Ray Rowlands

Comment - Soft Drinks & Water - Iced Tea, Baby!

By | 14 June 2012

This month, Ray Rowlands of Drinksinfo Ltd casts his gaze in the direction of iced tea, and the category's development from its early beginnings to today’s multi-billion dollar business.

Iced tea has developed far beyond those balmy summer days relaxing in the garden. The drink has been with us for quite a few years now. Cookbook recipes reveal that cold tea has been served in North America since at least the early 19th century, well before the 1904 World Fair in St Louis, which is when iced tea is popularly perceived to have been invented.

These early drinks often employed a green rather than a black tea base (the US at the time was dominated by Chinese tea imports). It was not until the early 1990s that black tea became the norm. However, today many brands are tea in name only, they ceased to be brewed from leaves long ago, if ever.

Iced tea tends to be drunk for refreshment purposes and, as a result, most products are uncarbonated. There are some sparkling variants around, although these tend to be restricted to Western Europe, especially Benelux where sparkling iced tea is seen as a competitor to CSDs. Powdered options similarly have restricted appeal, largely because of their inconvenience.

The drink particularly flourished in the US in the 1920s during the prohibition era, but it was another 50 years before Lipton iced tea began to appear in cans, possibly marking the arrival of the first packaged iced tea product. Today iced tea comes in all manner of packaging, from 33cl cans, to 1-litre cartons and 50cl glass and PET bottles. With convenience increasingly becoming a by-word in the soft drinks market, single-serve packaging is an important aspect of iced tea. Well over half the market comes in individual servings; consequently, the can remains a major pack type but was superseded by the PET bottle more than a decade ago.

The proliferation of packaging formats has gone hand-in-hand with a market explosion. According to the American Tea Association, in 1990 the bottled ready-to-drink tea market was worth about US$200m in sales; by 2010, that market had expanded to $3bn. Iced tea now makes up almost 85% of the tea that US citizens consume. That's just in the US, which may be one of the biggest markets for iced tea, but only accounts for a fraction of worldwide sales. On a regional basis, Asia consumes four times the volume of North America although, due to population density, average per capita consumption is way lower. 

China is responsible for much of Asian iced tea demand. Tea has been a popular beverage here since ancient times, but it was not until the 1980s that iced tea gained widespread popularity. Volumes have grown dramatically over the past ten years, partially due to increasing health-consciousness, but also as the country has enjoyed rapid economic development thereby obtaining the financial means to adopt Western trends.

In addition, ready-made bottled tea, compared with traditional hot tea, is more convenient, as it requires no preparation. Iced herbal tea is especially popular in hot summer months. The Chinese market has become a veritable battleground as multi-national players like Coca-Cola, Nestle and Unilever lock horns (or at least marketing campaigns) with Asian companies like Tingyi Holding Company, Uni-President and the Hangzhou Wahaha Changsheng Beverage Group. To date, the Western multinationals have failed to maintain much impact. Asian-style drinks seem to have greater appeal.

Besides China and the US, another country worth noting is Japan. Demand for iced tea is almost on a par with the US, whilst per capita consumption is much higher. Iced tea, a common sight in the country's vending machines, is big business, accounting for around one in four of all soft drinks consumed. That's a much higher percentage than in either China or the US. Japanese iced tea products mirror the market for hot tea in the sense that they are mostly green tea or oolong products.

As already mentioned, iced tea moved from its original green tea base over to black tea (in the US at least) towards the end of the 20th century. In the US, green tea is expanding its category share again. In China, black teas surprisingly are still in the majority but the profile of jasmine-flavoured green tea is on the rise. In Japan, green teas already hold a dominant position. White teas and rooibos bases are also making an appearance globally.

But, this tea-base development is just one of the on-going trends in the general marketplace. 

The rise of low calorie drinks is one aspect of the on-going evolution of iced tea, capitalising on the growing consumer health and wellness trend. Low calorie iced teas have certainly captured the imagination of North American consumers. Nonetheless their uptake is not proving universal. In Asia, low calorie products are struggling to achieve a noticeable share.

Flavour proliferation is more widespread. Lemon remains the clear favourite, but a plethora of more exotic flavours are emerging including bergamot, calamansi, coconut water, guava and pomegranate.

Interestingly, iced teas with added functionality (e.g. with vitamin and mineral supplements or added collagen) are still relatively rare but provide an excellent avenue for future exploitation. Though one of the smaller soft drink categories, iced tea is certainly one that offers great opportunities for the future.

Expert analysis

2011 RTD Tea in the U.S.

This report examines the total U.S. tea market with a focus on ready-to-drink tea. It provides data on regional markets as well as leading companies and brands for the New Age beverage segment. RTD tea packaging, distribution, advertising expenditures and demographics are discussed in detail. This report also projects the market five years into the future.

Sectors: Soft drinks, Water

Companies: Nestle, Wahaha

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