EMI Market Research
As economic headwinds press consumers to buy less, they are not giving up tea. Slowing growth and rising inflation are inducing shoppers to forego bottled coffee, spirits, sports and energy drinks, wine, and beer. But tea, along with milk, still ranks as a must.
"The economy right now is really, really hard," Shabnam Weber, president of the Tea & Herbal Association of Canada, told attendees of the World Tea Conference in Las Vegas in late March. “I cannot paint this as a pretty picture. It's difficult everywhere in the world, not just for every single person doing business, but also every single consumer is experiencing serious, serious pressures.”
Weber pointed out that the inflation rate in Canada had reached 12%. “Did anybody get a 12% raise last year?" she asked rhetorically. "Which means that if you didn't get that 12% raise, you are actually worse off today than you were last year. That's just reality. Every dollar earned gets you less than the year before.”
Various recent economic news has been gloomy:
- World Bank economists warn that global growth is slowing sharply, with economic output projected to rise just 1.7% in 2023. The downturn is likely to be widespread, and any adverse developments could push the global economy into recession.
- Tea prices dropped sharply in January and February, particularly in India and Kenya, according to the Economist Intelligence Unit. This decline contrasted to relatively high prices in 2022, when sales at major auctions in India, Sri Lanka, and Kenya averaged $3 per kilogram, due to weaker production and firm demand.
- In the United States, the all-item Consumer Price Index for Food (not seasonally adjusted), a critical measure of economy-wide inflation, rose by 6% during the 12 months ending in February 2023.
Weber said that the situation has not dimmed her optimism. "I know that we will all get through it. This is not the first time we've been here. Lucky for us, consumers consider tea a necessity. They do not consider tea a luxury, and that's not just here in Canada — that's across the globe,” she explained, citing EMI Market Research data on the one-year price elasticity of beverages.
EMI assigned tea an elasticity value of negative 0.14%. What does that mean? “If the price of tea increases by 1%, all things being equal, the growth rate will decline by only 0.14%,” she said.
She noted Nielsen consumer research data showing that shoppers cut back on "wants" rather than necessities. And tea is seen as a need.
“So don't look at the economy and say, ‘Oh, my God,’ nobody's buying, nobody can afford to buy things. Because the truth is, that's not what's happening in tea. I was surprised. The only thing with lower price elasticity than tea is milk,” she said.
“We in the tea industry are in a very, very good position regarding this economic change,” Weber said.