Despite softer sales and growing competition, RTD tea remains dominant in the US
Image: Pixabay/Jaroas/Miguel Barrera
The North American Tea Conference (NATC) took place last month (6-8 October) and ready-to-drink (RTD) was a primary topic of conversation — aside of course, from the continuing global challenge of the over-production and under-consumption of tea and skyrocketing CPG (consumer packaged goods) prices. It’s no surprise that RTD was a key topic of conversation as the tea category in the United States is still dominated by two formats: tea bags and RTD tea.
Jordan Moore, director, emerging beverages at market research firm, NIQ Consumer & Category Outlook, noted that, although inflation may be decelerating, prices are still trending higher. In fact, CPG inflation has been well above the general inflation average in the US. “Consumers are feeling the pinch, with buying power significantly eroded,” she said, adding that consumers are spending 33% more at the grocery in the past 3+ years.
Any growth is largely inflationary as dollar growth is slowing, and shipments are down, but costs are higher. Tea volumes have been affected by the double-digit price increases. “RTD tea is still outperforming packaged tea, both black and green, with green experiencing the largest drop,” said Moore.
Gary Hemphill, managing director of research at the Beverage Marketing Group, echoed Moore’s comments, explaining that after the pandemic, consumer confidence dropped sharply. “US beverage market growth has been soft in 2022 and 2023 after a pandemic-induced performance rebound in 2021. Revenues have generally outpaced volume growth — a trend that has accelerated since 2021 due mostly to high inflation.”
Refreshment beverages have outperformed the overall beverage market, but volume performance has been soft the last two years, with most refreshment beverage categories experiencing slower growth in 2023. Hemphill said that the total tea category has been soft in recent years as the overall category has experienced modest declines. RTD tea returned to volume losses in 2022 and 2023, after pandemic recovery-based growth in 2021, but he shared, “the category remains well-positioned from a health and wellness perspective.”
It’s not ‘new’ news to say that health and wellness are key market drivers. Hence, beverage categories with health wellness attributes are outperforming those without. “People want healthier refreshment; caloric intake from refreshment beverages has been steadily declining over the last decade,” Hemphill commented, noting that “the diet segment of RTD tea is one of the best developed in all liquid refreshment beverage categories because it also includes unsweetened product.”
As consumers migrate to healthier options, they want more variety, and RTD tea offers that. The bulk of the RTD tea category is comprised of mainstream brands – PepsiCo/Lipton, Arizona and Coca-Cola are the leaders in the RTD tea category with the three combined accounting for more than half of the RTD category – however, both premium and specialty tea have made slight share gains in recent years, as more innovation is coming at the high end of the market.
“Innovations have played a key role in RTD tea, although much of the recent innovation has been in tea-adjacent categories,” Hemphill explained. “Much of the growth of RTD tea has been hived off into separate categories such as kombucha and mate/guayusa, but there are also other attempts at innovation such as cold brew and even herbal tea-based wellness soda.”
He noted that increasingly, there is an overlapping of alcohol and no-alcohol categories. “RTD tea is no exception, providing the foundation for alternative adult beverages such as hard teas and cannabis-infused tea drinks.”
Hemphill stressed that competition in refreshment beverages is fierce with innovation coming from within categories along with new categories emerging.
Beverage-wise, consumers have more than ever to choose from, so for RTD tea to successfully compete, brands must remain innovative and continue to meet consumers’ changing demands and needs.
- Vanessa L Facenda, editor, Tea & Coffee Trade Journal.
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