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Can soft drinks producers catch the iced tea wave? - Comment

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This month, soft drinks commentator Richard Corbett turns his attention to the weird - and wonderful - world of iced tea, a segment that has been around for far longer than we think.

Nestle took sole control of the Nestea iced tea brand earlier this year

Nestle took sole control of the Nestea iced tea brand earlier this year

Conditions were stifling at the 1904 World's Fair in St. Louis and tea plantation owner Richard Blechynden was struggling to sell his products. In a moment of inspiration, he thought to add ice to it. His fortunes changed and such was the popularity of Blechynden's novel spin that - although not invented that day - the iced tea concept came into being.

Iced tea accounts for nearly 6% of the total worldwide soft drinks category

More than 100 years on, and iced tea is playing a very important role in the soft drinks marketplace. According to GlobalData, the segment accounts for nearly 6% of the total worldwide soft drinks category. Indeed, in the last decade, sales globally have grown by more than a half.

However, Nestle, the owner of Nestea, believes the iced tea market has "evolved". This was the factor the group cited when it decided earlier this year to call time on its Beverage Partners Worldwide partnership with The Coca-Cola Co. The time is right, Nestle said, to "develop Nestea independently".

Maybe there was a perception that Lipton's tie-up with PepsiCo had yielded better results for Nestle's rival, Unilever. A more influential factor, though, will likely be that Nestle saw the way the wind is blowing. The group clearly wanted to invest in their brand to capitalise on the trend towards what they see as "healthy hydration".

Nowhere is this more relevant than in the US.

Iced tea has been identified as a sector that is well-positioned to appeal to CSD migrants

As demand in the country for CSDs continues to wane, opportunities have emerged to quench thirsts with so called 'guilt-free products'. Consumers still want refreshment, but without making a well-being sacrifice. Iced tea has been identified by many as a sector that is well-positioned to appeal to CSD migrants.

Iced tea is a versatile product: Depending on their culture, consumers around the world drink them in different guises. They may be carbonated, uncarbonated, powdered, home-made, black, green, herbal, premium or cheap. Although lemon and peach remain popular flavours, iced tea is now sold in a plethora of different flavours and there is plenty of scope to innovate.

It's this versatility that has enabled iced tea operators to mould their offerings to meet changing consumer tastes and demands. For this reason, you can expect iced tea to be a popular focus for continued new product development, as the big players look to protect themselves against these changing currents of consumer demand.

In the US, we have seen a definite shift from CSDs to flavoured sparkling waters - yet, a swing from CSDs to iced teas is also very evident. In the last five years, the country's CSD sales have fallen by 8% while iced tea consumption has increased by 9%. This is being driven by innovation, which is making these drinks more relevant to the modern drinker, who increasingly perceives iced tea positively, due to its antioxidant properties. Note also the growing number of low-sugar variants on the market. These factors will help to underpin the progress of the iced tea segment, as its appeal to people looking for an alternative to CSDs grows.

We gained plenty of clues how Nestle sees the iced tea market evolving from the launch of its new Nestea proposition in February. The reformulated drink, in a snazzy new bottle, contains no artificial flavours or colours, offers an organic option and is described as 'slightly sweet'. We can assume that means lower in calories. There's also enough of a passing resemblance to Coca-Cola's Honest Tea brand - which is a 'tad sweet' and is entirely organic - to suggest that there is consensus between Nestle and Coca-Cola on where the iced tea segment is heading.

The boundaries of the iced tea segment continue to be stretched in the US, with its functional cues coming more into focus. Kombucha, for example, is a sub-segment of fermented teas that is seeing its profile rise as interest in probiotic foods and digestive health rises. Not to miss out, PepsiCo entered the fray late last year through its acquisition of KeVita, a fermented probiotic drinks producer.

Not only has the product base become more diverse, but so has the number of operators. Smaller, craft-style players have sprung up - in the tradition of Snapple and AriZona - with lots of fresh ideas. This is making for a dynamic and fast-moving marketplace.

Iced tea in the US has become unrecognisable from Richard Blechynden's days at the start of the last Century. The conventional iced tea product is being increasingly marginalised to make way for a product that meets the expectation of a new breed of consumer who wants something different from their refreshment. The recent rapid evolution of iced tea in the country is pertinent to the global soft drinks arena; what happens there will inevitably arrive in your market soon.

Nestle, Coca-Cola, PepsiCo and others will ensure it does.


Sectors: Soft drinks, Water

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