There is ongoing inter-industry debate as to the precise definition of specialty tea as opposed to conventional tea. General consensus defines specialty teas as brewed beverages made from teas and sometimes herbal teas—whether sold in cans, tea bags, loose, etc.—that are value-added through inclusion of longer tea leaf grades, natural flavorings or other product quality enhancements. Leading U.S. specialty tea brands include Celestial Seasonings®, Honest Tea®, Tazo®, The Republic of Tea®, Traditional Medicinals®, Stash Tea® and a couple hundred smaller brands and companies. While herbal teas are not made from the same botanical (Camellia sinensis) as black, oolong and green teas, through continual usage and to the chagrin of tea promoters (Camellia sinensis producers), herbal teas are now referred to and generally classified as “specialty teas.”
Specialty Tea. This category of teas includes value-added, higher quality teas. Commonly they are grown, harvested and processed on tea estates using orthodox (plucked by hand and not machines) methods. The term “specialty tea” is now used universally to describe more exotic, flavored, un-flavored tea-based beverages and styles. Within the U.S., specialty tea is often used interchangeably with “premium tea” when referring to higher value consumer product offerings.
Conventional Teas. Conventional teas derived from Camellia sinensis (the common tea plant) include bagged, instant and loose teas made from lower quality tea dust, fannings (very small tea leaf particles used in most conventional tea bags) and BOP (Broken Orange Pekoe describes a small, uniform particle size tea leaf cut utilized to formulate Irish, English Breakfast, etc., style tea blends) black or green tea styles.
Herb Teas. These types of teas include single or blended beverage brews made by infusing leaves, fruits, barks, roots or flowers of almost any edible non-tea botanical. They are also referred to as “herb tea” in spite of the fact that they do not contain any Camellia sinensis. In Europe they are often referred to as ‘herbal tisane.’
Functional Tea. This group includes any type of tea, herb tea or combination of teas, formulated or specially fortified, to produce specific physiological or psychological benefits beyond the inherent benefits afforded by a single ingredient. They can be categorized as diet, athletic, medicinal, longevity and weight loss formulations.
U.S. Tea Market Landscape & Drivers
The U.S. marketplace for specialty tea is emerging steadily, but not in an easily definable manner. Market analysts preferring easily quantified industries are faced with a myriad of frustrating problems, starting with imprecise category definitions and continuing on to a curious lack of statistical data for food service channels selling teas. What is worthy of keen note is the continuing barrage of ready-to-drink (RTD), tea bagged and loose tea products hitting natural food and gourmet stores, restaurant tables and an estimated 1500 tea-focused retail outlets (cafés and stores). Specialty tea is seeping through a surprising number of packaging formats and distribution channels and enlivening a receptive American consumer base.
Historical examination of comparable “natural” consumer products industries shows the emerging specialty tea segment exhibiting many of the same characteristics that existed within natural food and specialty coffee channels as they climbed from niche to mainstream markets. More obvious comparisons include the predominance of small, entrepreneurial companies opening up the category, larger players playing it ultra-cautious as they test ‘niche’ markets and the media’s huge appetite for positive tea stories.
Less obvious is the active interest, but still sluggish acquisition activity aimed at specialty tea companies to date. The two notable exceptions include Irish-based Kerry Foods snapping up Oregon Chai earlier this year for a very healthy multiple and the Starbucks acquisition of Tazo Tea in 1999. Also similar to the once germinal natural foods and specialty coffee industries, analysts remain skeptical as to whether or not specialty tea is a glorified niche market or a long-term horizontal opportunity capable of maturation into full-scale merger and acquisitions, public offerings and venture capital injections. Double-digit market growth over the last two years, shifting American demographic factors and the endless positive media coverage extolling the health virtues of tea suggests specialty tea is far beyond the fad stage and poised for continuing growth.
The rise in American consumption of specialty tea from 1990-2004 represents more than the evolution of a new beverage segment, but rather the birth of a loyal tea-consuming community (demographic consumer segment), thriving on a complex fusion of diverse global cultures and flavor preferences. The new American tea culture places high value on stress reduction (perhaps partially attributable to the relaxing properties of L-Theanine—a natural amino compound occurring in tea), product purity (Fair Trade and certified organic tea is thriving in the U.S.) and exotic brewing accessories (the after-market for tea accoutrements is substantial compared to espresso-based drinks).
Until the boom in RTD teas (circa 1990-95) made tea drinking simultaneously easy (nothing to steep or prepare), hip (colorful packaging, zany copy and chic packaging) and healthy (a no/low calorie, antioxidant-rich alternative to soda pop), tea sales in America were sleepy at best. Annual retail sales had not reached $1 billion prior to 1990 and tea producers were simply uninspired. Snapple, Arizona Iced Tea and a handful of other specialty RTD teas catapulted the entire specialty tea category into double-digit growth while whetting appetites on Wall Street.
Increasing interest from America’s 76 million baby boomers just beginning to embrace tea as a health-promoting product for the entire family is laying a solid base for specialty tea. This exceptionally health-conscious demographic is starting to explore specialty tea culture through brewed tea beverages, tea-based skincare products and neighborhood cafés offering exotic teas. The consumer product dollars available for specialty tea purchases within the U.S. over the next decade will be significant. This stellar consumer interest in tea is being driven by scientific findings linking tea consumption and improved health and a seemingly endless wave of favorable media coverage. Novel flavors and convenient packaging may be securing American consumers attracted to specialty tea, but news of the health promoting benefits afforded by regular tea consumption is the number one market driver. Researchers at The Natural Marketing Institute (NMI), Harleysville, PA, have released survey data indicating heavy frequency consumers of herbal and hot teas spend more on healthy and natural products than the general population or coffee drinkers. This is yet another indication of the emerging demographic pursuing specialty tea within the nation’s hottest spot for specialty tea sales—natural foods retail outlets.
U.S. Tea Market: Summarized Quantification
The total number of specialty tea products and annual volume and value levels within the U.S. have reached record levels. In fact, 2003 sales levels of specialty tea sold in the U.S. reached nearly $1.1 billion, representing an increase of 15% over total retail volume sold in 2002. Total sales of all types of tea—conventional and specialty—products sold in the U.S. topped $5.1 billion in 2003 with virtually all of the volume and value growth being derived from value-added, specialty teas. The 5th Edition of the “Tea is ‘Hot’ Report,” which is published annually by Sage Group International, Seattle, WA, forecasts tea sales will reach $10 billion by 2010. This conclusion is based largely on the projected demands of American “baby boomers”, who are increasingly embracing specialty tea as their primary daily beverage.
In 1990, annual sales of all specialty and conventional tea in the U.S. totaled less than $1 billion. For much of the last five years tea-based beverage products made from and packaged as “conventional tea” have been experiencing flat or declining sales in the face of mounting “cannibalization” of the category from “new age” drinks (sparkling waters, juices, etc., which are fortified with nutraceuticals) specialty coffee and soda pop, while most specialty tea categories are experiencing double-digit growth, primarily in U.S. natural foods supermarkets.
Annual sales growth of 15% or even higher has been common for many specialty tea lines between 2000 and 2004, especially those offering certified organic, chai, green and functional tea beverages. Additionally, specialty tea entrepreneurs are launching hundreds of new tea beverages, non-beverage tea products, a tea business trade show (www.takeme2tea.com) and multi-unit, tea-focused retail outlets. Sales of RTD teas in bottles and cans and brewed iced teas still constitute a majority of retail and foodservice tea sales, which reached $3.3 billion in 2003.
Product and marketing intelligence data complied by Mintel International Group Ltd., Chicago, IL, using its Global New Products Database (GNPD), show the U.S. as the leading country for new product launches and line extensions (products with tea as an ingredient) from the period of 2000-2003. At over 1600 products containing tea tracked during this time period, the U.S. outpaces 19 other countries when it comes to the prolific marketing of products containing tea. Only Japan is remotely close to the numbers and variety of product launches sold within the U.S. using tea as an ingredient over the last few years.
A hyper-saturated coffee market has helped create the resurgent interest in tea for Japanese consumers, and over the last three years, Japan with a substantially smaller population than the U.S., has nearly equaled it in terms of the total number of products launched with tea as an ingredient. This is one of the reasons tea producers in India, China and Sri Lanka have targeted the U.S. and Japan for their renewed marketing efforts to counter supply gluts and sluggish prices being fetched in many traditional markets such as the Middle East, former Soviet Union and parts of Europe.
Tea is now used as ingredient in more non-beverage consumer products than it is in tea beverages, according to the Mintel GNPD analysis of the top 20 countries monitored for new product launches (in which tea is an ingredient). This clearly suggests the powerful universality and acceptance of tea at both the trade and consumer levels. Tea in all of its myriad forms is hot and going to get even hotter over the next few years.
New Specialty Tea Products & Technology
The sheer diversity of consumer products made from tea, whether leaf, extract, essence or standardized concentrates, is fascinating. These include common beverage teas and more recently, personal care products such as lotions, sun blocks and hair care products fortified with tea extracts and essences. Dietary supplements containing tea extracts standardized to specific phyto-constituents such as L-Theanine or simply total polyphenol content are also increasing in popularity. Stimulating the use of tea as an ingredient in many consumer products is a combination of relative safety, cost efficiency, lack of regulatory controversy and wide range of ingredient formats (liquid, instant powder, concentrated extracts, etc.) available to formulators.
The U.S. Patent and Trademark Office published the first design patent for an oxygen-exclusion tea steeper (patent # D494,417), granted to Sin Hang Lee, MD, on August 17, 2004. The novel porcelain tea steeper is equipped with a sunken bottom to expel free air, which otherwise would be trapped in dead space under the lid during tea steeping. A complementary utility patent, “Anaerobic Tea Steeper and Method of Use,” is likely going to receive clearance soon, according to Dr. Lee. Emphasizing the need to consume a sufficient amount of high-antioxidant tea regularly to maintain health, Dr. Lee has also filed a petition to the FDA for a qualified green tea health claim to introduce the unique positioning of Dr. Lee’s “Tea For Health™” product line. The proposed claim indicates that “Daily consumption of 40 ounces of typical green tea containing 710 ug/ml natural (-)-epigallocatechin gallate (EGCG) may reduce the risk of certain forms of cancer.” The petition has been on the FDA website under docket no. 2004Q-0083 for public comments since March 18, 2004. Its fate will be decided by the end of this month.
Tempe, AZ-based Revolution Tea, one of the first American companies to package specialty beverage teas in a sheer, pyramid tea bag (Pyramid Bag™), has introduced the first unsweetened white tea (tea that has experienced less oxidation during post-harvest processing than green tea thereby resulting in a naturally high antioxidant content) in an RTD format.
Celestial Seasonings, part of The Hain Celestial Group, launched Zingerade, a RTD blend of herb tea, real fruit juices and lemonade. Celestial claims to be North America’s largest specialty tea manufacturer with over 80 varieties of herb, black, green, white, red, honeybush and wellness teas, as well as RTD beverages.
Marketed under the Choice Organic Teas brand, Granum Inc., Seattle, WA, is reportedly now the single largest purveyor of certified organic beverage teas in America, offering more than 70 varieties of black, green, oolong, white teas and herbal infusions in tea bags and loose leaf styles. Choice Organic Teas was also the first tea crafter in the U.S. to Fair Trade Certify all of its qualifying teas.
International conglomerate Tetley Tea (U.K., India) is making its first entry into the specialty tea category (U.K.) launch—Summer 2004) with a new line of 12 specialty teas, including herbal, fruit and green teas. This is a decisive move for a company that has largely operated in the conventional tea arena, playing up its down-to-earth image and mainstream appeal. Tetley already holds a strong position in the mainstream U.K. tea market, but now appears ready to stake its share of the burgeoning specialty tea market.
About the author: Brian Keating is founder of Sage Group International LLC, Seattle, WA, a natural products think tank and consultancy established in 1980. Sage Group publishes the “Tea Is ‘Hot’ Report™” and regularly reports on the specialty tea, gourmet food, nutraceutical and related natural products industries. For more information, the Sage Group can be reached at 206-282-1789; E-mail: [email protected]; Website: www.teareport.com.