Although iced tea has established a strong presence in Japan and the US, the product has been slower to take off in other markets. Richard Corbett, strategic analyst with research company Canadean, assesses the potential for iced tea to become a growth driver in the soft drinks category.

With evidence of some soft drink categories maturing, producers are assessing which horses to back in an increasingly diverse marketplace. While packaged water and still drinks are often touted as the front runners, iced tea is also seen as one of the contenders for future growth.

According to Canadean's Global Database, Japan and the US still account for around half of all global sales but this share is being reduced, as other markets embrace the product.

As it is home to Coke and PepsiCo the US is often a good marker for the future, and all the more for iced tea as America was the birthplace of the concept. The modern ready-to-drink iced tea segment really caught on in the late-1980s when Snapple, then a small brand local to New York, extended its range to include RTD iced teas.

Today, iced tea is starting to fire again in the US with sales jumping by 8% in 2005, the strongest rise for more than a decade. Nestlé, through its Beverage Partners Worldwide (BPW) agreement with Coca-Cola, and Unilever, through its agreement with Pepsi, are responsible for the two biggest brands on the market, with a combined share of around 47%.

But if iced tea is to contribute significantly to future soft drinks growth it will surely have to cut its teeth in the key western European market. Here, however, fortunes have been mixed. In 2005, demand for iced teas edged forward by just 1%, and even that was an improvement on the 5% decline endured in 2004. Inevitably, the 2003 high, when western European sales jumped by 19% on the back of an already strong upward curve, has proved a difficult benchmark to pass. But Canadean does expect the western European market to show a rise of 3% for 2006.

Overall the per capita consumption in West Europe remains low at 6-7 litres and conceals a wide variance between markets, from Switzerland's 29 litres to those with less than a litre - Finland, Ireland, Sweden and the UK. Iced tea in the region is a young category appearing to catch on in some markets and not in others. Interestingly, Europe is actually home to four of the top ten per capita iced tea nations in the world: Switzerland, Germany, Austria and Italy. If you add France to these top four per capita markets, you have accounted for well over three quarters of the region's iced tea volumes.

In addition, the fastest growing region in the world for iced tea products is East Europe where sales soared by nearly 50% in 2005. Growth of 25% was forecast for 2006. Russia was a major contributor to this performance, with sales doubling last year as a result of the strong impact of Lipton and Nestea following their launch several years ago. These big percentage increases are encouraging but the growth is from a low base, and per capita consumption across East Europe is still as low as one litre.

Asia is the biggest region for iced tea products, registering around 60% of global volumes. Japan, with per capita consumption at 45 litres, is a major contributor but iced tea is gaining popularity elsewhere and Asia is expected to see iced tea sales grow by more than 10% in 2006. What is exciting for the category is the 15 litres per capita consumption in Hong Kong, which could hint at massive potential in the huge neighbouring Chinese market. This was borne out in 2005 by the 29% leap in Chinese sales, boosted by the activity of leading players such as Tingyi, Uni-President, Wahaha and Coca-Cola. In China, much of the recent popularity of the category stems from innovation emphasising associations with health and not just refreshment.

Central and South America has an even more limited culture of iced tea consumption and each consumer drinks barely half a litre each. Just three markets - Brazil, Mexico and Venezuela - make up more than 75% of all the region's sales. Venezuela is the only representative in the global top 20 per capita ratings, thanks in particular to the Nestea brand which has helped stimulate interest in the category.

A whistle-stop tour of the major regions of the world helps to provide a number of clues about whether iced teas will become a genuine rival to the other mainstream soft drink categories.

Nestea and Lipton are certainly increasing their global presence and often prove to be the main catalyst for a market's iced tea category development. Demand appears to vary sharply from market to market, and uniform growth is unlikely to be seen across the world. Although a big iced tea launch does not always trigger large-scale adoption, there is evidence that the iced tea category can sometimes lie dormant in a market for a number of years before exploding into the mainstream.

The rise of own label or private label share is always a good indicator of the prospects of a category. Retailers rarely take risks when they develop their own brand ranges. In iced tea, own label share globally is about 6% but in established markets it is much higher. In Germany for instance, private label share is as high as two thirds of the total market.

Iced teas have the potential to meet the complex refreshment and well-being requirements of the modern day consumer, and progress should continue to be made. They will continue to be positioned as a healthier alternative to carbonates. Green teas (and more recently white teas) containing polyphenols and antioxidants will become more prominent and the low-calorie segment will also gain more of a presence.

Flavour developments will broaden the category's appeal and erode the share of the core peach and lemon flavours which often predominate. Mango has proved popular in recent years and increasingly fruit juice and tea are blended to boost the healthy credentials of the product. With carbonated iced teas shrinking and powdered variants remaining relatively static, it will be the still ready-to-drink tea segment which will see most of the innovation and which will be responsible for the future prosperity of the category.

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