TEA CONTINUES TO IMPRESS. MULTI-OUTLET DOLLAR SALES OF RTD TEA ARE UP NEARLY 3.4 PERCENT YEAR-OVER-YEAR IN A 52-WEEK PERIOD ENDING ON MAY 14, 2017, ACCORDING TO DATA PROVIDED BY CHICAGO-BASED MARKET RESEARCH FIRM IRI. ALTHOUGH LEGACY PRODCUTS FROM ARIZONA, SNAPPLE AND LIPTON CONTINUE TO DOMINATE THE CATEGORY, PREMIUM AND BETTER-FOR-YOU OFFERINGS ARE DRIVING MUCH OF THE GROWTH. FOR YEARS, UPSTART BRANDS HAVE FUELED INNOVATION IN THE CATEGORY, MEETING MILLENNIAL DEMAND FOR HEALTHIER TEAS BY WAY OF ORGANIC FORMULATIONS AND FUNCTIONAL INGREDIENTS.
BUT BIGGER COMPANIES ARE CATCHING ON.
TEA GIANTS SEE POWER IN PREMIUM
In recent years, major producers have tried to attract consumers looking for premium offerings, introducing brand extensions formulated with natural ingredients and less sugar. Whether marketed as higher-end or healthier options, brands like Pure Leaf, produced by The Pepsi Lipton Tea Partnership, Coca-Cola-owned Gold Peak, and Snapple’s Straight Up sub-line have thrived.
Pure Leaf, which is promoted as “brewed from real leaves,” is now the second best-selling brand in multi-outlet retailers, according to IRI data, generating over $615 million in dollar sales and up nearly 6.5 percent in the aforementioned 52-week period. Gold Peak, the number three brand in the space, pulled in approximately $353 million, with sales surging by 29 percent. By comparison, category leader AriZona saw sales of its flagship teas, which are sweetened with high-fructose corn syrup, tumble by 3.6 percent; its Arnold Palmer line didn’t fare much better, with sales down 4.16 percent.
Dr Pepper Snapple (DPS) also saw declines in sales of Snapple’s flagship and diet teas, but was encouraged by the continued growth of Straight Up, a line of premium, all-natural teas that launched in February 2015. The line produced nearly $28 million in dollar sales in the measured period, up more than 28 percent. In a DPS earnings call for Q2 of 2016, President and CEO Larry Young noted that sales of Straight Up are incremental for Snapple, and “don’t take anything away from the Snapple drinker.”
Meanwhile, Nestle Waters North America (NWNA) is hoping that a recent revamp for Nestea will stem declining sales for the 70-year-old brand. “Reinvented and modernized to meet growing consumer needs for authentic tea,” the new look Nestea launched in February. NWNA removed artificial flavors, colors, and high fructose corn syrup from the teas, which now contain 50 or fewer calories per 8 oz. serving. Nestea also introduced a new logo that emphasizes the tea leaf, and new, angular bottle shape.
THE ORGANIC OPTION
Last year PepsiCo doubled down on consumer demand for higher quality teas with the launch of Pure Leaf Tea House Collection, a certified organic line of super-premium teas that are brewed with fruits and herbs. Sweetened with organic cane sugar, the drinks contain 90 calories per 14 oz. bottle. The Tea House line has, at least initially, been a boon for Pure Leaf, with $21.5 million in sales over the past year.
The early success of Pure Leaf is no accident. Led by stalwart Honest Tea, owned by Coca-Cola, organic teas have proven to be a consistent source of growth for the category.
According to a study released by Toronto-based market research company Technavio, the organic tea market in the U.S. is expected to reach nearly $300 million in sales by 2021, growing at a CAGR of more than 5 percent.
In a presentation at IRI’s annual Growth Summit conference held in April, Anu Goel, the Executive Vice President of Client Growth Solutions for SPINS, a market research provider focused on natural, organic and specialty products, stated that while only 3 percent of RTD tea is organic, over 80 percent of growth in the natural tea space is coming from organic varieties.
Demand for organic tea propelled a revamp for Ito En North America’s Teas’ Tea brand, which includes several herbal, green and black tea varieties that are promoted as “loaded with antioxidants.” Ito En COO Jim Hoagland said that the move to a USDA certified organic formulation, which was introduced in January, was important given the brand’s premium positioning and “an enormous amount of interest from mainstream supermarkets, convenience stores and foodservice channels… looking for healthier, better-for-you beverages.”
Meanwhile, Numi, best known for its organic and fair trade loose and bagged teas, launched its first RTD products in March. The line comes in five flavors, each packaged in 12 oz. glass bottles. When the product was released, Ahmed Rahim, Numi’s co-founder and CEO, said the RTDs were part of the company’s desire to meet demand for organic tea in a convenient format.
“Our mission has always been to deliver the purest, highest-quality organic teas to our consumers, and our decision to move into the RTD space will allow even more people to enjoy our premium, organic full-leaf quality tea on-the-go,” Rahim said in a company release.
FAIR TRADE AND FUNCTION FORWARD
But it’s not just natural and organic that are important: SPINS’ Goel noted that as demand grows for organic tea varieties, attributes like fair trade and responsibly sourced ingredients are becoming of greater importance to consumers.
“Fair Trade tea is a big deal,” Goel said. “The sourcing of tea is all over the world, and there’s some good practices and not-so-good practices; fair trade means something to consumers, and it really means something in tea.”
A February 2016 report from leading fair trade certifier Fair Trade USA found that millennials are especially likely to seek out claims of social responsibility, noting that “73 percent recognize the [Fair Trade] seal, and 53 percent are more likely to purchase Fair Trade Certified products.”
Meanwhile, smaller companies continue to push forward on functional properties and on innovative production methods.
Last year Bhakti, best known for its bottled chai drinks, introduced a line of organic sparkling teas. Made with fair trade certified tea leaves and fresh-pressed fruit juices and ginger, the company promotes the line as “rich in antioxidants and energy boosting.”
On the emerging cold brewing front, Cham promotes cold processing “starting from the initial harvest of our raw ingredients,” as a way to maintain the health benefits and integrity of its teas. Made with organic and sustainably sourced herbs, fruits, raw honey and cold-pressed lemon juice, the teas are high pressure processed instead of heat pasteurized. Available in three varieties each formulated for a specific functional benefit – Revitalize, Calm and Defense – the products recently underwent a packaging revamp and now come in 12 oz. bottles.
IGZU, a brand of bamboo leaf teas, describes its organic beverages as “built on the foundation fueled by a mission of utilizing sustainable ingredients in new and inventive ways.” IGZU calls bamboo “arguably the most sustainable crop on the planet” and asserts that its leaves contain a high amount of silica, an ingredient that is said to support healthy skin, bone and connective tissue. One percent of sales go to environmental causes.
These brands are meeting a welcome market. Amid a confluence of the millennial demographic’s well-documented influence and the sustained growth among premium and better-for-you tea offerings, market research firm Euromonitor International, projects global annual growth of 10.3 percent for functional teas through 2020.