This month, Tom Vierhile from Datamonitor looks at the recent rise in activity from the iced tea category.

Summer often brings a burst of beverage innovation, especially in restaurants as competitors vie to top each other with new, seasonal beverage options to drive traffic and energise sales. The summer of 2013 is still young, but tea is rapidly developing as the innovation focal-point for the year, especially fruit teas that are emerging as the next wave of flavour innovation.

Fast-food giant McDonald’s is currently testing two new McCafe Fruit Iced Tea Fusions in the US that are “hand-crafted” at store level and made with freshly brewed black tea and a blend of fruit flavours. Blackberry Raspberry is described as a balanced blend of fresh brewed tea with ripe blackberry and sweet tart raspberry flavour. A second flavour - Peach Berry - blends fresh brewed tea with juicy ripe peach and sweet tart raspberry flavour. Both are offered for a “limited time only” to capitalise on the summer season, which is traditionally a profitable time to introduce new specialty drinks.

Beating McDonald’s to the punch, Burger King introduced “brewed fresh daily” Peach Sweetened and Unsweetened Iced Teas earlier this year in the US, while Wendy’s added Unsweetened Iced Tea as well as a Strawberry Iced Tea. The latter is made “fresh to order” with real strawberries, and no artificial flavours or colours. Tea time is coming to the fast-food trade in a big way, because tea offers a healthy counterpoint to high fructose corn syrup-sweetened soft drinks that have become villains in the war against obesity. Tea also has a freshness component that many other drinks lack. Indeed, when was the last time you quaffed a soft drink that was “prepared fresh?”

Another fast-food player jumping into the tea market with both feet is the Sonic Drive-In chain. Earlier this year, US-based Sonic announced the introduction of a new line of freshly-brewed, antioxidant-rich Sweet and Diet Green Iced Teas – introduced along with five new sugar-free flavours – that can be mixed and matched to produce a huge array of custom drinks. Chef Clas Petersson, VP of product innovation for Sonic, noted: “After months of thoughtful iced tea mixology, we’ve nailed it.”

Nobody is expecting tea to make soft drink brands like Coca-Cola and Pepsi break out in a cold sweat anytime soon, but tea varieties like green tea offer a positive health story that most CSDs can’t match. Alluding to this, Sonic chief marketing officer James O’Reilly said: "Consumers have shown increased interest in green tea in recent years due to a refreshing taste and widely-touted health benefits. We recognised this growing trend and took the opportunity to be one of the first national quick-service restaurants to offer freshly-brewed green tea.”

Tea’s new moves in the quick service restaurant sector follow strong growth for specialty tea in the US restaurant trade as a whole. According to Technomic, speciality tea offerings in restaurants grew by over 50% from 2011 to 2012, as a growing number of restaurants looked to differentiate beverage offerings beyond CSDs and coffee. Tea has been gaining ground in restaurants for some time, helped immensely by McDonald’s 2008 launch of Sweet Tea. McDonald’s was one of the first to see national potential for this traditional, southern-US flavour that is now catching on quickly. According to Technomic’s 2012 Beverage Consumer Trend Report, tea flavours named “sweet” accounted for 7.7% of teas sold in US fast-food and fast-casual restaurants in 2012, up from just 3.6% in 2010.

Tea’s star is rising partly because of coffee fatigue, partly because of the rise of ethnic cuisine including Asian-inspired foods, but also because of the impressive array of tea beverages that are available. From speciality teas like Japanese matcha and African rooibos to thirst-quenching tea and lemonade blends, tea is remarkably versatile. And, this versatility is helping tea consumption grow at a faster rate than coffee consumption in the US market. According to IBISWorld, the amount of tea consumed by American consumers grew 22.5% over the past decade while coffee consumption actually dropped 1.9% between 2003 and 2013.

Even coffee giant Starbucks sees tea as the next big opportunity. Starbucks CEO Howard Schultz recently said that the tea category was “ripe for innovation” and that the company intends “to do for tea what we have done for coffee.” In December, Starbucks acquired the Teavana speciality tea chain and its 300 North American locations. Starbucks has big plans for Teavana, hoping to grow the chain to at least 1,000 units. Starbucks has already enjoyed major growth in tea, buying the Tazo brand in the US in 1999, and growing it into a US$1.4bn brand today. Next up for Tazo are retail stores, with Starbucks launching its first Tazo shop, which sells more than 80 varieties of loose-leaf tea, each priced by the ounce, last year.

Packaged, ready-to-drink tea also represents a huge growth opportunity, with Datamonitor projecting global sales expansion at a 7.5% CAGR for the period from 2012 to 2015. That easily tops a 1.8% CAGR for RTD coffee over the same period, as well as 4%-plus growth rates anticipated for packaged coffee and tea that are not ready-to-drink. Despite these encouraging growth projections, we have not seen the same flurry of new product activity in packaged, RTD tea that we have seen in restaurant tea.

Packaged tea innovation does offer some intriguing new blended fruit flavours and even tea with texture. In Belgium, Carlsberg Importers NV recently debuted Tao Pure Infusion Ready to Drink Tea in flavours like Green Tea (a blend of green tea, lime and jasmine) and White Tea (a blend of white tea, pomegranate and passionfruit). In Hong Kong, Teza Velvetberry debuted in an Iced Tea with Elderberry & Blackcurrant Juices with Vanilla & Cinnamon flavour – a novel blend of fruit juices, black tea and spices.

A chewy new texture is offered by TEAloe Green Tea & Aloe Beverage in flavours like Passion Fruit and Peach, each with “brewed green tea and juicy aloe bits.” Also new in the US is Cheribundi Refresh Ready-to-Drink Tea, sold in variants like Tart Cherry Jasmine and Tart Cherry Rooibos, each with a “harmonious blend of tart cherries and tea.” And, just to show that tea can take flavour inspiration from almost anywhere, Unilever Australasia has recently introduced Lipton Virgin Ice Tea in cocktail-inspired flavours like Daiquiri, Mojito and Pina Colada for a limited time in Australia.