The State of the U.S. Tea Industry

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.

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 percent.
• 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 percent.
• 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 percent.
• 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 percent is expected in this segment.