Increased consumption has been driven by consumers’ rising health awareness, with RTD teas offering an attractive alternative to carbonated soft drinks. In Asia – by far the biggest market for RTD teas – functional benefits are also a key characteristic of the market.
RTD teas will continue to evolve with exotic flavors and more sophisticated offerings. But the category will also face increased scrutiny over its health positioning, with some RTD teas containing as much sugar as carbonated soft drinks.
RTD teas are a ‘star performer’ in the beverage market, with an annual average growth rate of 7%: high above that of soft drinks, according to Zenith’s 2017 RTD tea innovation report.
The category has attracted plenty of start-up brands, while at the other end of the scale international manufacturers such as Nestlé, Coca-Cola, and Unilever/PepsiCo have helped popularise the category.
Meanwhile, companies such as US-based Arizona Beverage Company and Japan’s Ito En have succeeded in scaling up operations and increasing sales beyond their domestic market.
While Asia Pacific is the leading region in terms of overall sales, its per person consumption of 7 liters is less than half of that of North America, which had a per capita consumption of 16 litres in 2016. In Europe, consumption is around 5 liters per capita.
The RTD tea market is considerably smaller in the Middle East, Africa and Latin America, which together accounted for just 4% of global sales in 2016. However, Zenith identifies these emerging markets as key growth regions, having expanded at double-digit growth rates between 2010 and 2016.
On a global level, lemon is by far the most popular RTD tea flavor, followed by peach.
“Nevertheless, a search for more exotic flavors and fruit blends has fueled the category in recent years, with flavor innovation encompassing everything from lychee and passionfruit to mint,” Francesca Hall, market analyst, Zenith, told BeverageDaily.
In the future more exotic flavors can be expected, as can an increased emphasis on clean label.
“Particularly in more developed markets, RTD tea will continue to evolve with general trends seen across the wider soft drinks category, continuing to innovate in more exotic flavors and experiment with more sophisticated sweetener offerings,” said Hall.
“Iced teas will also move with clean label trends for fewer ingredients, stripping back on artificial colors, flavors and GMO ingredients, and less fussy packaging. We have already seen this with the recently announced rebranding announcement from Nestea, for example.
Spotlight on Asia
Asia takes the lion’s share of the global RTD market (72%) followed by North America (15%) and Europe (9%).
Functionality characterizes the market in Asia Pacific, focusing on digestive health, cholesterol/blood sugar level control and skin health. In this more mature market, manufacturers are trying to differentiate their brand from competitors.
“In markets where CSDs are struggling to grow, manufacturers may move towards the RTD tea category, and flavored water brands like Bai and Sparkling Ice have already expanded their existing portfolios to bring out iced tea ranges.
“In Austria, juice companies Rauch and Pfanner have RTD tea ranges, and in France, leading bottled water brand, Cristaline, introduced its first RTD tea in 2016.”
How healthy are RTD teas?
RTD teas are perceived as healthier options due to their antioxidant content and natural positioning. Yet consumers are not always aware that some products still have high levels of sugar.
Hall says scrutiny of RTD teas will only heighten in the coming years.
“To combat this we have seen an increase in reformulation to reduce sugar, and an increase in marketing efforts that highlight ‘30% less sugar than the average soft drink’ or ‘50% less sugar than leading colas’, for example,” she said.
“Light, unsweetened and sugar-free variants are gaining popularity. Already we have seen new unsweetened product launches announced by brands such as TEAS’TEA in 2017, and this is likely to be a key theme in the year for brands that have yet to follow suit."
Challengers to RTD tea
With such scrutiny on health and wellness, the RTD tea category needs to concentrate on meeting the expectations from health conscious consumers.
“RTD tea brands need to ensure that, as consumers increasingly switch from carbonated soft drinks, they turn to RTD tea and not other healthier-perceived beverage options,” said Hall. “Water plus brands, as well as plain bottled waters, represent the strongest threat to this growth.”
Price, however, is less of a factor with the greater availability of large pack sizes and more private label brands.
“The recent upsurge in premium RTD tea offerings indicates that price is no longer a key deterrent for new and curious consumers,” said Hall.