Sweet Victory: Tea Consumers Just Won’t Quit Sugar

For years many innovations in the iced tea category have sought to meet the data-backed consumer demand for lower sugar and clean label products by cutting sweetness, simplifying ingredients and embracing organic sourcing. Although zero sugar products have continued to drive growth in the soda and energy drink sets, a commensurate rapid expansion of the tea shelf hasn’t arrived – despite an understated level of innovation from new and emerging brands. In some regards, then, tea is among the top RTD categories that feels most overdue for a radical shakeup.

In fact, among the top eight largest beverage categories, ready-to-drink tea has seen the slowest level of retail dollar sales growth over the duration of the pandemic, per NielsenIQ data. On a four-year-stack basis, tea has grown just 24.6% in the 52-weeks ending July 15. For perspective, sports drinks grew 53.4% and energy drinks were up 50.2% in the same time, while RTD coffee nearly doubled tea, up 48.3%. Even CSDs, with their reputation marred by sugar and artificial sweeteners, climbed 39.9%.

More recently, NielsenIQ reported annual tea sales up 8.2% in the 52-weeks ending July 15, outpacing still flavored water (+5%) and sparkling flavored water (+4.8%), but still on the lower end of beverage category growth. Meanwhile, some major established manufacturers like Snapple-producer Keurig Dr Pepper (-1.2%) and Red Diamond (-1.4%) have seen sales slide in that time while Coke (+9.2%) and AriZona (+10.7%) have outpaced the category.

That’s not to ignore certain tea success stories. Yerba mate maker Guayaki has been experiencing a strong growth run to bring an energy-tea product to the mainstream (+15% in the 52-weeks per NielsenIQ), Milo’s has dominated the refrigerated set (+29.9%, more on that below), and there’s always kombucha – typically separated from most RTD tea data sets and measured independently – which after a rapid rise has seen its growth level out, save for some top-level brands like Health-Ade. But the core of the category, at least on the shelf-stable side of the business, has grown and innovated at a plodding pace.

“[Tea] has been much slower to innovate than ready-to-drink coffee,” said Jim Watson, senior analyst for beverages at Rabobank. “There’s just a lot less consumer excitement and new product development, and I think it’s been held back for a long time by having a couple really dominant brands that go out at a very low soft drink-esque price point that has made it really hard for other brands to come in.”

Between the top three tea players – Lipton/Pepsi (Pure Leaf), Coke (Gold Peak) and independent player AriZona – Watson suggested that the consumer perception of what iced tea is – a familiar sweet or semi-sweet product – is entrenched and it’s been hard for startup brands to “redefine” the category the way that cold brew coffee was able to disrupt the dominance of the Starbucks Frappuccino (which, to speak generally, had more or less been the U.S. RTD coffee category a decade ago).

There has been some tea innovation from the top to the bottom of the category, though nothing that has reshaped the set so far. After its shock announcement that it would discontinue Honest Tea last year, The Coca-Cola Company said it planned to put its strength behind its Gold Peak and Peace Tea brands while budget-friendly AriZona has introduced a number of new premium product lines.

A number of emerging and startup brands have been hopping in to bring some new life to the category, like Liquid Death who previewed their new lightly caffeinated canned tea line last fall and have now begun rolling out to market. Not to forget Shaka Tea (acquired by King’s Hawaiian last year), Weird Tea, The Ryl Tea Co., Saint James, Swoon, Halfday and Just Ice Tea, to name a few.

However, many of those brands also offer some sort of sweet or semi-sweet tea option. Despite a number of “clean” tea innovations over the past decade, Watson suggested that chasing the low and zero sugar macro trend, in hindsight, may have not been the right play for iced tea makers hoping to compete outside of the natural channel.

“Innovating on pure lower sugar and health simply was less appealing to the consumer,” Watson said. “There’s only a very small band and consumer that wants a kind of pure, unsweetened iced tea set at a premium price point.”

“I think you see the same thing in coffee,” he added. “If you look at ready-to-drink coffee, you simply don’t see that much in the way of pure black coffee. And if you do, it’s for the most part with the expectation – like a multi-serve cold brew – that somebody will add something to it later.”

While the “pure tea” approach certainly has a sizable consumer base to support some brands – case evidence: Just Ice Tea, which has largely filled the void Honest Tea’s discontinuation left in the market – Watson said it is ultimately proving to be a niche, as mainstream consumers have embraced sweeter brands.

Milo’s Carries Refrigerated Teas

Among refrigerated teas, one brand has effectively carried the set: Milo’s Tea Company.

At a distance, Milo’s may have appeared to be an unlikely candidate for insurgent expansion. The Alabama-based, family-owned manufacturer has been making tea since the 1940s and features fairly humble, old-fashioned down-to-earth branding and standard plastic milk jugs for packaging. But under the leadership of CEO Tricia Wallwork, whose grandfather founded the company shortly after World War II, the brand has reached a compound growth period and since 2021 has been the largest refrigerated tea brand in the U.S.

According to Nick McCoy, co-founder and managing director of Whipstitch Capital, Milo’s accounted for “almost dollar-to-dollar” the entirety of refrigerated tea growth over the past two years. Citing SPINS data, McCoy said the brand has managed to hold onto strong double-digit dollar and velocity sales, while most other refrigerated iced teas have either reported low single-digit increases or declines.

“The refrigerated category, outside of Milo’s, doesn’t have that much to it,” he said. “Shelf-stable is really where the bulk of the sales are.”

Market research firm Circana reports Milo’s as the category lead of the refrigerated tea category with a 31.50% dollar share, as of the 52-weeks ending June 18. In that period, the brand grew sales 30.4% to over $497.6 million, compared to category growth of 10.6%. Its next largest competitor (besides private label) is Gold Peak, which weighs in at roughly half Milo’s size – around $230.3 million and a 14.58% share – with far slower growth at just 1.3%.

While the brand does offer an unsweetened tea and a zero sugar sweet tea made with sucralose, Milo’s also has a mighty strong sweet tooth. Milo’s flagship Famous Sweet Tea, which is according to Tricia Wallwork the company’s best selling SKU, contains 44 grams of sugar and 180 calories per single-serve 20 oz. bottle (or 26 grams per 12 oz. serving in its gallons-sized multiserve offerings). Its Extra Sweet flavor, meanwhile, ups the ante to a whopping 72 grams and 290 calories per 20 ounces.

However, even with that level of sugar, the products can still match the requirements for clean label: the brand’s front labels call out that the drinks are made with just three ingredients: tea, water, and pure cane sugar.

During a presentation at BevNET Live in June, Wallwork said Milo’s is exploring different types of sweeteners for its portfolio products, but, she said, the brand will go where the consumer leads them.

“We offer no-calorie and low-calorie options everywhere our beverages are and we ask the consumer to decide. And right now the consumer, in the channels where we are, is choosing sugar beverages,” she said. “Ultimately I think it’s the consumer’s decision.”

New Brands Hit the Shelves

Despite the past hurdles innovative tea brands have faced in trying to gain a foothold in the category, some founders see the slow growth as marking even more potential to disrupt than ever. Some are off to a strong start.

With its lightly sweetened (6 grams of sugar from agave per 19.2 oz can) tea line, Liquid Death has already shown velocity sales competitive with the top five tea brands over the course of July, albeit with only a few months on the market, McCoy said. Circana placed the brand’s refrigerated teas at around $5.1 million in dollar sales for the 52-weeks ending June 18.

Ready-to-drink boba tea makers like Joyba and Inotea are also beginning to make headway in the category. According to Circana, Joyba was up 719.5% to over $33.5 million, while Inotea rose 253.5% to $4.8 million.

Jason May, co-founder and CEO of canned tea startup Weird Beverages, said he believes his company’s unique branding and semi-sweet positioning could yet help it to crack the convenience channel. Launched in 2021, Weird produces a line of organic iced teas in 16 oz. cans with sweetness levels ranging from 12 to 23 grams of sugar per serving, as well as a “Weird Yerba” SKU. The brand has been growing its business in the natural channel to start, but May said it is now beginning to enter c-stores with accounts like Jacksons Food Stores.

“Jacksons, I think, is the first real proof of concept that we can take something that’s worthy of specialty grocery with regard to the quality offering, apply the lifestyle positioning to it, and sell it in convenience and make it work,” May said. “So we are now in talks with many top names for national convenience. We will be executing market tests next year and if we continue to see the take-rates like we’re seeing in Jacksons, I believe that that will develop really rapidly for us.”

Not dissimilar to Liquid Death, Weird Tea has taken its brand cues from alternative culture, drawing inspiration from heavy metal music, underground zines and other quote unquote “niche” sources that have proven to be more mainstream than the past conventional branding wisdom has suggested. For May, he said the brand has received strong feedback on its formulations and sugar content, while its colorful brand identity is helping it to stick out on shelf and drive affinity with consumers.

“You have to have a brand that stands out, or else you’re just gonna get lost in the mix, and I think we have that,” May said. “Being an independent brand allows you the ability to take more risks than the large conglomerate companies are going to be willing to take, or are even going to come up with to begin with. I don’t see a brand like Drink Weird in its new incarnation making its way through the R&D Department of Coke or PepsiCo, because it’s just not what they specialize in.”

But just because consumers want sweet teas, doesn’t mean there isn’t room to still make a zero sugar product work. Startup brand Swoon has billed itself as “The Zero Sugar Beverage Company,” producing a variety of teas and lemonades sweetened with monk fruit. By still offering the sweet tea occasion across its portfolio, Swoon is hoping it can likewise use strong, distinctive branding to appeal to mainstream sensibilities. Similarly, another startup brand Ryl has a zero-calorie sweet taste, and a partnership with country star Morgan Wallen.

This year, Swoon partnered with Mattel to promote the Barbie movie, introducing a line of co-branded cans which co-founder Jennifer Ross said has helped introduce the brand to new consumers and open up new field marketing opportunities in stores. While Swoon is still primarily sold in natural and conventional grocery, she said the uptake has been strong as the brand has foregone “diet” branding while still offering the benefits of a full flavor, better-for-you drink.

“It’s a zero sugar iced tea, so it’s not something that people have a hard time wrapping their heads around,” Ross said. “It’s a drink that people know and love and with flavor. So, I think for us, you can kind of put it anywhere.”