Ekkamol Eksarunchai No-Te - stock.adobe.com
woman choosing cold bottle of water or beverage on shelves in su
woman choosing cold bottle of water or beverage on shelves in supermarket store.
By Josh Doyle
Bottled drinks are the fastest-growing beverage segment worldwide. Driven by nutritional health concerns globally and convenience, consumers have elevated flat and sparkling ready-to-drink (RTD) tea to become the no-mess alternative to sugary sodas. Volume growth is second only to bottled water (see chart) and with exciting new innovations in flavor, packaging, and brewing technology, the RTD tea industry is meeting this demand.
The U.S. market
The United States is the world’s third-largest RTD market by value. Tea loving Americans warmly welcome innovative lines of RTD tea products. In 2016, RTD sales reached $72.25 billion globally with more than three-quarters of those sales tea products. That trend is building momentum with projections of a combined annual growth rate (CAGR) of 5.6% through 2024.
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American tastes have changed. U.S. consumers show a clear preference for premium brands. Value growth outpaced volume growth in 2017, with higher-end products from brands like Pure Leaf outperforming most of their competition, and value-oriented brands finding it harder to compete.
This spells trouble for cherished U.S. brands like AriZona, famous for printing “99 cents” on their cans and taking a quantity-based approach. They still rank top for RTD sales in the U.S., but with more consumers leaning towards healthier alternatives, AriZona tea’s high sugar levels are out of favor. The market is increasingly competitive and intently focused on health.
“Consumers are looking for transparent products that don’t hide ingredients, and with little sugar,” said Rachel Heinzinger of Tiesta Tea. “Consumers are also in search of a variety of caffeine levels, whether they are looking to increase or cut down on their caffeine intake.”
This may be why RTD tea growth is outpacing soda. Between 2016 and 2017, RTD tea sales saw a 3.9% rise in retail dollars, while soda saw retail value growth of only 1.2% according to the Beverage Marketing Corporation (volumes declined). Soda brands are staying in the game by focusing on low and sugar-free alternatives to traditional soft-drinks, and finding more and more consumers are concerned about sugar content.
The majority of RTD sales are happening at supermarkets and hypermarkets. These large-scale retailers accounted for 33.5% of revenue in 2015. And as the number of large chains grows in the U.S. and abroad, sales of RTD tea through these channels are expected to rise as well. Some brands are teaming up with large distributors for exclusive product rights like Argo Tea is doing with Whole Foods. Their single estate cold-brew bottled teas will be available through the Amazon-owned retailer, with premium flavors like First Flush Darjeeling, First Flush Gyokuro, and Armenian Mint.
Just as important as where people are buying their RTD tea is how they’re buying it – either in cans, glass, or PET bottles. And the clear winner here is the PET bottle, holding over 31.5% of the market. Cans and glass bottles follow close behind at 28% and 24% respectively. But glass especially may see a surge in popularity, with global brands like Teavana packaging their Craft Iced Teas in sleek glass bottles.
Brands like Teavana, which sold 1.9 million bottles since teaming up with Anheuser Busch InBev are also likely to see an advantage in sales through Starbucks cafés, as rising interest in café culture drives RTD sales. Brands selling directly through cafés will be well-positioned to take advantage of this ongoing growth. Food service channels, which includes cafés, are likely to see the fastest-growth of any distribution channel, with a CAGR of 6.5% from 2016-2024.
Health leading the charge
Thinking of tea as a health drink is nothing new. But today we’re seeing how age-old health wisdom around tea is being applied by brands to deliver those benefits to on-the-go consumers, who don’t have time to brew their own tea.
With illnesses like heart disease, cancer, and diabetes on the rise, more people today are interested in self-nutrition as a part of their preventative health care. And with its anti-oxidants and beneficial herbs, many people see tea as a part of their plan.
“From current trends, we know that consumers are becoming more health and eco-conscious, searching for products that are free from additives and that are all-natural,” Karin Gerlach, the Director of Marketing at Tea of a Kind (TOAK) told STiR.
The response from TOAK has been to go gluten and sugar-free to reach the growing trend of consumers with dietary preferences and to focus on sustainable packaging. Other brands in the RTD tea space are responding in similar ways, appealing to health and environmentally conscious consumers who prefer tea over sugary sodas. Total volume for carbonated soft drinks fell by 0.8% in 2016, which was nothing compared to a 1.2% drop in 2015. As global soda sales fall due to rising health-concerns, regular and carbonated teas are stepping in as a healthier alternative that couples exciting flavors with real health benefits.
RTD moves east
Japan and China are the top RTD markets, each enjoying steady growth, with Japan’s RTD tea market reaching its largest ever in 2017. The same factors affecting sales in the U.S. are driving growth here as well – health-conscious consumers who want sugar free drinks, with low caffeine and rich mineral content. In China, rising incomes matched with better education on health are leading to similar growth. Brands are finding success through innovative new products and nationwide distribution, with white collar females their largest consumers.
Innovation in RTD
RTD tea brands must innovate to stay competitive. Arizona based TOAK recently released their Eco 4-Pack, featuring one bottle and four of their signature pressurized Vessl™ caps. Inside each Vessl cap is a concentrated liquid of brewed tea and antioxidants. The caps are oxygen depleted and nitrogen-flushed, so they keep out UV light that dissipates flavor and damages anti-oxidants. They can also be re-used in any bottle, cutting down on plastic waste.
“The Vessl allows for the elimination of the disposable bottle by simply re-filling a bottle and twisting on a new Vessl closure,” Gerlach said. “The wow factor associated with opening a Vessl closure provides sustainable consumers excitement and drives repeat purchase at a premium price.”
And Tiesta Tea has released their first line of premium cold brew teas with unique functions, like immunity and relaxer.
“Our functions celebrate the natural health benefits that each type of tea gives you,” said Heinzinger. “For example, green tea naturally curbs your appetite and revs up your metabolism, so we call our green teas ‘slenderizers.’”
South African brand BOS’ is launching a line of exclusive canned rooibos iced teas, offering a completely organic, caffeine-free product that highlights natural fruit flavors. They’re also grabbing the attention of environmentally conscious consumers, planting 1 tree for every 2,000 cans sold, with over 20,000 trees planted so far.
Canada based Phivida introduce a line of teas that use hemp derived cannabinoids to support gut-health, while tasting delicious and delivering the anti-oxidants you’d expect.
It’s a brave new world for RTD tea, and the market is still young. With growth expected to rise steadily over the next few years, new RTD tea products will be giving refrigerator shelves around the world a makeover, driving interest with unique flavors, eco-friendly packaging, and real nutritional benefits.