Packaged Facts published a research paper in early October stating that Ready-To-Drink (abbreviated RTD, sometimes referred to refrigerated tea or bottled tea) is showing growth and resilience despite an economic downtown in the United States (link to the abstract here, but unless you want to buy the report you won’t know the full details of the research). I’ve also wrote about the tea category’s growth in convenience stores earlier in the year (link here).
While the focus is entirely on the United States, there are some similarities between the two markets of U.S. and Canada, so the category’s growth is relevant to consumers here. Packaged Fact’s research abstract points to the growth being driven by convenience stores and natural food stores, although grocery stores remain the top channel that shoppers choose to purchase tea from. In Canada, I would suggest that specific tea shops and also coffee shops (think Starbucks, Tim Horton’s, Second Cup, and Blenz, etc) also contributed to the tea’s growth.
Consumers already have a belief that tea is a healthier option relative to coffee, and many are sacrificing coffee beverages for tea or other caffeinated beverages. Therefore the coffee shop’s survival depends on their ability to expand their beverage offerings beyond what they are experts at. Walk into a Starbucks and you will see Tazo tea, Naked Juice, and Ethos water, while Tim Horton’s will have a refrigerated section that includes Lipton bottled tea. While these coffee shops’ main purpose is to serve coffee, having tea and other category options allows them to keep the customer happy and retain them, rather than losing them to a competitor. After all, would you still go into a coffee shop with a friend if neither of you wanted coffee and they only served coffee, why not go into a tea shop?
Focusing back on the growth of RTD tea, the report mentions that natural food stores drove double digit growth. This point is intriguing because natural food stores are seen as niche and somewhat unconventional in their grocery offerings. However, the growth of tea products in this channel may indicate that consumers are receptive to healthier alternatives, and bottled tea products that are stocked in these natural food stores may soon see wider distribution because of this healthy trend. Another insight may be beverage manufacturers anticipating this trend and have looked to get their tea products listed and distributed in natural food stores to reach a wider audience.
In any case, it looks as if the tea category’s growth has very strong potential in the upcoming years. As a healthy alternative to carbonated beverages and coffee, tea may be growing at these beverage category’s expense. And it may provide competition in more than the traditional setting of your grocery store’s beverage aisle, as coffee shops and natural food stores are increasingly stocking tea options.
Taking this one step further, how can beverage manufacturers like Coca-Cola and Pepsi protect their carbonated offerings? Since the beverage conglomerates also have tea offerings in their beverage portfolios (Coca-Cola with Nestea and Honest Tea, Pepsi with Lipton and SoBe), a solution may be a two step process. First, gain distribution within these natural food stores (and other alternative channels like tea shops and pharmacies) for their respective tea beverages. Next, understanding that there may be space and refrigeration limitations within the store, provide a health-branded cooler (of course, also include the manufacturer’s logo somewhere) to resolve these limitations, and bring in quick-moving and higher margin carbonated soft drinks. These carbonated products can offset the cooler’s cost and provide these alternative channel retailers with a wider beverage selection to grow their customer base.
So the next time you step into a natural food store, keep a look out for the tea offerings they have available. Are the tea offerings all-natural and names that you have rarely heard of? If so, look out for these beverages in your traditional grocery store aisle in the near future, as they may be gaining wider acceptance in the market. Or are they the Honest Teas and Liptons that you are familiar with? If so, then the beverage manufacturer has successfully entered the alternative channel to expand their tea’s growth.