Wake up and smell the tea

Wake up and smell the tea

Could it be the humble tea leaf’s turn for premiumization?



Global and U.S. Retail Sector Leader - National Line of Business Leader, Consumer Markets

KPMG in the U.S.


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Woman preparing tea

From hazelnut macchiatos to smooth flat whites, there are endless ways for coffee lovers to get their caffeine fix – and now tea is having a renaissance too. As people’s tastes change, brands and chains are monitoring consumers’ habits for revenue threats – or opportunities.

After water, tea is the world’s most consumed beverage. It remains hugely popular in India and China – although, in the latter, it suffers from a perception that it is a drink for elderly people.

The challenge in developed markets is to elevate it to the same level of prestige as coffee, so consumers spend more – and don’t default to standard black/green/herbal varieties while basing their choice on price, Fair Trade status or decaffeination.

Specialist tea shops, with tea sommeliers taking the place of baristas, are becoming more popular. In the tea-loving UK, modern tea salons and Japanese and Russian tea rooms are now emerging. A report on tea-drinking trends by Allegra World Coffee Portal found that two-thirds of UK consumers want specialist tea shops in their towns.

The Irish have always liked their tea, as have the Dutch. Now France is turning over a new leaf, opening specialist tea salons and importing a wide range of fine teas. In Germany, consumption of herbal tea is at record levels.

In the US, Starbucks began investing in this sector 15 years ago when it acquired tea company Tazo. Within a little over a decade, its products (now sold in supermarkets) were contributing more than US$1bn in yearly sales. In 2012, Starbucks paid US$620m for the tea shop chain Teavana. It has since opened tea bars offering premium tea lattes, smoothies and loose-leaf tea mixtures created by ‘teaologists’. The more laid-back bars also offer healthy meals. Today, tea accounts for more than 10% of Starbucks’ US retail sales.

Food and drink brands can see the opportunity too. Five years ago, Nestlé introduced its Special.T single-serve machine, with 25 varieties of tea, drawing on the success of its Nespresso coffee devices and consumables.

The US (the second largest importer of tea, after Russia) is a major consumer of ‘ready-to-drink’ tea (e.g. iced tea), sales of which have grown more than 15-fold over the past 10 years, according to the Tea Association of the USA. Last year, sales were estimated at US$5.2bn. Figures suggest that four in five US consumers now drink tea, with Millennials the most enthusiastic (87%).

Drinks companies are expanding their tea ranges and sell at a premium. In the US, Argo Tea is rolling out tea-based dairy beverages at select retailers. Alternatives to iced tea include organic kombucha teas, cannabidiol-infused teas, and a sparkling, flavored Chai tea.

“The growing taste for tea in so many forms and across so many markets is a massive opportunity for retailers and brands,” says Mark Larson, KPMG’s Global Head of Retail. “We have seen the premiumization of wine in the 1990s, of coffee in the 2000s. Could it now be tea’s turn?”

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