March 2013 US$39.00
special report Tea: Rediscovering an Ancient Beverage in the 21st Century As soda and energy drinks come under fire in the United States, specialty tea is poised to capture major market share, whether high-end organic loose leaf, ready-to-drink or the classic tea bag. Formulation-friendly with inherent health-boosting characteristics, tea is a classic beverage on the verge of atypical growth. by Brian R. Keating Tea: Rediscovering an Ancient Beverage in the 21st Century by Brian R. Keating
fter 25 years of analyzing and reporting on the global tea industry, our team of beverage analysts can say with total confidence: 2013 is A going to be the year of “all things tea”—especially in North America. Specialty tea offerings are booming as a thirsty planet fully embraces the second most-popular beverage after water and the closest thing to a legitimate health panacea ever discovered. The current full-steam expansion for an eager tea industry—including retail products, foodservice offerings and even multi-unit retail outlets—is nothing short of staggering. In broad terms, specialty teas are the higher-end offerings made from longer leafs, organic teas and naturally flavored vs. conventional recipes and old-school black tea in a simple tea bag or can. The multi-decade germination and emergence of tea in North America has almost perfectly paralleled the patterns exhibited by the North American natural foods industry, which simmered with “what if” possibilities in the 1960s and ’70s and finally exploded in the 1980s. The rest is history still in the making. With the natural Savvy business market products sector expanding from a few hundred million to tens of analysts forecast billions of dollars in annual sales, and many natural foods brands now owned by mass-market conglomerates, it’s time to brew a cup the entire U.S. tea of tea and grasp the reality of the staggering events underway. The marketplace will double Wild West, ‘gold rush’ business mentality swirling around this industry currently revolves around a universally consumed, but in value by 2016. previously underperforming beverage, tea. Sales of tea of all types and channels in the United States circa 1990 were about a billion dollars annually. A neat and tidy quantification of the tea industry’s size today is simply impossible as some foodservice and other channels and product formats are not tracked efficiently or even reported (Wal-mart, Whole Foods and others). Estimates run from $5 billion in current total annual retail sales (all product types and distribution channels in the United States) to more than $20 billion. Perhaps more significantly, savvy business market analysts such as Mintel (mintel.com) forecast the entire U.S. tea marketplace will double in value by 2016. Multiple independent market intelligence data suppliers—Mintel, Packaged Facts, Canadean and others— state similar growth forecasts and overall potential of the tea industry.
Beverage Insights • Tea: Rediscovering an Ancient Beverage in the 21st Century 2 beverageinsights.com Year-over-year compounded growth is one of the more important signs of a healthy industry. Specialty tea has enjoyed a 15-year growth run, estimated at an average of 10 percent per year (in all product formats and distribution channels, compound annual averages). Specialty tea not only survived the economic downturns of the last few years, but maintained its solid growth and expansion profile during this period. This is Warren Buffet-style stability and long-term viability from a commodity category that has premium value add-ons, suggesting something even grander.
Tea Merger Mania Unleashes in North America – 2012 The year 2012 marked the first big breakout phase for the Specialty tea not North American specialty tea industry. Capital started to flow into this category in a big way for the first time and the only thing only survived the slowing down the merger and acquisition (M&A) mania is a economic downturns short-term lack of mature tea brands. Many established brands are of the last few years, still a little shy on annual revenues, even as most show excellent signs of profitability and unique positioning for future growth. but maintained its • Giant food and beverage powerhouse Sara Lee acquired solid growth and upscale Tea Forte. With sales of a mere $12 million or expansion profile so, this is an example of the “desperation” of big brands eager to hop on a steaming tea business train. during this period.
• On the “snap up a deal in 7 minutes” program “Shark Tank” (ABC TV), the micro-size Talbott Teas was acquired by some of the show’s savvy business dealmakers and flipped almost immediately to national chain Jamba Juice. The new marriage appears to be working.
• The European botanical conglomerate Martin Bauer snapped up Georgia-based Beverage House, a manufacturer of liquid tea concentrates, for an unknown sum.
• North American Coffee & Tea, possibly the biggest tea co-packer in North America, was acquired by the much larger Associated Brands.
• Canada’s breakout tea retail chain, David’s Tea, raised private equity capital for expansion into the United States; and U.S.-based Teavana (America’s first publicly traded specialty tea venture), acquired Canada’s Teaopia tea chain and was in turn acquired by Starbucks.
• Harney & Sons Fine Teas, Stash Tea and Tazo all launched new retail tea outlets.
Beverage Insights • Tea: Rediscovering an Ancient Beverage in the 21st Century 3 beverageinsights.com • Coca-Cola finished its rollup of Honest Tea organic RTDs (ready to drink) in a move that seemed to satisfy all parties, including the founder’s team, the soda behemoth and consumers.
• World Tea Expo—America’s premier tea trade event, held every June in Las Vegas—was acquired by a large media conglomerate in a play that is guaranteed to strengthen the one-stop-venue for global specialty tea enterprise.
Meanwhile, the steady moneymakers include a complex network of accessories sellers, small-time operators (cafes, bars, salons) and reliable wholesalers. The “gold” here is to be found within the chains and brands that are increasingly being acquired Exuberant activity can be after years of patient maturation. Dealmakers remain surprised— seen in most packaging after years of ignoring specialty tea—that there are so few prospects for them to court, as they typically define their targets formats and tea types: as businesses with annual sales of more than a few million mass market, natural dollars. Yet, key capital sources are lowering their benchmarks as they discover solid bottom-line profits and untapped growth channel, retail and, soon, potential within even very small tea ventures. At the base of this greater interest in organic momentum: millions of consumers who are now very receptive to alternatives to mainstream soda and energy drinks. teas and RTD cold teas.
The North American Specialty Tea Marketplace Is... A hotbed of creativity. New products and tea chains are sprouting up everywhere, creating solid annual growth and profits. Reflect upon the middle- tier years of both the natural foods and specialty coffee industry, and you have a pretty clear snapshot of what will be happening in the full-boil gyrations of the North American tea industry between 2013 and 2020. Vibrant at virtually every level of distribution. Exuberant activity can be seen in most packaging formats and tea types: mass market, natural channel, retail and, soon, greater interest in organic teas and RTD cold teas. An emerging industry ripe for investment, expansion and development. There is more capital available than there are deals—frustrating some investors—inside the usual sweet spot of $50M in annual sales. This standard target is now being lowered by the mavens of M&A, and hundreds of young companies are a mere one to three years away from becoming splendid candidates for this kind of takeover. Impacting citizen health and well-being in a very positive way. The annualized dollars saved on improved health, disease prevention and lifestyle improvements (more energy, clarity of mind, fewer minor health conditions
Beverage Insights • Tea: Rediscovering an Ancient Beverage in the 21st Century 4 beverageinsights.com such as flu, sore throats, etc.) is incalculable. When people consume tea on a regular basis, health outcomes are often improved. There are dozens of health conditions that tea prevents, eradicates or minimizes. At a time when obesity, cancer, heart disease and other maladies are still rampant, the simple addition of tea to the daily regimen is affordable—and compliance pleasant and easily maintained. The tens of billions of cups of tea consumed each year impact human health positively and more economically than any beverage outside of plain water. Tangibly benefiting producing countries. Tea-producing countries have struggled to boost output and revenue, especially in the face of global climate warming, but production is on the rise. The increase in popularity of specialty tea—in North America and internationally—is slowly raising demands for better-quality teas and helping bring grower prices into line with other commodities that have transitioned from core-crop to value-added raw material. The financial benefits will drive this up-production trend even further. Boosting the economy. The positive boost to the North American economy from the thousands of new tea ventures sprouting through the last decade or so has increasing significance. There is no practical way to estimate how the new job creation, revenues and enriched tax coffers are helping to drive the economy, but with this multibillion dollar industry in an The tens of billions expansion mode, the consequences are positive. of cups of tea consumed each year Tea Beverage Industry Success Factors Tea & Health. The tea-health connection remains one of the impact human health primary catalysts in getting consumers “hooked on tea.” positively and more Consumption of tea promotes healthy well-being; may prevent multiple diseases; and is generally free from ingredient negatives, economically than e.g. sugar, acids and artificial ingredients (both real and perceived). any beverage outside This is the bull’s-eye time for tea beverages to set forth their consumer brand mantras as a rallying cry against the soda of plain water. industry, a lumbering giant that is taking its time making its products healthier. Making It Fun. The specialty tea industry continues to put forth a dazzling stream of creative, innovative teas and brewing accessories. While the ancient roots of tea culture reside unchanged in the rest of the world, specialty tea in the New World has become an outrageous, colorful and diverse collection of styles, forms and shapes in its retail and branded
Beverage Insights • Tea: Rediscovering an Ancient Beverage in the 21st Century 5 beverageinsights.com products. From traditional to noveau contemporary—hipster, beatnik, Asian, millennial—the new tea landscape is morphing into a powerful life- and business-fabric full of diverse demographics, psychographics and products catering to a broad spectrum of consumers. The new tea Flavor “Wow.” With the exception of wine, what other beverage literally has roots in dozens of countries and thousands landscape is morphing of finished sensory profiles—flavor, color, aroma, mouthfeel and into a powerful more—based on terroir, varietal, processing and brewing methods? The tea industry is characterized with a massive diversity life- and business- of product offerings and brands, but its product profiles among fabric full of diverse competitors are more similar than divergent, and tradition reigns, demographics, with most companies rarely testing new concepts or risking a failure. Even worse are brands positioned as premium that are psychographics and low-grade, or RTD tea drinks burdened with loads of organic cane products catering sugar and worse. Tea beverages will become the single-biggest beverage category in North America in their next phase, satisfying to a broad spectrum incredibly complex market niche requirements of aging baby of consumers. boomers, the tech-savvy millennials and everyone in between.
2009-2011 U.S. Imports of Black, Green Tea U.S. Black Tea Imports, 2009-2011 Figures in thousands of kilograms Country 2009 2010 2011 % Change Argentina 39,608.7 48,057.7 49,760.8 25.63% China 12,915.8 11,705.1 12,784.6 -1.02% India 9,789.2 11,420.0 11,957.7 22.15% Indonesia 6,798.2 6,308.0 5,660.0 -16.74% Germany* 4,782.1 4,935.2 5,606.8 17.25% Other 16,545.1 17,395.8 22,310.4 34.85% Countries Total 90,439.1 99,821.8 108,080.3 19.51%
*Represents all component countries Source: teareport.com [Data source: The Tea Association of the USA]
Beverage Insights • Tea: Rediscovering an Ancient Beverage in the 21st Century 6 beverageinsights.com U.S. Green Tea Imports, 2009-2011 Figures in thousands of kilograms Country 2009 2010 2011 % Change China 8,546.2 15,409.7 13,570.0 58.78% Japan 1,416.1 1,391.9 1,419.0 0.20% Germany* 1,163.6 1,227.6 699.1 -40.12% India 604.3 688.8 606.5 0.36% Sri Lanka 440.5 438.2 355.7 -19.26% Other 5,073.4 5,022.7 2,780.4 -45.20% Countries Total 17,248.1 24,178.9 19,430.7 12.65%
*Represents all component countries Source: teareport.com [Data source: The Tea Association of the USA]
Three Tea Industry Ultra-Hot Spots in 2013 The specialty tea beverage marketplace is rife with opportunities; however, in the coming year, these are the ones to keep an eye on: The Real RTD Tea Deal. RTD tea beverages taste like tea when they’re made from plenty of real tea, a development not yet happening on a wide scale. The same trend in authenticity applies to sweeteners, when added. Label copy must broadcast exactly what’s going on inside the bottle, especially when the finished liquids have no- or low-calorie counts and contain ingredients—caffeine, antioxidant and other components—consumers want input about. Real tea is transparent; RTD tea labels must be as well. 21st Century Packaging Solutions. Beyond recycling and the use of green materials to package bottled and canned teas, even smarter solutions are begging for action. Whether at stores or kiosks, refillable RTD units (a model already established with kombucha “growlers”), concentrated liquids to reduce total unit packaging, and more brew-at home tea solutions will garner serious attention. Put Tea Center Stage. Product developers relentlessly scramble for the next breakthrough, gimmick or innovation to make their RTDs rise and shine. Tea delivers more value per gram than any other ingredient in the developer’s cabinet of ingredient options. Diverse antioxidant content, antimicrobial properties, thousands of credible research studies backing health supportive properties, exceptional organoleptic (sensory) options and solid economical
Beverage Insights • Tea: Rediscovering an Ancient Beverage in the 21st Century 7 beverageinsights.com value per serving … does it get any better? The only “crime” besides not exploring tea as an ingredient in all forms of beverages would be a return to the high sugar contents that have dealt a major blow to the soda empire. Tea is a formulator’s friend and a consumer’s beverage panacea. The product already has a dream-load of healthy treasures; it’s time to let consumers know.
Brian R. Keating is founder of Seattle-based Sage Group® (teareport.com), a specialty tea think tank, publisher and natural products consultancy. For more than 30 years, Sage Group has assisted natural products ventures, with an emphasis on tea beverage businesses—in the realm of creative, strategic and technical support. Sage Group has in-depth experience within the retail, wholesale, mail order and supply-side (raw materials) levels of the tea, spice, nutraceutical and food industries. The Sage Group teams have published nine specialty tea industry reports since 1993, and created dozens of consumer products, including more than 200 tea-based beverages. Keating was the first tea blend-master and tea-buyer for the world’s largest natural foods retailer, Whole Foods Market. He has been a top-rated speaker at the annual World Tea Expo, and his insights have been showcased in tea business articles worldwide, including Newsweek, The Economist and Nutrition Business Journal. He owned one of North America’s premier tea shops and cafés for many years, and pioneered numerous retail and foodservice merchandising, marketing and training methodologies. Reach him at [email protected].
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