Is the iced tea sector a vast source of untapped potential or is the gulf between 'on paper' and reality more amplified than people would think? The markets of West Europe may provide some clues, maintains Richard Corbett.

"Iced tea is too pure and natural a creation not to have been invented as soon as tea, ice and hot weather crossed paths." These were the thoughts of American writer John Egerton on a drink that many believe is well positioned to meet the demands of tomorrow's soft drink consumers. The West European marketplace for soft drinks is increasingly showing the symptoms of maturity and its 388 million consumers are indeed seeking out soft drinks that offer more than just refreshment. The shift towards drinks with healthy and natural credentials is very much a long term one and it is not surprising that global players are looking to the iced tea sector as a way of catering for these evolving thirsts. Iced tea offers refreshment, rehydration, a healthy image and falls comfortably into the expanding adult soft drinks segment.

Iced tea looks poised to play an important role in the global soft drinks battleground of the future. Coca-Cola has paired up with Nestlé and Pepsi Co and Unilever have announced a joint venture to market and distribute the Lipton's brand in so called 'white space' markets where Lipton's is absent but Pepsi has a presence.

With the exception of Ireland, iced tea has grown at varying levels in every market between 1997 and 2003 - every Western European has increased its consumption by an average of 1.5 litres during this period. However demand is still very limited in some countries and from the differing levels of growth and the small sales in some areas you might conclude that the iced tea concept has failed to catch on in these lesser markets. The issue is of course more complex than this and it might be helpful when gauging the prospects for iced tea to look at three markets, all at differing stages of their iced tea product life-cycles: UK, Denmark and Germany.

Ironic fact
Persuading UK consumers to drink iced tea could be compared to getting your children to eat their brussel sprouts and it is ironic that it was actually an Englishman who has been credited with being responsible for popularising iced tea in America. In 1904 Richard Blechynden, a tea merchant, was struggling to sell his tea in the sweltering heat of the World Trade Fair in St. Louis, when it struck him that he might have more success packing glasses with ice and pouring the tea over the ice. The 'iced tea' was very well received and 100 years later, on average each American now drinks 14 litres annually. In Richard Blechynden's British home market, iced tea has fared very differently, until now barely establishing a foothold despite several high profile attempts to capture the UK consumer's attention. In a country with such a tradition of hot tea consumption it has always been suggested that the idea of drinking cold tea has acted as a significant enough stigma to limit the iced tea sector to, at best, a niche.

In December 2000 an agreement with AG Barr to distribute the Lipton's brand was agreed, signalling Unilever's intention to re-enter the British market. Twinings, the market leader prior to Lipton's arrival was very much a premium product available in a unique 25cl 'walki can'. Marketing targeted young professional women in the Home Counties and did generate some success, particularly in the food service and travel channels, however sales were never going to break into the mainstream. Lipton's was positioned very much at the masses and initially the brand received a heavyweight £5million support for its introduction. The spend did yield some results but the brand remained very small in the context of the overall market yet the results were sufficient for Unilever to invest further and Liptons received TV support in 2003.

Television advertising coupled with an exceptional summer more than doubled sales and at the time of writing it is reported that a low calorie variant is to be launched and a further £7.5million has been allocated for promotional activity later in 2004. Household penetration remains low but awareness has surged and a strong performance from the 150cl PET bottles suggests that consumers are coming back for more.

One indicator of success is the arrival of new products to the sector. In 2003 Tetley's, who produce a range of iced teas for the Canadian market, launched, T for life. Made with spring water, fruit juice, B-vitamins, ginseng and guarana this product competes for the under 30s market as well.

A way to go
So is demand in the UK for iced tea about to snowball? I would conclude that undoubtedly some green shoots are in evidence, and that the cold tea perception is becoming less of an issue with younger drinkers. However, growth needs to be maintained for a number of years before it can be said that iced tea has become part of the drinking culture. Of course if David Beckham was to be photographed with a bottle in his hand…

When iced tea arrived in Denmark in 1995 consumers responded positively, but the real catalyst came in 1996 with the arrival of the Nestea brand. Demand was further boosted a year later with the exceptional summer of 1997. Sales continued to climb rapidly until 2001 when they wobbled, then slipped into decline. The hot summer of 2002 had a muted effect and in 2003 significant marketing investment has failed to rekindle sales.

Opinions in the industry seem divided over the future of iced tea in Denmark, some suggest that iced tea is a short term phase with high prices constraining the long-term potential of the market. Others argue that the sector is compatible with modern trends towards health and wellbeing and the sector is firmly rooted in the Danish soft drinks marketplace. The domestic production of iced tea in Denmark indicates that it is not going to disappear but high prices may restrict the opportunities for long term growth - certainly the low cost brands gained share at the expense of the A brands in 2003.

West Europe's biggest market for iced tea, Germany, has in the last decade seen considerable success in the sector, most notably in the mid 1990s. A poor summer in 2000 reminded the industry as to the weather sensitive nature of demand and volumes again fell in 2001 as the traditional 'peach and lemon' iced teas drifted out of fashion. The industry's response in 2002 was to push tea and fruit products, allowing the sector the opportunity to work off the back of the wellness trend that is at a more developed stage than other countries in the region. Innovation in product offering had returned the sector back to growth.

Dramatic benefit
Last year, however, proved a sensational year for iced tea in Germany. The tea and fruit products had impacted again and the extraordinary summer weather boosted sales further but the rate of increase was artificial with the contribution of external factors playing a disproportionate role. Iced tea products (with the exception of the tiny carbonated segment) were exempt from Germany's new deposit system on non-refillable packaging and the ensuing consumer shift away from sectors affected by the new regulations dramatically benefited the iced tea sector - sales in the third quarter almost doubled year on year.

As a product iced tea is undoubtedly equipped with all the attributes to meet the needs of modern consumers. Establishing awareness in a highly noisy and competitive marketplace can, however, be a very expensive process in unexplored markets. In markets where iced tea does put down solid roots, the growth stage is relatively short lived. German consumers have illustrated to iced tea operators in Denmark that if you work at making the product more relevant to current trends then sales can be resurrected and the upward curve restored.

As carbonate sales slow, there will be a steady trickle of consumers to other sectors of the soft drinks category; iced tea will certainly be one of those sectors. The number of new consumers entering the sector will be dictated by investment and availability - it seems that the main global players are putting these into place. Although it is difficult to determine what potential there is in the market, Canadean forecasts indicate that volumes will jump by over 300million litres by 2006.

Reproduced with permission from Soft Drinks International, April 2004. Richard Corbett is a Strategic Analyst at UK-based Canadean Ltd, the leading global beverage research consultants. Email: richard.corbett@canadean .com

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Global Iced Tea & Iced Coffee Report 2003

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