Dual Opportunities for Tea in Retail and Foodservice

Dominant Hot Drink by RTD Volume: Coffee vs. Tea

TeaMap

Source: Euromonitor International

With over 290 billion litres sold in retail and foodservice, tea is the world’s most consumed beverage, outpacing bottled water, carbonates, beer and coffee. But, with global retail value of just US$40.7 billion (compared to coffee’s US$75.7 billion and carbonates’ US$183 billion), tea still lacks the high value found in competing beverage markets. This illustrates a key opportunity for tea manufacturers and retailers: As volume continues to grow, and value begins to catch up through premiumisation and changing habits, there is a huge amount of long-term growth available for the taking.  With retail RTD volume growth of 38 billion litres and retail value growth of over US$8.1 expected from 2012 to 2017, tea is one of the fastest-growing beverage categories in the world, and an incredible opportunity for those who understand the evolving market.

TeaSalesRegion
TeaGrowthCountries

Source: Euromonitor International

Growth in retail requires understanding of individual markets

The first key to tapping into this opportunity will be understanding global tea consumption habits—where they are now, and where they might be by 2017. Currently, tea consumption is largely concentrated in Asia, with China, India and Pakistan accounting for over two-thirds of the category’s projected value growth from 2012-17. This strong performance in emerging markets illustrates a prominent trend in global tea retail: Consumers are switching from unpackaged tea sold in rural, open-air marketplaces to branded, packaged teas sold in more modern retail outlets. Broken down further, consumer preferences are also changing, and the forecasted popularity of various tea types is highly market-specific.

TeaSegmentation

Source: Euromonitor International

Strong growth of black tea in India, Pakistan, Iran and the rest of the world will be a result of this shift, as traditional tea drinkers transition their current consumption habits into a new context. China, however, illustrates a different trend, with forecasted value sales expansion coming from a diverse group of tea categories. The growth potential of instant tea and other tea (a catch-all category which includes special preparations such as gunpowder teas) is particularly striking. As in other tea-growing regions, Chinese consumers retain a strong preference for local products and flavours, yet demonstrate a demand for convenience well ahead of the rest of the world. This creates a market for value-added tea culture comparable to instant coffee’s global dominance.

Outside of China, tea demand is headed in two directions. In tea-dominant markets, bagged black tea should see sustained growth among daily drinkers, especially in those emerging markets. Conversely, in non-tea markets, fruit/herbal tea has potential among consumers looking to avoid coffee or caffeine, as well as those seeking occasional health benefits. This latter group presents a high value proposition, but also demonstrates the complexity that global tea manufacturers face in promoting the product.

Behind all this growth, retail challenges remain. Unlike coffee’s concentrated caffeine jolt, there is no singular feature that can be leveraged to market tea as a whole. It also so far lacks the luxury and lifestyle association that coffee has cultured due to the global coffee shop boom. Instead, the unique selling point of tea in most markets remains its remarkable versatility, allowing it to mix with a wide array of flavours and offer myriad functional benefits. Likewise, tea appeals in both brewed and bottled form in a far more consistent way than coffee, and is ripe for customisation and premiumisation in all channels.

Tea ready for its “Starbucks moment?”

On the foodservice side, tea is undergoing a similar shift in global consumption. While traditional tea culture exists in a wide variety of markets in Asia Pacific, Europe and the Middle East, that culture is only just beginning to be adapted for modern foodservice. Just as traditional coffee drinking habits have been leveraged over the past two decades to create what is now a $41 billion global coffee shop market, foodservice operators are just beginning to harness the power of tea as a concept driver and source of menu innovation.

SCSGrowthWorld0

Source: Euromonitor International

Specialist coffee shops as a category—one consisting entirely of modern, high-end coffee shop concepts modelled after Starbucks—has nearly quadrupled in value over the last 13 years. In 1999, Starbucks had just barely begun expanding outside of the US, and most global markets had no modern café culture at all, yet global RTD coffee consumption was at 115 billion litres per year. During that same year, RTD tea consumption was at 188 billion litres, and tea growth has outpaced coffee in the years since. This begs the question of just how much modern foodservice value tea could potentially support with the right shift in global tea culture, the right branding, and the right operators driving expansion in the category.

Some of these forces are at work already. Excitement surrounding beverages in foodservice, and even beverage-based foodservice concepts, is at an all-time high. Global foodservice leaders like McDonald’s, Yum! Brands, Starbucks and Dunkin Brands have made specialty beverages an integral part of their focus in recent years, and most recently, tea has taken centre stage. Consumers in a variety of markets are attracted to tea’s variety in types and flavours, positioning (healthy or indulgent, comforting or refreshing), and even eating occasions, as it can serve equally well as a standalone snack or a healthier soft drink alternative during mealtimes.

Some of these players have even taken steps to move into tea-based foodservice, marking the beginning of what could be a global tea-themed restaurant space. Starbucks has expressed plans to parlay its Teavana acquisition into a global tea presence, and tea-based beverage chains out of Asia are slowly spreading their influence throughout the world. Both consumers and operators appear ready to foment a global revolution in tea culture that echoes that of coffee, and all that remains to be seen is how, when, and which manufacturers and operators will be poised to reap the benefits.