    • Heightened Importance of Social Responsibility and Sustainability

Tea continues to grow, rooted in its naturalness, great natural flavors and variety, transparent sustainability and plant-based, healthful aspects. I look forward to an exciting year for tea in 2019!

 

Peter F. Goggi, President

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