Focus - Soft Drinks & Water - The Tale of RTD Tea
Globally, RTD tea continues to outpace other soft drinks, reports Jonas Feliciano beverages industry research analyst at Euromonitor.
While still relatively small in total volume and value, ready-to-drink tea is one of the fastest growing global soft drink categories. Growth and consumption is driven by a small number of markets where the soft drink has become mainstream and competes for consumer share of throat with the likes of bottled water, carbonates, and fruit and vegetables juices.
Two major factors that drive this growth (especially in countries of Asia Pacific where the beverage represents a new twist on traditional flavours) are increases in income and urbanisation. For developed nations, however, RTD teas have been met with mixed responses: strong growth in North America, where consumers seek RTD teas as a healthy alternative to carbonates, but poor growth in Western Europe and Latin America, where the beverage remains niche. As the category matures, however, there are plenty of opportunities for price segmentation, flavour innovations, and health and wellness positioning to continue pushing growth.
Asia Pacific sets the pace
Globally, RTD tea continues to outpace other soft drinks, increasing volume share from 4.5% in 2006 to 5.8% in 2011 and value share from 7.3% in 2006 to 8.8% in 2011. Growth will continue as the category is forecast for a 6.6% and 8.3% CAGR for off-trade volume and value (respectively) from 2011-2016.
Asia Pacific dwarfs all other regions with an off-trade volume of 22.91bn litres, which represents more than 77% of global off-trade RTD tea volumes. From there, North America (9.6% of off-trade volume), Western Europe (8.0%) and Eastern Europe (3.0%) follow, with Latin America (1.6%), Middle East and Africa (0.4%) and Australasia (0.1%) barely registering.
A glance at Asia Pacific’s volumes would lead one to believe the market has matured, yet it is still positioned for growth. It led all other regions with a 24.8% CAGR from 2006-11 and trails only Latin America for 2011-16 with a forecast of 9.5%.
This performance is indicative of the fact that RTD teas have emerged as a threat to carbonates as the region’s soft drink of choice. In 2006, carbonates represented 19.2% of all soft drinks consumed in Asia Pacific. In 2011, that number had dropped to 16.1% compared with RTD tea which had 15.4% in 2006 and 16.3% in 2011. And, while not every nation in Asia Pacific has performed strongly, four of the top five volume growth markets are in Asia.
Growth in Asia was driven by economic changes and strong local brand performance.
The success of RTD tea in nations such as China, Vietnam, and Indonesia is a confluence of increases in disposable income, continued urbanisation of citizens, and local brands leveraging distribution and marketing techniques to attract new consumers already familiar with tea flavours. From an economic standpoint, China, Vietnam, and Indonesia all saw major increases in disposable income from 2006-11 with China posting a 109.6% increase, Indonesia 97.8%, and Vietnam 163.9%. Compare this to the global figure of 31.3%, and it is clear that consumers in these nations are in a position to spend more on beverages and other non-essential goods.
But, changes in lifestyles were also needed to change purchasing behaviour. Urban populations all rose in each of these nations, with China posting an absolute growth of 19.2% from 2006-11 and both Vietnam and Indonesia registering at 17.5%. As more consumers moved from rural areas into urban centres, retail experiences adjusted. No longer confined to the lower beverage selections of small independent grocers such as kiosks and bodegas, consumers were exposed to increased variety in larger supermarkets and hypermarkets.
However, increased consumer spending and larger retail outlets merely presented beverage manufacturers with an opportunity to reach newly-enriched consumers. RTD tea and, in particular, local manufacturers that are well versed in the consumption habits of nationals, were in a unique position to succeed due to traditional drinking cultures and targeted marketing campaigns. Many nations in Asia Pacific are ‘tea nations’ in that, whether purchased unpackaged in rural marketplaces or at large retail spaces, steeped leaves or bags are an ingrained part of the culture. This consumption extends outside the home as well, with tea being a staple for cafés and restaurants.
As such, RTD tea presents a different, albeit familiar beverage experience. Whereas many consumers are used to brewing and preparing unsweetened teas with hot water, RTD teas are sold cold and packaged in cans or plastic bottles. Many are pre-sweetened and all give consumers the added convenience of immediate consumption. This format allows manufacturers to charge more for the product, and thereby increase value sales. At the same time, the flavours are more familiar to consumers as the beverage more closely resembles the traditional drink that permeates local customs, especially in comparison to cola carbonates. Consequently, this combination of both familiarity and differentiation positioned RTD tea as an ideal beverage for consumers experiencing lifestyle changes.
But, one final key factor in the strong performance of RTD tea is the impact of national or regional manufacturers. Global brands such as Unilever’s Lipton or Nestlé SA’s Nestea give way to brands such as Tingyi’s Master Kong in China, Tan Hiep Phat Group’s Zero Degree Green Tea in Vietnam, and Sinar Sosro PT’s Sosro in Indonesia. These manufacturers are both trusted by consumers and able to leverage strong existing distribution networks.
The marketing strategies of Zero Degree Green Tea in Vietnam illuminate the advantages that national players possess in leveraging their knowledge of local consumers. While cognisant of Vietnam’s traditional consumption of hot tea, warm summers presented an opportunity for chilled beverages. But, when the brand entered the (then small) RTD tea market in 2006, Zero Degree was able to leverage parent Tan Hiep Phat’s distribution network to serve the beverage in consumer-friendly outlets such as lunch shops and canteens nestled in schools and universities rather than supermarkets, hypermarkets or convenience stores. With little funding to market the product in print and television ads, this distribution strategy was able to increase exposure to young consumers.
Zero Degree was also offering its product in 50cl plastic bottles, mimicking bottled water and distancing itself from sugary carbonates often sold in cans. Finally, the company was savvy enough to offer the beverage at an average price of US$0.54 per litre while global brand Lipton was sold at US$0.86 per litre. After initial success, Zero Degree would eventually normalise its price point and settle at US$0.68 per litre in 2011 and expand marketing and distribution across all channels. As such, Zero Degree was able to not only grow its own market share, but increase the profile for the entire category.
Whereas the success of RTD tea in Asia Pacific turned on growing economic markets and familiar flavour profiles, economic recession and established drinking cultures in developed markets present a different set of challenges and opportunities. North America, and in particular, the US, has seen a tremendous rise in RTD tea, with volume and value absolute growth trailing only China. Such performance is surprising, given the lack of hot tea consumption in the US, especially when contrasted to the tea habits of many Asian nations. However, the soft drink culture in the US is also changing, as a more health-conscious consumer base transitions away from carbonates.
Consumers are particularly keen on RTD tea as it is a beverage well established for its natural health properties such as antioxidants. Furthermore, unsweetened or diet varieties provide low or zero calorie alternatives to sugary colas or diet carbonates. This health trend continues to be the focus of new product launches. For example, the Pepsi-Lipton tea partnership launched Green Tea Superfruits in 2010 and featured exotic and health-orientated flavours such as Acai, Goji and Mangosteen. Similarly, The Coca-Cola Co has put its marketing and distribution strength behind Honest Tea, focusing on the brand’s association with natural ingredients with the tagline: “Nature got it right. We put it in a bottle”.
These healthy associations have been vital in capturing category share from carbonates and energy drinks, but would have failed if price points did not appeal to consumers, especially amidst a national and global recession. Such was the case for 100% juices, which are also valued for their health properties. But, due to the high costs of 100% juices, the category actually declined - 3.2% from 2006-11 in terms of off-trade value. RTD tea was thus positioned as the lower cost, healthy alternative. This is readily apparent in US off-trade value leader Ferolito, Vultaggio & Sons. The company’s flagship brand, Arizona Ice Tea, is popular amongst consumers in part due to the price of US$0.99 for a 23oz can; a price which is physically marked on each can sold. While few products have been able to match this price point, the overall unit price of tea remains low at US$1.6 per litre.
Pricing also helps explains the struggles of RTD tea in Western Europe. Although many of the same health and wellness concerns permeate the region, RTD tea has only been truly successful in Portugal where the country’s 21.4 litres per capita in the off-trade leads all other nations. Here, private label RTD tea, often sold in larger containers, has helped establish the beverage as a value proposition amidst economic uncertainty. As such, price per litre in Portugal is a paltry US$0.60. This is in stark contrast to the 2011 unit prices of US$1.10 across the region and an astonishing US$2.10 in the UK. If RTD tea is to succeed in the region as a healthy alternative, value pricing will need to meet the demands of local consumers.
Outlook bright as maturity remains remote
Despite the relatively concentrated growth of RTD tea in Asia Pacific and North America, forecasts remain promising, with global projections of 6.6% CAGR in terms of off-trade value and 8.3% CAGR in off-trade volume. Overall acceptance of the beverage as a mainstream soft drink in nations such as China, Vietnam and Indonesia, combined with the health-conscious consumers in the US seeking lower-priced options will drive the industry. However, for the category to prosper in other regions, the lessons of local manufacturers in Asia and value producers in North America will need to be applied.
This article originally appeared in the November issue of Soft Drinks International.
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