New Territory for Tea

By Jeffrey Klineman

It wasn’t slowed by the downturn, it has benefitted from health and wellness trends and has been the category into which many exciting new brands have launched and grown. For each of those reasons, RTD tea is a category that remains at a rolling boil: total sales of RTD in the U.S. were up by 7 percent in 2011, according to Euromonitor International – and have moved from just over $5 billion to just under $8 billion since 2006.

And things aren’t expected to slow down: the category is expected to grow another 24 percent by 2016, according to the research firm.

With its variety, its ability to adapt to packages from cans to bottles and to formats like carbonation and blending, the growth of RTD tea has been Americanized to the farthest degree: what have been the brews of native cultures have been studied to determine ORAC count and caffeine levels, while new brands have risen and fallen with little overall impact on the category’s continual growth.

Take January’s news that Coke and Nestle were letting a longstanding agreement to produce and market Nestea together lapse. Rather than lament the downfall of a strong brand, both companies looked to growing portfolios of other brands (Honest Tea, Sweet Leaf, Fuze, Tradewinds, Gold Peak, etc.) to fill the distribution void.

So what has kept the momentum going? Look at the following four trends, which encompass new varieties, external forces, pricing strategies and what we call the Killer G’s.

PUCKER UP

Lemon Blends continue to win. In the past year, with new “half-and-half” formulations either arriving or in planning from companies as diverse as Inko’s (best known for its white teas) and Ito En (best known for all manner of pure Oolong and other Japanese variants).

“We decided to do our twist by using premium green tea instead of the classic black tea,” said Ito En’s Rona Tison.

From energy to relaxation, everyone has been getting in on the mix: Monster Rehab came out as — you guessed it – a tea/lemonade mix on one side, while Marley’s Mellow Mood has a Half & Half as well. Organics haven’t escaped the siren call of the Arnold Palmer, with Sweet Leaf and Honest Tea launching Half & Half blends, along with all-natural Xing as well.

Even companies that have been well-known for their own lemon tea, like Snapple, have pushed into the Half & Half zone.

Marketers say that consumers like the idea of cutting calories of lemonade with the caffeinated strength of tea. Plus, it’s just plain trendy. About the only company failing to benefit from the ongoing Lemonade boom is New Leaf, which helped launch the craze before it fell off the pace due to ongoing supply and cash issues.

Meanwhile, AriZona, the company that started it all, is running the table with its call-brand “Arnold Palmer” varieties of Half & Half, which now accounts for well north of $200 million annually, according to Symphony IRI, which probably isn’t the best measure given the number of independent accounts and foodservice locations where AriZona reigns supreme.

CHEAP IS KING

While upscale tea shops and fine cultural associations may have driven some of the lift behind RTD Tea in the past, it’s value pricing that is truly running the category right now.

Just as with the Arnold Palmer, AriZona’s products, driven by its value-priced $.99 cans, lead the category.

But other companies are learning to appreciate cheap as well. Peace Tea is riding the coattails of parent company Monster’s distribution deal with the Coca-Cola Co. to move its own $.99, 23 oz. cans, and has taken big steps in circulation: the brand is at about $75 million, according to Symphony/IRI, which doesn’t count Wal-Mart, where Coke practically has its own office. During an earnings call in May Monster CEO Rodney Sacks announced that the brand was up nearly 85 percent over the same quarter for the previous year – it “has really started to come into its own and we think that also can develop into a very nice brand for the company going forward,” he told the audience.

Even the AriZona foe Snapple has gotten into the cheaper-is-better game with its own cans of printed-on $.79 iced teas. And here’s a crazy wild-card: Snapple might have a shot at grabbing market share from AriZona in the Big Apple for one simple – but bizarre – reason: under Mayor Michael Bloomberg’s proposed anti-supersizing initiative, the 16 oz. can of Snapple would still be allowed. The 24 oz. AriZona? That would draw a fine.

ON-PREMISE IS EVOLVING

Tea is booming on-premise as well, with iced teas getting a lot of momentum. From on-tap kombucha to McDonald’s selling millions of dollars in $.99 sweet tea, the availability of RTD tea on tap is contributing to the overall momentum mentioned in the introduction.

Slick operations like Teavana, Tea Forte, and Canadian import Davidstea are helping create a tea-only branch of the Starbucks family tree. Meanwhile, Starbucks itself is rolling out its first retail tea concept behind the Tazo line (even as that line begins to decline a bit in the Pepsi system) and even Guayaki has a Mate Bar in its Sebastopol offices.

There are 3,500 retail tea locations in the U.S., compared with more than 25,000 coffeehouses, according to World Tea Media.

GUAYAKI, GUAYUSA, GT, AND GOLD PEAK: WATCH OUT FOR THE KILLER G’s 

While Cheap is King, there are some brands that are showing growth from exotic places: in the old school, Guayaki, which makes RTD yerba mate drinks and has long been a natural foods standby, is showing strong expansion in mainstream accounts, with sales nearly doubling this year. Guayusa, an Amazonian tree leaf imported from Ecuador by the makers of Runa, fills out the new school; the organic, fair trade product has a low calorie profile and is starting to gain traction in natural and specialty accounts. Meanwhile, GT’s Kombucha, which has recovered after the 2010 “kombucha fermentation crisis” to regain its market leader position, is the grand old brand of the kombucha movement, which shows little sign of slowing as interest in probiotics grows.

Joining those three emerging companies is a big beverage company-produced brand, Gold Peak, which has succeeded to the point that Coke wasn’t afraid to let its partnership with Nestea dissolve in the U.S. After a slow start, Gold Peak has given Coke a growing set of facings in both the refrigerated multi-serve section of the store – where it’s up more than 40 percent this year – as well as the grab-and-go box.