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The State
of the
Tea Industry

Joe Simrany, president of The Tea Council of the USA, Inc., discusses tea consumption and current trends in the United States.

Tea consumption in the United States has never been considered traditional by international standards. After all, nearly 80% of all tea consumed in the U.S. is consumed over ice, a habit not experienced by any other country. With the exception of some strong growth trends in the foodservice segment, tea sales in the U.S. have been virtually flat for the last decade. Yet, while the preferred form of drinking tea may be a bit unusual by global standards, the slow growth trend experienced in the U.S. is by no means unique.

Global consumption has shown very modest growth over the last decade, with the exception of 1992 which reflected dramatic decreases in tea consumption by the former USSR. In attempting to analyze the causes of the near global malaise affecting the tea industry, no easy answers rise to the surface. In fact, the situation is complicated by the disruption of normal buying patterns in the former Soviet Socialist Republic, by the war in the Middle East, and by numerous other anomalies occurring in consuming countries.

However, scrutiny of circumstances contributing to the growth trends in tea in the U.S., the U.K., and Canada allows us to reach certain conclusions. Despite the fact that consumption habits in these three countries are very different (i.e., hot vs. iced tea), the market forces affecting the potential for growth appear to be similar. In all cases, it appears that consumers have either discovered or are in the process of discovering alternative beverages to tea. While this has always been a major factor in the U.S., it is becoming increasingly important in the U.K. and Canada where the market for traditional forms of tea is much more developed. As a consequence, tea consumption is much more vulnerable in the U.K. and Canada than in the U.S., and is reflected in the overall decline realized by the two countries compared to the flat market in the US.

The Convenience Factor
One major factor shaping the market for tea in these three countries is the need for convenience. In almost every form, tea has been less convenient to prepare and consume than its competitive options such as coffee, soft drinks, bottled water, flavored water, and fruit juice. This factor is especially true for tea which is consumed away from the home and is considered of paramount importance in the vending segment.

Ready-to-Drink (RTD) tea in bottles, cans, aseptic packaging, plastic containers, and other packaging configurations now bring the ultimate in convenience to consumers. Ease of preparation had never really been viewed as a strong issue for selling of tea and, in a nation which demands convenience, has served to act as a constraint on sales. It was this same demand for convenience which caused the tea industry to introduce the teabag in 1904 and to create instant tea and iced tea mixes in the 1940s and 1950s.

Closely linked to convenience is availability. Ready-to-Drink bottles and cans have made tea more readily available to consumers than ever before, particularly at the point of consumption. Both the convenience and availability factors are totally compatible with basic trends in the workplace - specifically, the erosion of “free time” available to American consumers and the resulting trend towards eating lighter meals “on the run.”

The U.S. has one major advantage over the U.K. and Canada in meeting the threat of competitive beverages and, ironically, it can be found in its “typical” consumption habits, namely iced tea versus hot tea. Because a majority of the tea consumed in the U.S. is iced, there is no intrinsic resistance by the tea industry to perpetuate traditional forms of hot tea usage. In the absence of that resistance, the iced tea industry in the U.S. has done reasonably well, especially in the foodservice arena. It is in the areas of convenience and marketing that iced tea has lost much ground to its competitors - that is, until 1993.

The year 1993 was a pivotal year for the U.S. tea industry. In many respects, it represented one of the most important years since the invention of the tea bag and iced tea itself in 1904. In 1993, many new Ready-to-Drink iced tea products were rolled out nationally and, even more importantly, it became apparent that consumers were readily accepting these products. It was also the year in which significantly increased levels of marketing dollars were devoted to supporting the introduction of the new Ready-to-Drink products and to communicating the more appealing attributes of tea over other beverage options.

The significance of the Ready-to-Drink teas on the overall health of the U.S. tea industry cannot be overemphasized. For the very first time, one of the greatest concerns of U.S. consumers was addressed and eliminated -- namely the relative inconvenience of drinking tea versus soft drinks and other similar beverages. Not only did it make tea consumption more convenient and available for current consumers, but it also introduced tea to a great many new consumers who, prior to the advent of RTD teas, were not part of the target audience.

Expected Growth in RTD Teas
As a result of the development of Ready-to-Drink teas, iced tea has become even more the beverage of choice for a whole generation of Americans. In 1993, Americans consumed approximately 2.0 billion gallons of iced tea, a number that will probably grow exponentially as Ready-to-Drink teas are discovered by an increasing numbers of consumers. Today, as many experts predicted, the sales of the new ready-to-drink teas will top $1.5 billion, in effect doubling the size of the traditional tea market in the U.S. Those same industry experts see the market for these new forms of tea doubling yet again over the next decade.

This fantastic growth is the result of many factors, not the least of which is the marketing effort of the U.S. packers and their soft drink partners. The U.S. tea industry has launched a concerted and aggressive advertising effort, blitzing the country with television commercials. Advertising expenditure, in support of the RTD segment, has exceeded well over $100 million.

The availability of Ready-to-Drink teas is not the only reason why tea has become more popular. The resurgence of tea in the U.S. is also based on some very important market trends. One of the most important is the continuing and increasing health consciousness of American consumers. Tea is perceived to be a healthier beverage choice and part of a healthier lifestyle. This perception is likely to be reinforced as more and more scientific research studies confirm the important role which tea plays in human health.

Perceptions of tea consumption in the U.S. are changing and these changes are likely to affect consumers worldwide. Traditions are changing and tea is becoming less the delicate, occasionally-consumed beverage of the past, and more the staple of tomorrow’s healthy diet. Yes, the introduction of Ready-to-Drink forms of tea, increased marketing efforts, and favorable scientific research have all played an important part in this resurgence. However, in the final analysis, it is the intrinsic qualities of tea -- great taste, versatility, cost effectiveness, and nutrition -- which have played the strongest role in making tea one of the most sought after beverages of the 1990s.

Changes in Distribution
If anyone believes that the tea industry in the U.S. is not undergoing a dramatic period of change, they should take a quick tour of their local supermarket and observe what is happening. Even within this single distribution channel, change is pervasive and apparent.

The most obvious change is that tea may very well now be found in several locations throughout the supermarket, not just in the designated coffee aisle. The most striking of the new locations is the significant amount of space now being devoted to Ready-to-Drink teas in the soft drink section - but this is only the beginning. While traveling around the store, tea may also be found in the dairy department in both bottles and other (non-typical) containers. Further, depending on the size of the supermarket, shoppers may also encounter a refrigerated cabinet dedicated to tea near the deli department. More often than not, they may also spot some form of tea on promotional display or in a vending machine by the check-out counters or just outside the store.

During this supermarket tour, other changes become obvious. Among them is the number of new companies marketing tea in new and unique forms. Traditional packers of black tea now offer herbal blends, and traditional herbal packers now offer new black tea blends. Bottled water and soft drink companies have expanded their product lines to include Ready-to-Drink tea, and new start-up companies are pouring into the marketplace. Green tea, once nearly impossible to find in conventional supermarkets, is becoming much more readily available, and even oolong tea is occasionally found.

Increased Interest in Specialty Teas
Additionally, specialty teas have also found their way into supermarkets in a greater variety than ever before and are available from large packers as well as from smaller regional tea companies. New shapes, sizes, and flavors abound as well as a newfound consumer interest in the tea category.

Venturing outside the supermarket environment, the casual observer continues to be bombarded with changes taking place within the tea industry. Thanks in a large part to the ready-to-drink version of tea, the availability of tea in non-traditional outlets has increased dramatically. Today, tea may be found in warehouse clubs, mass merchandisers, gas marts, drug stores, and convenience stores. The availability of tea has also benefited from large distribution increases in the vending sector and in the foodservice sector.

Even if you’re a confirmed coffee lover, there is no escaping the fact that tea is increasing in popularity. One has only to note the increasing availability of specialty teas in, of all places, the thousands of coffee shops across the country. Even for confirmed coffee lovers, tea has gained new appeal through its Chai product -- a popular blend of tea, spices, and milk.

Obviously all of these changes are viewed positively by most tea industry insiders because they are serving to make tea more readily available and convenient to millions of potential consumers. More importantly, these changes are combining to raise top-of-mind awareness among consumers. As any marketer will tell you, top-of-mind awareness is critical to future growth.

Continued on next page...



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