Product innovations boost ready-to-drink teas

A recent report from Packaged Facts revealed that tea is one of the most underdeveloped beverages in the United States, with enormous potential for growth. The market research firm predicts that category sales could reach $15 billion by 2012, up from $7.4 billion in 2007.

Ready-to-drink tea volume sales rose 15 percent from 2006 to 2007, according to Beverage Marketing Corp. At U.S. drug stores, sales of canned and bottled teas surged ahead 6 percent for the 52 weeks ended May 18, 2008, according to Information Resources Inc.

Tea is gaining more cooler space in drug chains as retailers look to expand their noncarbonated offerings. CVS, for example, devotes one-of-nine doors to iced tea in one Maryland location and placed 1.5-liter bottles of Lipton iced tea on promotion for $1.59 near the front checkouts.

The category is seeing a slew of introductions. Tea ranked first in the beverage category for total number of new product introductions, according to Productscan data from Naples, N.Y.-based Marketing Intelligence Service. During the period of July 2006 to June 2007, 957 tea SKUs were introduced to the U.S. marketplace. Marketing Intelligence Service data show that green tea and lemon are the most commonly used flavors in new ready-to-drink teas.

In terms of drug store market share, AriZona leads the pack with 63 percent of dollar share, according to IRI. Other major category players have a presence in the category, and they are getting behind their brands to grab an even bigger piece of the expanding category.

Advertising Age reported that Coca-Cola planned to double its spending on its ready-to-drink tea brands Nestea and Gold Peak. Coke also introduced new graphics and packaging for Nestea and added two green tea products to the brand.

The biggest news for the segment was Coke’s purchase of 40 percent of Honest Tea, the Bethesda, Md.-based specialty beverage manufacturer. The deal gives Coke the option to purchase the company outright in three years. While Honest Tea is a small brand, it’s growing fast. Sales of Honest Tea beverages were ahead 70 percent in 2007 over 2006.

“Honest Tea has a huge upside in gaining Coke’s distribution,” said Gary Hemphill, senior vice president of Beverage Marketing Corp.’s information services division. “It’s also an opportunity for Coke, since Coke has underperformed in the ready-to-drink tea category against AriZona and the Pepsi/Lipton partnership. Honest Tea will help them in this category.”

The purchase also puts Coke in the fast-growing premium tea market, a segment that is emerging as a growth area. “There are a handful of super-premium brands that are growing rapidly,” Hemphill said. Rather than differentiating product by fruit flavor, these brands segment by type of tea. They also contain less sugar. Honest Tea, for example, contains little sugar and has about half the calories of mainstream brands. A commitment to organics is also a part of Honest Tea’s business.

“Organic tea is going mainstream,” said Honest Tea chief executive officer Seth Goldman. Goldman said he’s seen an explosion in green and white teas. The company recently introduced a citrus green energy line extension formulated with yerba mate, a South American plant. Peach white tea and pomegranate white tea also were introduced recently.