IBISWorld Shows Ready-To-Drink Tea Consumption Increases

The Ready-To-Drink (RTD) Tea Production industry produces tea beverages that are packaged and ready for consumption. IBISWorld Industry Analyst Jocelyn Phillips said in a prepared statement, “Robust product development and the expansion of these new product lines into new markets have driven revenue industry growth in the past five years.” Though a discretionary good, RTD tea was perceived as an affordable luxury during the recession and as such, did not suffer much from macroeconomic pressures on demand. Accordingly, industry revenue is expected to increase an annualized 6.1 percent over the five years to 2014, including a 3.3 percent jump in 2014 to $5.3 billion. Average industry profit margins also remained high during this period, particularly as tea prices plummeted to an all-time low in 2013.

Tea, which is high in compounds that may boost the metabolism and fight cancer, according to the release, has benefited greatly from increased consumer health consciousness in recent years. RTD tea may particularly benefit from this trend as it has increasingly gained market position in convenience stores and vending machines, where it can more easily function as a lower-calorie, more natural alternative to sodas and other RTD beverages. As per capita soft drink consumption continues to fall and consumers seek healthier substitute beverages, RTD tea producers will likely experience increased demand and revenue growth.

Barriers to entry are high for the RTD tea industry, with high market share concentration leading to strong price competition and market domination by well-established brand names. Nonetheless, robust revenue growth has encouraged new companies to enter the RTD Tea Production industry in recent years, further contributing to the overall level of competition. “The trend toward health consciousness, coupled with this increased competitive pressure, will further drive new product development in the next five years, which will in turn drive industry demand,” said Phillips. As consumers fully recover from the recession and disposable income rises, IBISWorld expects industry revenue to grow in the next five years. However, average industry profit margins will likely fall as the prices of major inputs (such as tea and sugar) are projected to increase during the next five years.

The RTD Tea Production industry is expected to have a medium level of market share concentration in 2014. The top four major players in the industry are: Arizona Beverage Company, Unilever, Dr. Pepper Snapple Group Inc. and Nestle SA. The industry is becoming more fragmented as new competitors enter the industry. Market share concentration has thus steadily declined over the five years to 2014.

For more information, visit IBISWorld’s RTD Tea Production in the US industry report page