RTD tea is ready to guzzle a larger beverage market share
Ready-to-drink tea has proven to be more than a passing trend but rather a new staple in beverage choices in the U.S. and across the world. The RTD tea market hit $5.3 billion in U.S. sales and $50 billion in sales globally in 2014, for a growth rate of 3.7% in the U.S.
Some experts predict that the market will continue to grow at a CAGR of better than 6% until 2018. Consider that in 1990, the RTD tea market’s sales in the U.S. were about $200 million, thus growth in this segment has been significant over the last two and a half decades. The Tea Association of the USA estimated that growth to have been more than 15 fold over the last decade in its 2014 Tea Fact Sheet.
According to the Tea Association of the USA, tea is already the second most highly-consumed beverage in the world, after water. The industry has seen a boost in prevalence and availability in other nontraditional retail outlets thanks to ready-to-drink tea, including warehouse clubs, mass merchandisers, gas marts, drug stores, and convenience stores. Ready-to-drink and iced tea mix makes up 52% of all tea prepared in the U.S. as of 2014.
RTD tea and coffee have found a home in North America, their fastest growing region, due in part to increased health concerns, particularly when it comes to sweetened beverages like soda. Other driving factors for these markets include the introduction of functional beverages, rising disposable income, and increasing urbanization.
Then, of course, there’s convenience: From 2011 to 2013, sales for specialty RTD tea and coffee at U.S. retail stores increased 25%. In fact, according to The Tea Association of the USA, the U.S. leads the world in marketing convenient RTD bottled tea.
With all of this growth and promise, it’s no wonder that beverage companies large and small want a piece of the RTD tea market action.
Major beverage companies are ready-to-battle
PepsiCo Inc. and Coca-Cola Co. are two of the best-known players in the RTD tea market, but there is a clear winner in this beverage segment: PepsiCo. PepsiCo currently claims 40% of the RTD tea market, much of which it gained through a partnership with Unilever, which owns Lipton. Coca-Cola, on the other hand, only has a 5.5% share.
In terms of brands, PepsiCo dominates the two companies’ offerings with Pure Leaf, which saw a 49% jump in sales in 2014 and has a larger market share than the combined share of all of Coca-Cola’s iced tea labels, CNBC reported. That’s not to say that Coca-Cola’s RTD tea brands are doing poorly by any means, as earlier this year, both the Fuze Tea and Gold Peak brands joined Coca-Cola’s $1 billion sales club. These RTD tea brands helped Coca-Cola snag a larger global value share in the nonalcoholic RTD beverages category this past quarter, according to Coca-Cola’s latest earnings report.
Where is Dr Pepper Snapple Group in this fight for RTD tea market dominance? Lately, Dr. Pepper Snapple’s non-carbonated beverage segment has seen decreased volumes, but the Snapple brand has stayed strong and even saw some growth over the past couple of years. As of June 2014, Snapple and Diet Snapple held an 8% RTD tea market share, maintaining its position as a premium RTD tea brand.
Along with Coca-Cola brands, Snapple will more than likely be a part of the cold beverage lineup, along with other Dr Pepper Snapple brands, for Keurig Green Mountain’s Keurig Kold when the device launches in the fall, which could also benefit Dr Pepper Snapple’s sales in the RTD tea category. Snapple K-Cups are already available for the current Keurig brewing system.
What is clear for all of these companies is that RTD tea represents a new market that they can buy into as soda sales continue to decrease, which they have for the past decade.
Matcha and other RTD tea innovations
Matcha, one of the latest consumer trends in RTD tea, is a powder ground from raw green leaves called tencha and is made into a nutrient-packed form of green tea.
According to the Associated Press,In Kyoto prefecture, where much of matcha is made, the number of ground tencha leaves more than doubled from 2003, when the area produced 564 tons, to 2013, when it produced 1,163 tons. Advanced technology enables farmers to mass produce matcha, as the tencha leaves once had to be picked by hand. DoMatcha, a producer that sells its matcha at Whole Foods and U.S. specialty stores, reported a 30% increase in U.S. sales, and Ippodo, another matcha producer, saw growth of 20% to 25% in the U.S. in recent years.
Starting in March, six Whole Foods Market regions began carrying the RTD tea industry’s first full line of organic, non-GMO, cold-brewed, High Pressure Processed matcha green tea, created by Jade Monk Beverage Company Inc. With about 137 times the amount of antioxidants in traditional green tea, Japanese matcha tea has been around for centuries, but the drink is becoming more popular in health food crowds as of late.
Other RTD tea innovations also provide parents with an alternative to serving their kids drinks high in sugar content, such as soda and some fruit juices. Instead, they are finding new healthier options, including RTD tea. One option, Little Me Tea, is a tea, fruit, and vegetables juice box that only generates sweetness from fruits and vegetables rather than using added sugar. As a result, Little Me Tea has only 6 grams of sugar per juice box, which is a 30% lower sugar content than its lowest sugar competitor. The drink is catching on, judging by its maker, Big Time Tea, which saw 60% sales growth from 2013 to 2014.
RTD tea is on the rise in the U.S. and across the world, and it is providing new options not just for health-conscious consumers but for small and major beverage companies. This could be a permanent shift in consumers’ beverage preferences, so companies, particularly those who produce soft drinks, may want to rethink their strategies and refocus some of their efforts on their RTD tea portfolios.