Russia, the third-largest tea importing and drinking nation in the world, has seen growth of teabags fast outstrip traditional loose tea, by doubling in sales over the past five years. Euromonitor investigates the phenomenum.

Traditionally, the majority of the Russian population starts the day with a cup of tea (usually strong and very sweet) rather than coffee or juice. Euromonitor figures show that Russia boasts the second largest tea market in both volume (retail volume 160 million tonnes) and value sales (retail sales US$2 billion) in the world. As Russia does not locally produce any tea, the country is also one of the largest tea importers in the world, standing alongside the UK.

Russia's long history of tea drinking is also reflected in a relatively high level of per capita consumption, ranking seventh highest in the world with 1.1 kg. Although this is ust half that of Turkey, the Russian market has demonstrated a very mixed performance in recent years.

Indeed total volume sales of tea showed a noticeable decline between 1997-2002, attributable to a number factors, primarily competition from other beverages such as coffee and soft drinks. Retail value sales, however, grew healthily by 34% in the same period. The healthy performance of value sales was mainly underpinned by the rise in retail tea prices and consumer trading up to higher value products and novelty tea packaging formats such as speciality tea and teabags. Both local and multinational tea players have been looking into growth by developing a variety of teas and teabags.

Teabags a new source of growth
Traditionally, loose standard black tea is the most common format, but over the past five years the teabag saw its popularity rise dramatically. On the back of its greater convenience, sales of the teabag format doubled between 1997-2002, and although volume sales are still tiny compared to loose tea, it has refreshed the stagnant tea market in Russia in recent years.

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All the major tea players from Unilever to the domestic Orimi Trade reacted quickly to these changes in consumer preferences and have increased tea bag production significantly. The most notable move was Unilever's opening of a new plant in St. Petersburg for the production of Lipton teabags in 2002.
New import tax encourage packing teabags locally.

As Russia does not produce tea leaves locally, the country relies exclusively on foreign imports. Consequently, tariffs on tea have a critical effect on the fluctuation of retail prices.

In 2002, the government introduced a new import tax on tea. The tax varies depending on the product type. As a raw material, tea leaves saw their tax lowered, while for teabags the tax was increased to as much as three times that of the raw tea-leaves. This encouraged manufacturers to invest and maximise local packing resources, helping also to retain the value chain of processing tea within Russia in a bid to revive the domestic tea industry.

Official statistics show that only 30% of tea is imported as ready-packed tea, the rest comes in as loose bulk tea ready for packing. Tea importing companies have been busy opening up their own tea packing factories in Russia, with a number renting local plants for packaging their own produce. Apart from its new Lipton plant in Unilever St. Petersburg, the company also uses the Amtel plant (one of the biggest as well as most modern local tea plants) for packing Brook Bond teas.

Teabags to brew good business
Consumer desire for high value tea is expected to continue in the years to come. Consequently, retail value growth of tea will continue to outperform volume. Teabags will see phenomenal growth in both retail volume and retail value terms, at 73% and 96% respectively between 2002-2007. Teabags will be the key value driver in the overall industry, while loose tea is expected to become less popular over time. The increase in multinationals' local production of teabags and corresponding investment in marketing activities will play a key role in this growth.