Many tea companies are launching new product category lines featuring functional ingredients like ashwagandha (pictured above) to meet the growing demand for health and wellness teas. Photo credit: Bankim Desai
The American tea market is transforming, driven by consumers’ increasing awareness of health and wellness. What was once a simple choice has evolved into a sophisticated marketplace of functional teas, adaptogens, and wellness-focused blends that promise everything from better sleep to enhanced cognitive function. This shift is fundamentally reshaping the entire tea industry.
The Numbers
According to the World Tea News’ 2025 State of the Tea Industry Survey, functional and wellness teas have emerged as the dominant consumer trend, with 25.1% of industry respondents identifying this category as the biggest trend in tea. Perhaps more telling is that when asked what has most impacted their tea sales, the majority of respondents (26.3%) cited consumer interest in health and wellness.
This growth is occurring within the broader context of America’s functional beverage boom. According to data from Gary Hemphill at Beverage Marketing Corporation, functional beverages have increased their share of the beverage market from 13.5% in 2019 to 15.1% in 2024. “In general, demand for functional and health and wellness drinks is outpacing the overall market and gaining share,” Hemphill explains. “Today’s consumers are, by and large, drinking and eating healthier.”
While ready-to-drink (RTD) tea represents 14.7% of functional beverage wholesale dollar sales and 26.5% of volume, the premium and functional segments are driving disproportionate value growth. The functional beverage market’s wholesale dollar sales are growing at a compound annual growth rate (CAGR) of 7.1% between 2019 and 2024, significantly outpacing volume growth of 1.7% CAGR over the same period. This divergence highlights the premiumization trend driving the functional RTD tea segment.
The Ingredient Revolution
Three popular functional herbal tea blends from Luxmi Tea: Astounding Ashwagandha, Turmeric Time Out, and African Rose. Photo credit: Luxmi Tea
The success of functional teas hinges on specific hero ingredients that consumers actively seek. Traditional wellness ingredients are experiencing renewed popularity alongside emerging adaptogens and nootropics.
“We have seen consistent popularity of ingredients like peppermint for digestion, chamomile for sleep, and turmeric for anti-inflammation,” explains Smritika Sharma of Luxmi Tea. The trend extends beyond traditional botanicals. Ryan Collins of Finlays Solutions notes that “well-known functional ingredients like ginseng and ginger are seeing renewed interest as adaptogens have gained widespread knowledge.”
Emerging ingredients are also gaining traction. “We have seen valerian root for sleep, ashwagandha for focus, and lemon balm for relaxation get a lot of interest recently,” notes Collins. “Other not-so-common functional ingredients that are gaining traction include collagen, vitamin B, and botanicals such as barley, mint, and other fruit varieties like blueberry or lychee,” Collins adds. This diversification reflects consumers’ growing understanding and acceptance of functional ingredients.
The Product Portfolio Evolution
Companies are responding to wellness demands by introducing new formulas or incorporating functional ingredients into existing products. The transformation is evident at established tea companies, where functional blends increasingly dominate product lines.
Traditional wellness ingredients like turmeric have been used for thousands of years, but are now more popular than ever before. Photo credit: Tahar Bekkaye
“Since tea is inherently a functional beverage, nearly all of our offerings are crafted to reflect this,” Sharma explains. “Over 85% of our blends are infused with high-efficacy, adaptogenic, and wellness-focused ingredients. Whether it’s turmeric and mint for digestion, chamomile and valerian for relaxation, or ashwagandha for focus and clarity, we designed these blends to deliver both taste and benefit.”
The commitment extends beyond just adding functional ingredients. Luxmi emphasizes clean-label formulations. “All our blends are made with natural herbs, fruit botanicals, and zero additives — no artificial flavors, colors, or preservatives,” Sharma notes. This approach resonates strongly with consumers seeking transparency and authenticity in their consumables.
At Finlays Solutions, the trend has driven category expansion. “Functionality has become such an integral discussion point at Finlays Solutions that we entered a new category this past October 2024 for the first time in decades with the launch of our botanical extract line,” Collins reveals. The company’s portfolio transformation is comprehensive: “Our lineup is now split equally between a variety of teas, coffee, and botanical products. Of Finlays’ active innovation projects, 60% include the exploration and addition of a functional ingredient.”
Regulations and Health Claims
Finlays tests its products constantly to ensure regulatory requirements are met, health claims are substantiated, and flavor profiles are maintained. Photo credit: Finlays
The growth of functional teas has created new challenges in navigating regulations and substantiating health claims. Companies must strike a balance between marketing perceived benefits — as a driver of consumer interest — and ensuring regulatory compliance.
“From a regulatory standpoint, we’re mindful not to make direct or clinical health claims,” Sharma adds. “Instead, we highlight the functional heritage and traditional uses of ingredients that reflect centuries of tea culture.”
Some companies are going a step further and investing in clinical validation. Sharma says that Luxmi Tea is “testing some of our products for positive effects on well-being through studies that are FDA compliant, and hope to have some of our products certified clinically for their impact.” This investment could differentiate products in an increasingly crowded marketplace.
The regulatory landscape is particularly complex for ingredient suppliers. “This is a new and unique challenge that Finlays is still navigating,” Collins acknowledges. “We have begun performing both internal and external regulatory reviews to substantiate health claims that our customers can make with our ingredients.”
The regulatory requirements influence product formulation, recommendations, and decisions. “These analyses do impact our formulation decisions as there are use rate thresholds that must be met to make substantiated health claims,” Collins explains. “To achieve certain use rates to produce health benefits, the amount required of some ingredients in a single-serve beverage can have a detrimental impact on flavor, stability, and cost.”
Market Impact
The functional beverage boom is measurably impacting overall tea sales in the United States. While traditional RTD tea segments have struggled, with volume declining in five of the past six years according to Beverage Marketing Corporation data, the premium and functional segments are driving growth and value enhancement.
Much of the RTD tea activity has shifted to the premium tier, where companies like Pure Leaf and Gold Peak have become leaders. This shift represents a fundamental change in competitive dynamics, with companies now requiring expertise in high-quality ingredient sourcing, clinical research, and regulatory compliance, in addition to traditional tea knowledge and marketing strategies.
The functional beverage trend is also driving innovation in adjacent categories. Enhanced waters, protein drinks, and botanical-based drinks are all part of the broader functional product ecosystem benefiting from consumer interest in wellness.
Consumer Education
Pure mint tisanes (caffeine-free herbal teas) aid digestion and promote calmness. Photo credit: Massimo Adami
Success in the functional tea market requires significant investment in consumer education and marketing. As Sharma notes, Luxmi tea is “deeply committed to educating our consumers about tea’s broader role in wellness.”
Their approach demonstrates this educational commitment: “We support our marketing with educational content around tea rituals, terroir, and ingredient origins so that consumers can make informed choices, while we stay well within the bounds of regulatory compliance.”
The functional tea opportunity also extends well beyond traditional tea formats. Collins notes increasing interest in “popular functional ingredients such as protein and mushrooms, specifically in latte-style formats.” These new formats are expanding the addressable market for functional tea ingredients, creating new consumption occasions, and driving cross-category innovation.
The Clean Label Imperative
The wellness tea growth is inextricably linked to the clean label movement. Consumers are demanding not just functional benefits but also ingredient transparency and natural formulations. This trend is reshaping how companies source, formulate, and market their products.
Luxmi Tea’s product and marketing strategy demonstrate this. Beyond avoiding artificial additives, the company emphasizes terroir and sourcing stories. “A clean-label approach continues to resonate strongly with our consumers who are seeking functional, trustworthy, and transparent products in their daily rituals — with a terroir story for not just our teas but the superfood, nootropic, adaptogenic ingredients that grow in the best-known regions of the world,” Sharma explains.
Challenges and Future Outlook
Despite positive trends, the functional tea market faces challenges. Cost pressures from functional ingredients can impact profit margins, particularly when trying to achieve clinically effective dosages while maintaining taste and affordability. Supply chain complexity for sourcing high-quality wellness ingredients requires sophisticated management systems and continued investment in sustainable agriculture.
However, market momentum remains strong and justifies high investment. The functional RTD beverage market is projected to reach $54.6 billion by 2028, up from $48.0 billion in 2023, according to Beverage Marketing Corporation projections. Energy drinks are expected to see decelerating growth, potentially creating opportunities for functional tea segments to capture additional market share.
Redefining What Tea Can Be
The functional focus on tea is part of a broad shift in how Americans think about and consume beverages. Functional and wellness teas are the biggest consumer trend, the primary driver of sales growth, and the fastest-growing segment of the tea market.
The future belongs to tea brands that can successfully combine truly authentic or perceived wellness benefits with great taste, clean ingredients, and compelling stories. Success requires new capabilities, including ingredient expertise, regulatory compliance, clinical research, and consumer education.
With consumer health consciousness continuing to expand and innovation accelerating across formats and ingredients, functional teas are not just raising overall tea sales; they’re redefining what tea can be. The companies that embrace this transformation while maintaining tea’s traditional appeal will reenergize the industry for years to come.