Ready-to-drink tea is overwhelmingly consumed in Asia, which was responsible for over three-quarters of all global sales for the segment last year. However, the region's dominance of total volume sales should not distract from the fact that RTD teas are expected to grow in all of the world's regions in the years ahead. Of those other regions, Latin America stands out, with a projected 5% compound annual growth rate (CAGR) in volumes between 2015 and 2020.

Forecast RTD tea growth by region 2015-2020 (excluding Asia)

So, why are Latin Americans, who have historically avoided hot tea in favour of coffee (drinking 12 times as many cups of coffee as cups of tea in 2015) or regional drinks like mate, suddenly embracing tea in its cooled form? The primary reason is an increasing rejection of carbonated soft drinks in favour of healthier options, a trend that is benefitting most other soft drinks, but none more so than RTD tea, which is being positioned as the closest possible healthy replacement for CSDs.

What is true at the regional level, however, can vary tremendously nationally. RTD tea is simultaneously growing quickly in Peru and Brazil, declining in Mexico, and is virtually non-existent in Argentina. This is because while consumers may be turning away from carbonates, getting them to turn towards RTD tea specifically requires investment in areas such as new product development and marketing. The fragmented nature of the category ensures that the extent to which this is happening varies greatly from country to country, explaining some of the very different outcomes seen across the region.

Latin American soft drink performance by category

Colombia and Peru are regional standouts

Two countries expected to see particularly high growth in RTD tea are Colombia and Peru. In both cases, RTD tea definitely benefits from a consumer turn towards wellness, but has also received additional support in the form of new products.

In Colombia, brands are very obviously targeting former CSD drinkers. The key was the introduction of carbonated RTD tea in 2015 by both of the leading companies in the category. The marketing is clear about who exactly this is supposed to appeal too: people who like carbonates but are now hesitant to drink them for health reasons. Quala SA's SunTea, for example, promises to combine "the health and goodness of tea with the fizzy refreshment of soda" and touts its low sugar content. This seems to have paid off, as the growth of carbonated RTD tea has greatly surpassed that of still RTD tea or low-calorie carbonates. Slowing economic growth in this heavily commodities-dependent economy poses some reason to worry, but low unit prices should keep growth from being affected too greatly.

Comparison of RTD tea and carbonates performance in Colombia

The Peruvian market is set to expand even faster than that of Colombia, with a strong CAGR of 13% over the forecast period. Peruvian consumers have embraced RTD tea as a healthy alternative to carbonates with fervour. Peru has also benefitted from aggressive product innovation and marketing, including the introduction of a larger number of reduced-sugar options and a wide variety of new flavours.

Other countries that are expected to see significant growth in the region include Chile and Brazil. RTD tea in Chile faces a minor threat from government-mandated sugar labelling, but is also seeing major investment, including product reformulation and a rebranding campaign by market leader Lipton. The sector is expected to show a strong CAGR of 8% value growth in the country, albeit from a very small base. In Brazil (8% forecast CAGR), product innovation is driving growth, including the introduction of such new flavours as matcha.

Mexico and Argentina prove that growth is not a given

The major threat to RTD tea would be if the segment fails to capitalise on carbonates' misfortune, because of either a lack of investment or consumers concluding that, in many cases, the teas on the market are full of sugar and hardly better than the carbonates that they are replacing.

One of the two major exceptions to the regional growth trend is Mexico, the region's largest RTD tea market, where volumes fell by 2% from 2014-2015 (although the market grew slightly by value). The sales dip was initially caused by a distribution dispute in 2013 that affected market leader Nestea severely enough to drag down the entire category. That was followed in 2014 by the implementation of the IEPS tax on sugared drinks, which affected drinks with any added sugar content (including most RTD tea). Because of this, Mexicans no longer perceive RTD tea to be the healthy alternative to carbonates that they once did, and have responded by turning away from these drinks.

Mexico, then, is somewhat of a unique case because of the Nestea distribution issue, but this still provides a warning of what can happen if tea producers do not focus enough on creating a healthy product.

Argentina is the other major exception to the growth trend, but for very different reasons. In Argentina, RTD tea has no meaningful presence at all, with just 2.6m litres sold in 2015. To put that in some perspective, that is less than was sold in the Dominican Republic, a country with a fourth of Argentina's population and a tenth of its GDP. Here, the issue is less a question of health and more of a simple lack of investment in the country. Coca-Cola's Fuze is the only brand available, with a limited offering of just two variants: black tea with either peach or lemon. With such a dull market picture, it is little wonder that the category has failed to take off.

Multinationals, including Nestlé and Unilever, are thought to be planning to enter Argentina, which should inject a badly needed dose of excitement. Until then, however, Argentina serves as an excellent example that growth in RTD tea does not simply happen, but requires effort and investment.

Forecast RTD tea sales growth for select Latin American countries

Product innovation and health positioning key in the years ahead

The examples of Mexico and Argentina are reminders that although growth is broadly happening in the region, the highly-immature and -fragmented nature of the category means that it is happening very unevenly. Combined, the two largest regional brands, Lipton and Fuze, account for a little over a third of sales: National brands like Colombia's Postobón are still hugely important. As a result, a large amount of inter-country variation should be expected to continue for the foreseeable future.

Yet, Latin Americans are hugely keen on finding alternatives to sugary sodas. RTD tea may prove to be just what they're looking for. Brands should look to innovate and attempt to replicate some of the features that made carbonates so popular (low cost, sweet taste, etc), while ensuring that they are providing a healthier alternative.

RTD Tea in Colombia - Click here for details of Euromonitor's latest country and category report