The economic downturn has impacted all consumer spending, and sales of soft drinks are no exception. But ready-to-drink tea is well positioned to be fairly resilient in this environment, due to its natural health properties and relatively low global market penetration.

RTD tea sales by volume represented only 4% of the overall global soft drinks market in 2008, and just a 2% share of throat for all beverages including hot drinks, alcohol, and dairy drinks. This is predicted to remain very similar until 2013. RTD tea sales by value were slightly higher, at 7% of soft drinks and 3% of overall beverages, reflecting the slightly higher average prices of these products when compared to other drinks. But potential for further global expansion remains.

The top three markets in the world, China, Japan and the US, accounted collectively for some 70% of global RTD tea demand last year. Going forward, the big challenge for the industry is, therefore, to unlock new markets. This will be difficult over the short term due to the negative constraint of economic recession in key potential growth regions.

Expansion of geographical reach, especially within emerging markets - targeting non-traditional RTD tea cultures with youthful demographics - is seen as one of most promising strategies for companies to increase global market share. The favourable demographics within the emerging economies of China and the Philippines will drive medium-term growth.

The leading growth market in terms of absolute value in 2008 was the US, though the rate of growth has slowed from the double digit increases seen in recent years. Volume sales of RTD tea rose by 7% in the country last year, to reach 3.4bn litres.

In this market, RTD tea grew at a faster rate than soft drinks as a whole in 2008, driven by increasing consumer concern over health and wellness and something of a malaise surrounding carbonates, especially 'cola-fatigue', among higher income consumers.

There are also opportunities within middle-income regions, such as Russia and Latin America. Rising incomes among the richer sections of society and the importing of health trends from high-income countries are driving the growth of the sector, albeit from very low per capita levels.

The growth of RTD tea shows no sign of abating in Asia-Pacific, where, by 2013, per capita consumption is expected to reach Western European levels. Currently, per capita volume consumption in the region is very uneven. However, North America, and the US in particular, is one of the most interesting markets to watch. Per capita consumption there is more than double the world average, indicating that there is still quite a bit of room for growth even in countries like Japan and China where the market is already fairly saturated.

Focus on health

RTD tea probably enjoys the most justified and trusted health claims of any soft drinks, with the natural antioxidant health benefits of tea well communicated by manufacturers and increasingly understood by consumers. The category is expected to show continued growth, due to an increased awareness of health issues among consumers, particularly ageing Baby Boomers, who will increasingly look for alternatives to high-calorie carbonates.

As consumers around the world switch from highly sugarised soft drinks like carbonates to healthier alternatives, RTD tea manufacturers are going to need to increase their efforts in product positioning, especially in markets with shrinking consumer expenditure. Companies will succeed by investing in the promotion of new functional features and new flavours. Most sector growth is expected to come from higher antioxidant-rich green, white and red teas, which are often combined with fruit flavours to create more palatable offerings.

Japanese producers generate value in the RTD tea sector through functional launches, such as Kirin Bunkai Cha, which claims to tackle "metabolic syndrome" with de-bittered tochu tea, oolong tea and ukon tea. Other growth areas include unsweetened oolong and sweetened black tea. That said, unsweetened green tea continued to be the most popular type of RTD tea in Japan in 2008. Innovative products, like anti-ageing functional RTD tea - for example, Kirin I-Tea with antioxidant astaxanthin - are attracting older consumers, who generally prefer to prepare their own tea at home, but are increasingly appreciating the convenience, range of flavours and tea variants on offer.

The health and wellness trend does not always benefit RTD tea, though. In Germany, RTD tea is traditionally seen as unhealthy and full of sugar - an image that will be difficult to change in the short to medium term, especially in a recession-hit operating environment.

In Russia, one of the fastest growth markets in 2008 globally, RTD tea is perceived as premium. Such products are often popular with emerging younger demographics that are still forming taste preferences. However, Russia's ageing population means that the industry cannot rely on a growing teenage consumption base, unlike youthful emerging markets, such as Mexico.

On-trade

The on-trade channel, or sales through restaurants, bars, and fountain, is likely to experience decline, as cash-strapped consumers will go out less. However, increasing penetration of the on-trade and fast food outlets will limit the adverse effects of the recession.

In the US, RTD tea sales are still oriented to the off-trade, for take-home use, but on-trade sales volumes increased at a faster rate than in the off-trade last year, thanks to the expansion of packaged teas in fast food and other restaurant outlets. On-trade RTD tea sales in the US are expected to continue to grow, though at a slower rate than off-trade, as RTD tea still has only a limited penetration in the on-trade. The category's presence is largely dependent on the big players, such as Coca-Cola and PepsiCo, which often have exclusive deals with major national chained fast food outlets.

In the Chinese on-trade, green RTD tea is the most common mixer for whisky, and the ever-increasing demand for whisky in bars and pubs has benefited sales. Another important RTD tea type consumed in the on-trade is herbal tea. Wong Lo Kat Herbal Tea, for example, remains popular in 'hot pot' restaurants, as it is perceived to be effective in balancing out the effects of spicy food.

In Japan, the on-trade is performing badly, with year-on-year volume declines. Most consumers opt for iced tea prepared on-site or for hot tea in on-trade outlets. The rise of specialist tea houses has further encouraged this trend, with consumers preferring the premium fresh-brewed tea available at these outlets.

Overall, on-trade sales only comprised a significant portion of total RTD tea volumes in 2008 in two markets: the US and Indonesia. Consumers will return to dining out once an economic recovery is underway, and whether it is through fast food fountain sales, further presence in chilled cases, or sales at full service restaurants, the on-trade remains an undeveloped portion of the marketplace in most countries with further room for growth for the natural health benefits of RTD tea.