The pandemic grew at-home occasions for tea, mainly because downtown office workers no longer visited cafes and restaurants where tea is served. Refrigerated tea, mainly in cans and bottles but increasingly in bulk containers, showed gains in grocery in 2021, while traditional tea bags and loose leaf lost share. Photo Adobe iStock.
The pandemic and climate drove refrigerated, cold-brewed, and iced tea sales to new highs in both the US and Europe in 2021. However, the most significant trend dates to 2020, when black tea, for the first time, lost its dominance as the outright leader of loose and bagged tea sales in US retail outlets.
Sales of green tea globally are projected to grow 11.9% through 2028 to $34 billion, but botanicals are more likely the infusion of choice for former black tea drinkers.
Taking tea at home is preferred in most countries except the US, where iced and ready-to-drink teas, consumed away from home, account for almost half of sales. In 2021 sales of tea online promoting health benefits and convenience-focused retail formats like iced-tea drive-thru outlets boosted at-home consumption.
According to IRI, a Chicago-based market research firm, sales of packaged tea declined 6% in 2021 to $1.4 billion. The price per unit increased ($0.07 to $3.53) in step with inflation. Unit sales of tea bags and loose leaf tea declined 7.8%. In contrast, sales of canned and bottled teas grew 4.4% to $4.3 billion, but here, too, unit sales declined 2.8%, mainly due to foodservice closures.
“Black tea has been consistently losing share to other formats, above all fruit and herbal tea, which appeared to better address consumer concerns,” writes Euromonitor in its tea in the US report.
“Tea in the United States was uniquely vulnerable to (COVID-19) since an unusually high proportion of it is consumed at foodservice,” writes Euromonitor beverage analyst Matthew Barry. Statista estimates that 52% of spending and 5% of volume consumption in the tea segment will be out-of-home by 2025. In 2019, that proportion was 48%. In the US, the decline is most evident as iced tea at lunch occasions plummeted along with hot tea served as celebratory occasions in tearooms, tourist locations, and hotels.
Globally the ready-to-drink beverage market was valued at $17.4 billion in 2022 and is expected to grow at a compound annual rate of 6.5%, according to Future Market Insights generating an estimated $28 billion in sales by 2032.
Packaged Goods Retail
Ground coffee in mass-market sells for an average of $6.79 and single-cup averages $10.23 per unit (SKU). Tea earned a dismal $3.50 per unit (SKU) in US grocery and mass-market outlets in 2021, mainly because grocers continue to aggressively drive down prices. Higher priced and higher margin teas with health and sustainability claims are available on the top shelf but the tea category is seen as a very effective loss-leader at the largest US outlets, including Kroger and Wal-Mart. Still, there is evidence of changing consumer preferences. Wal-Mart announced in 2021 that its private-label Great Value Tea is now 100% Rainforest Alliance certified and sustainably sourced.
The sale of Unilever’s tea portfolio (except for brands retained by the Lipton-PepsiCo partnership) will make ekaterra tea the sales leader in the market. In January, Kate Palmer, a former buyer at Whittard of Chelsea and later Costa Coffee, was named ekaterra’s Head of America’s Tea Procurement, a newly created position. Look for ekaterra “to breath new life into the tea business,” writes Euromonitor.
Western Europe’s tea market is valued at $6.3 billion, according to Euromonitor, with primary growth in premium categories. Herbal and fruit blends are growing even faster at 6%. Outside the US and Europe consumption of tea, for the first time in decades, is outstripping supply globally (making the retail fundamentals of packaged tea much brighter than in non-tea-growing countries).
The most resilient category in 2021 was refrigerated teas (except kombucha), where sales increased 7.5%, with unit sales rising by 5.5%. Sales of kombucha were flat, and unit sales were down 1.7%.*
HTeaO, an iced tea drive-thru in Amarillo (West Texas), combines drink-at-home convenience and value that drive sales of refrigerated teas.
The franchise chain, founded in 2009, has expanded rapidly despite the pandemic. “We’ve got thirty-two stores open, thirty-seven in some phase of construction, and another one hundred and fifty in development,” founder Justin Howe, President & CEO for HTeaO, told Texas Monthly.
HTeaO resembles a convenience stop with 26 fresh brewed sweet and unsweetened iced tea flavors mixed, garnished, or blended with cut fruit. It’s a fun place to hang out with “happy hours” that draw crowds of patrons rewarded with loyalty points and complimentary tea. The focus is refreshment with pebble ice machines, Tik Tok-inspired recipes, and gallon jugs to go. Twelve-ounce cups are nowhere to be found in these shops. Start with 24 ounces, top off a 44-ounce cup with pineapple or cherries or choose the contractor’s favorite 51-ounce (1.5-liter) Peach-ginger or Sweet blueberry green iced tea. Buy a $3.50 tankard or pay $19.99 for four gallons to take away. Shelves are stocked with healthy snack options and a full line of YETI merchandise.
Construction workers arrive throughout the day to fill their on-site coolers with tea and fill five-gallon containers of double-pass reverse osmosis water, kids mix, and match at the self-serve fountain.
Reinventing Tea Retail
Steadfast brand loyalty rescued niche sellers even as the pivot to online and direct-to-customer transactions nailed the coffin on mall-based tea chains.
Here is what thriving retailers have in common.
- They are omnichannel with high levels of engagement.
- They are experiential in both the virtual and physical worlds.
- They market themselves as beverage specialists, not wall-of-tea vendors, often promoting health and wellness drinks and botanical blends.
Three years of COVID has reset tea consumption at brick and mortar restaurants and cafés, initially reinforcing traditional expectations of comfort and warmth but evolving to disrupt sit-down dining out-of-home permanently. Sales of tea in food service now account for less than 20% of global tea industry sales. For the first time in decades (beginning in 2019), demand globally is outstripping supply, early indication prices will increase.
Tea largely missed out on the rapid growth of restaurant-quality food delivery, curbside service, and take-out. Beverage service in downtown offices, sales at transit terminals, and inner-city stands remain below pre-pandemic levels. Retail vendors offering afternoon tea at tourist locations, iced tea at sports venues, and food trucks selling teas and juice lost sales to homebound tea drinkers purchasing online or near-to-home suburban locations. COVID also reversed the sales growth of tea as a breakfast alternative. Independently operated tearooms with few seats and limited financial resources closed, changed owners, or pivoted online. Tea is consumed more frequently at home, and with food inflation rising and costs driving up menu prices, it is clear that in 2022 tea retail will not return to the familiar patterns of yesteryear.
The upheaval in food service is manageable. Fears keeping diners away from cafés are diminishing. Out-of-home tea sales in COVID-ravaged India already exceed pre-pandemic totals.
Restaurant consolidation is underway, with investors anticipating a return to pre-pandemic spending by 2023. Tea rooms, tea cafes, and tea bars should focus on efficiencies here and now. The immediate priority is to recuperate and resume growth at a sustainable pace. Retailers that survive will see greater demand, better prices, and fewer competitors.