RUSSIA
Russia is the world’s second-largest tea importer, behind Pakistan and ahead of the US. It sets the competitive agenda for international competitors in exports of commodity black tea, especially in driving prices down. More than 90% of the population are daily tea drinkers. Tea accounts for two-thirds of hot beverages.
Turkey, Ireland, and the UK, the top three consuming nations measured in kilos per capita with Russia in fourth place, have all evolved deep-rooted historical tea cultures. It’s unclear if Russia, which contrasts strongly with the other large markets, will follow the same global trends in such areas as shifts to green tea, wellness and functional teas, premiumization, and millennials’ seeking out variety, new flavors, and different tea experiences.
One constraint has been economic. Imports and consumption are strongly price driven. The financial crises of the 1999-2000 period wiped out much of the reputation and revenue of Nilgiri in Southern India. It had responded aggressively to the opportunity of the opening of Russia by lowering quality to increase yield and lower unit price.
When Russian consumers cut back demand, exports fell substantially and quickly. Many farms closed. India overtook Sri Lanka as the dominant supplier to Russia in 2017 and 2018 but at the cost of small but continued price erosion. Russian imports in the first half of 2019 were buoyant but growth has been slipping, partly due to global trade and political uncertainties. As in the UK, the basic black tea that forms the core of the market and culture is shrinking and losing customers to other types of drink, including weight loss products.
The main area of growth has been in tea bags, replacing plain loose tea. These command a high price, often as much as three times for foreign brands such as Lipton and Sri Lanka’s prestige label, Dilmah. Tea bag sales doubled between 1997 and 2002 but even today remain tiny in volume versus loose tea, which accounts for 85% of the $4 billion retail sales. Green tea is estimated to comprise under 10% and herbal teas 1%.
The tea culture in Russia has included many unique innovations. It is intensely social and family- and home-centered. The samovar, for instance, was the centerpiece in many households, brewing hot tea all day and providing a warm gathering place. Other innovations included iron cupholders, tea served with lemon and the addition of loose fruit, sweeteners, and greens to the heavy base tea.
Overall, the Russian market is an attractive one because of its size, loyal customer base, and opportunity for innovation. International joint ventures are growing fast. The tea bag market, a commodity segment in most high per capita tea consuming nations, commands decidedly non-commodity price premiums and opens many branding opportunities. Today, only 30% of imports are in packet form.