Category Focus: Healthy preferences boost tea sales
Value propositions in the ready-to-drink arena and a reputation for health benefits buoyed the tea category through the early part of the recession and ultimately helped tea brew a bigger year in 2009, analysts say.
“I think at the beginning of the recession there was some concern around tea and coffee a little bit, but recently I’ve seen those numbers have a little bit of an uptick,” says Meg Finn, director and consumer strategist for food and beverage at Iconoculture Inc., a market research firm based in Minneapolis. “Certainly, I think there are some success stories in the ready-to-drink arena.”
Ready-to-drink tea grew by nearly 6 percent in food, drug and mass merchandise retailers, excluding Wal-Mart, for the 52 weeks ending April 18, according to SymphonyIRI Group, Chicago.
Value-priced RTD teas produced strong growth in 2009. Private label RTD tea sales grew by 53.5 percent, though it holds only 3 percent market share, according to SymphonyIRI data. In addition, Arizona Iced Tea, which accounts for more than 26 percent of the ready-to-drink market, grew by 5.2 percent to more than $320 million. Since 1996, Arizona has priced some of its most popular teas at 99 cents for a 24-ounce can.
“Arizona in particular is a good one to look at because I think it’s evident by looking at that brand that we did see some consumers trade down and go to something like Arizona that might have fit into their pocketbook a little easier,” Finn says.
Recognizing that cash-strapped consumers are looking for value, Sweet Leaf Tea has lowered its premium target over value-priced brands, says Dan Costello, chief executive officer of Sweet Leaf Tea Co., an Austin, Texas-based tea company that specializes in RTD organic teas. In early 2009, a single-serve bottle of Sweet Leaf Tea carried a 70 percent premium over value-priced brands, but the company now targets about 20 to 25 percent.
“That gap was way too large,” he says. “It’s more affordable, yet still a premium. … We’re bringing organic more mainstream.”
The organic market is capitalizing on tea’s reputation for health benefits, particularly in hot tea. Tea is rich in antioxidants, and whole leaf organic hot tea has gained a foothold in the market thanks to the rise of health-conscious consumers.
Loose-leaf and tea bag sales increased by 4.4 percent in food, drug and mass merchandise retailers, excluding Wal-Mart, for the year ending April 18, SymponyIRI data show. Although sales of Lipton hot tea, which has the largest share of market at 22.3 percent, slipped by 1 percent, several smaller brands saw growth around 7 percent. Starbucks’ Tazo was the largest gainer among the top 10 hot tea brands during the time period as it grew by 18.6 percent, according to SymphonyIRI.
Among hot teas, consumers increasingly have turned to premium white teas because of their flavor profiles and health qualities, says Richard Haffner, head of beverage research at Euromonitor International, Chicago.
“It’s being driven by health and wellness concerns,” he says. “Teas have antioxidant properties, and people are beginning to realize that. That’s supporting the growth of teas, particularly the more expensive teas.”
Tea’s reputation for health benefits stems from the antioxidants that are naturally present in the beverage, but the organic movement and formulations with superfruits have bolstered the category’s health and functional claims.
“I think what’s been happening, when I think about functionality overall, is that idea of your beverage being able to do a little bit more for you has mainstreamed,” Iconoculture’s Finn says. “It takes away from the fear and uncertainty when it’s something that’s already naturally there.”
Tea companies are highlighting tea’s natural health properties, such as the presence of antioxidants and L-theanine, a natural amino acid that has mental focus benefits, in marketing efforts to appeal to general consumers and the baby boomer demographic, Finn says.
For example, Lipton has a website, lipton.com.au/ltheanine, devoted to educating the public about the benefits of L-theanine. According to Lipton’s website, 50 mg. of L-theanine can naturally stimulate the alpha brain waves associated with a relaxed and alert mental state, and a cup of Lipton tea contains between 14 mg. and 18 mg. of L-theanine.
In addition to the natural health properties of tea, a trend toward combining teas with other flavors, particularly superfruits, and herbs has emerged, Finn says.
“A lot of the product innovations are along health and wellness lines, where teas are being combined with superfruits and to help distinguish products that are coming out,” Euromonitor’s Haffner says.
Earlier this year, Bigelow Tea, Fairfield, Conn., released its Herb Plus line of hot tea, which includes Wild Blueberry & Acai and Pomegranate Blueberry varieties. Each product in the Herb Plus line highlights a specific health benefit of the product, such as the antioxidants present in the Wild Blueberry & Acai variety and omega-3 fatty acids in Pomegranate Blueberry.
“I think what you’re seeing is a continued movement toward putting healthier products in your body and we’re reaping the benefit of that,” says Cindi Bigelow, president of Bigelow Tea.
Adding superfruits to tea is a “double whammy” for consumers, Finn says, because they perceive that both the fruit and tea are healthy and can feel good about drinking the beverage. For example, Arizona expanded its superfruits offerings with the release of its Arnold Palmer Lite Pomegranate Half & Half Iced Tea Beverage in 20-ounce bottles.
Honest Tea, Bethesda, Md., introduced its RTD Maqui Berry Mate variety earlier this year at Natural Products Expo West. Maqui berry comes from the Patagonia region of South America and is rich in antioxidants, receiving a 945 rating on the Oxygen Radical Absorbance Capacity scale, the company says.
“The mindset of consumers being very health-conscious continues to grow,” says Eric Skae, founder and chief executive officer of New Leaf Brands, Old Tappan, N.J. “The benefits of tea and antioxidants support this expanding attitude or perspective about tea and also help the RTD iced tea category to grow. Overall, the health-conscious trend has helped the tea industry tremendously.”
New Leaf Brands, Old Tappan, N.J., released a line of lemonades that includes The Tiger, an iced tea-lemonade hybrid flavor.
Growing organic, staying sweet
Honest Tea is one of a growing number of companies to sweeten with cane sugar and to be certified organic, a movement that benefits from tea drinkers’ desire to consume healthier beverages.
Like many other beverage companies, some tea companies have moved to natural sweeteners. For example, Snapple, the third largest RTD tea brand, reformulated some of its teas with cane sugar last year. Tazo, Portland, Ore., recently released its Tazo Zero Calorie Naturally Sweetened Bottled Iced Tea, a RTD line sweetened with stevia and erythritol.
New Leaf Brands uses organic cane sugar in its RTD regular line of teas. “Our belief is that if you compromise on ingredients, you compromise on taste,” New Leaf’s Skae says.
Since its inception in 1998, Sweet Leaf Tea has sweetened with cane sugar, and the company prides itself on its organic certification, Costello says. Organic products tend to be more expensive, but Costello says that Sweet Leaf has found a way to appeal to consumers while still selling at a premium.
“It was a tough year for organics just because of the economy. … Consumers really do value organic-certified products and they’re not willing to trade off of those,” Costello says. “We believe that there would be even more if some of the organic products weren’t so high priced.”
Costello says that Sweet Leaf has begun appealing to the general consumer by not specifically targeting the natural sets in stores as it gains distribution. Sweet Leaf has seen significant growth in distribution as a result of a $15.6 million investment by Nestlé Waters North America. The company, which vowed to have distribution nationwide within two years of the March 2009 investment, also purchased Cincinnati-based Tradewinds Beverage Co. in April.
The purchase of Tradewinds would more than double Sweet Leaf’s sales of RTD teas, according to SymphonyIRI data. Sweet Leaf saw sales of RTD teas jump 28.4 percent to $6.8 million in food, drug and mass merchandise retailers, excluding Wal-Mart, for the year ending April 18, the data show. Much of the next year will be spent integrating Tradewinds into the Sweet Leaf Tea Co. and implementing the company’s channel and package strategies, Costello says. The company’s channel strategy now focuses on continuing to move from the natural channels, such as Whole Foods Markets, to more mainstream markets.
“We’re not going to be trying to chase a lot of small emerging short-term trends. We’re going to stay on our path and focused on bringing two brands in the marketplace effectively and efficiently,” he says.
Much like the organic movement spurred consumers to make more health-conscious decisions, an increasing sense of responsibility to the environment and the potential for some profit is sparking packaging innovation among tea companies.
“There are packaging innovations coming onto the market that are speaking to the environmental concerns people have – going to recyclable packaging as well as pulling material out of the package,” Euromonitor’s Haffner says.
Last year, Twinings Tea, London, began distributing its hot tea line in biodegradable tea bags made from NatureFlex material by Innovia, Melbourne, Australia, Iconoculture’s Finn says. The NatureFlex films are made from wood pulp from managed plantations and use heatseal resins. They also can be composted at home.
Earlier this year, the Coca-Cola Co.’s Gold Peak Tea launched its line of Gold Peak Chilled Tea in 59-ounce carafes in Sweetened, Unsweetened, Diet and Lemon varieties. The company also replaced its single-serve glass bottles with 18.5-ounce plastic bottles.
To move into the vending channel, Sweet Leaf Tea now offers aluminum cans. The company has distributed cans for about six months, primarily in convenience stores. Sweet Leaf also is being distributed in Nestlé Waters vending machines.
Revolution Tea, Phoenix, Ariz., released its 3D line of premium RTD white tea mixed with superfruits in 12-ounce aluminum cans as well.
Also in the premium tea arena is Republic of Tea, Novato, Calif., which released its Iced Tea on Tap line. The Iced Tea on Tap comes in three varieties infused with herbs and superfruits and is packaged in a 96-ounce box with a tap attached.
“They’re really comparable to a Margarita in a Box that we’ve seen in the adult beverage world,” Finn says. “…To see it coming from a slightly premium brand, that might be a little more acceptable to leave out for your guests to help themselves is a little bit of a newer thing.” BI
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