Taxing tea was disruptive. Ample warning and centuries of goodwill lessened the impact, but deeply entrenched trade relationships remain unsettled in 2020.
Constraints on free trade continue to threaten the global industry.
In September, after months of escalation, the United States imposed a 15% tariff that swept Chinese tea and coffee into a trade war viewed as repugnant by tea enthusiasts and professionals. Late in the year negotiators agreed to reduce duties by half. The U.S. Trade Representative's 86-page Phase One agreement between the U.S. and China is expected to be signed in January. Lower duties will become effective sometime in February.
Tea import volumes were down 1% through October. Import values for all tea imported to the U.S. rose 2% during the year suggesting a continued trend toward premium quality tea along with more value-addition at origin. Charts showing full year results for the past five years depict a plateau typical of mature markets where consumption is closely tied to population growth. The most significant change in the year ahead will result from shifts in supply which is overabundant, exceeding demand.
Peter F. Goggi, president of the Tea Association of the USA wrote, "international trade is becoming much more of a challenge to the entire supply chain."
The industry must work together to address several issues including tariffs, country of origin labeling and the lack of harmonization of tolerances for chemicals essential to cultivation of tea. "Economic growth and stability cannot be achieved long term without free trade," wrote Goggi.
China, which had invested heavily in Fair Trade and third-party certifications to become the U.S.’s top tea trading partner, saw an overall decline of 9.1% in green tea imports to 6.5 million kilograms during the first 10 months of 2019. Black tea imports, totaling 7.2 million kilograms, fell 0.7% through October. The total value of black and green teas was down 17% to $62 million compared to sales during the same period last year. Chinese green tea exports dominate the the market with black teas ascendant. China accounts for 44% of U.S. green tea imports. While China retaliated with increased tariffs on U.S. goods including tea, the country reduced barriers to trade with the European Union and other partners. China felt no ill effect from U.S. tariffs on tea. In many instances teas that would have shipped direct to the U.S. were routed to Germany and Canada and blended prior to sale.
Shipments from China accelerated in the spring months as tariffs loomed and wholesalers scrambled to find non-Chinese sources.
Sri Lanka, India and Africa each benefited from disruptions. Imports from Sri Lanka increased 24% to 5.5 million kilograms during the first 10 months of the year. Imports of organic green tea in bags were up 88% by value compared to the first 10 months of 2018. Tea imports from Sri Lanka were valued at $39 million through October, up 14% compared to the same period during the previous year, according to the USDA’s Foreign Agriculture Service. Green tea imported from Africa increased 68% to 10 million kilograms during the first 10 months of the year. African black tea imports rose 7% by volume.
Like a stream coursingover jagged rocks, tea made its way.
Track these 10 teatrends in 2020.
- Ready to drink and refrigerated teas are synonymous with convenience. RTD is by far the largest segment in tea earning more than $10 billion and accounting for almost 50% market share with $4 billion in sales in mass market and convenience outlets. Sales of canned and bottled teas were down 1.3% for the year, according to Chicago-based market research firm IRI. Natural and healthful teas, such as Teavana (sales up 15.1%), Bai tea (up 44.4%), Guayaki Yerba Mate (up 18.7%) and Pure Leaf (up 7.1%) signal a trend to lower calories and plant-based ingredients. Sales of bottled water surpassed carbonated soda in 2019 with seltzer and sparkling waters up 15% in the past year, according to IRI but the biggest winners in the category are iced coffee and cappuccino, up 6.4% to $2.87 billion and cold brew coffee, up 18.1% with sales of $436 million.
- Botanicals that promise specific health benefits are outselling many traditional camellia sinensis-based teas. Functional and condition-specific blends are popular with young tea drinkers. Every major brand has introduced line extensions, altering their identity. Rishi, for example, is now Rishi Tea & Botanicals. Maria Uspenski, founder of The Tea Spot, predicts adaptogenic teas that offer overall wellness benefits will do well in 2020.
- The amount Americans spent eating out at restaurants exceeded money spent at grocers for the first time in 2019, according to the U.S. Census Bureau. Restaurant spending is up 4% with delivery and digital ordering accelerating beverage sales at coffee shops.
- Foot traffic continues to decline. Coresight Research estimated 9,300 retail store closings in 2019. As a result, successful marketing and merchandising at conventional brick and mortar tea retail ventures demands omni-channel offerings and experiential options. Mall locations face increasing headwinds. Credit Suisse estimates 20% to 25% of U.S. malls will be shuttered by 2022.
- Those who smirk at bubble tea should visit the 1.6 million member Facebook group “Subtle Asian Traits” and then review financials at homegrown chains like Boba Guys and Kung Fu Tea as well as Gong Cha and Tiger Sugar, a Taiwan chain with new stores in Brooklyn and Los Angeles, Toronto and Vancouver.
- Matcha is the star of green tea growth. Green tea now accounts for 15% of U.S. consumption and skews much higher among Americans with Asian heritage. Global Industry Analysts (GIS) predicts the green tea market will grow $8.1 billion globally by 2025 and that the U.S. will maintain a 4.9% growth rate during the next five years. Green tea imports from Japan are up 102.1% during the past five years, the biggest gain of any U.S. tea trading partner, according to Worlds Top Exports. Volume during the first ten months of 2019 totaled 9.8% of green tea imports and approached $10 million annually largely due to the popularity of matcha.
- Kombucha is morphing into complimentary product lines. The Global Hard Kombucha Industry Research Report estimates the market for hard (alcoholic) kombucha to expand from $55.45 million in 2018 to $1.12 billion million in 2026 due to a combined annual growth rate of 42% through 2026. Category sales are approaching $500 million in mass market.
- Origin continues to shudder under the weight of increased labor costs. Oversupply has depressed tea prices globally weakening the bottom lines at multinationals and smallholders alike. The Tea Association of India reports that only 20% of tea estates earned a profit in 2019.
- Transparent supply chains are now the rule with every major chain accepting a consumer mandate to reveal specifics about the environmental condition of gardens, labor standards, certifications, mid-supply chain logistics and more. Staling is an issue as suppliers like Vahdam Tea and Teabox shine a light on the fact that many teas are stored for many months before sale.
- Weather extremes. The blood red skies over Australia due to forest ash of summer follow an unusually cold winter the Southern Hemisphere. Yields at the Nerada tea estate in North Queensland were cut by half due to drought.
RTD Tea has outperformed everyother tea segment during the past ten years, increasing 485 million gallons involume and growing at a compound annual rate of 3.4%, according to Gary Hemphill, managing director of research atBeverage Marketing Corp. (BMC)
Hemphill reports that RTD Tea now accounts for a 47.3% share ofthe tea market, surpassing teabags at 42.9%. Loose leaf accounts for 0.7% oftotal sales, trailing tea in single-serve capsules at 0.9%. Iced tea mixesclaim the remaining 8.2% of the tea market, according to BMC’s DrinkTell database.
“The large traditional beveragecategories have been trending downward,” he said, noting the share of tea byvolume (less RTD) fell 2.5% in 2018 and is down another 3.6% during the firstof 2019.
Arizona and Lipton continue todominate the ready-to-drink tea category, but sales of traditional sweetenedbottle teas are in decline. Pure Leaf was the top U.S. brand with $768 millionin sales, growing 3.7% last year. Arizona, with 16% market share, earned $361million in sales but growth was flat, according to IRI. Lipton, Lipton PureLeaf, Lipton Brisk and Lipton Diet hold the largest combined share (44%) withtotal sales of $1.6 billion. Coca-Cola’s Gold Peak is No. 3 earning $412million and growing 2.5% in 2019, while sales of sister brand Honest Teadeclined 15%, according to IRI.
Starbucks earned $770 millionon sales of bottled tea and coffee producing five of the top 10 best sellingbrands. Look for Coca-Cola owned Costa Coffee to challenge that dominance alongwith brand extensions like Honest Coffee.
Refrigerated teas are doingextremely well with specialty brands like Argo Tea occupying a premium slot. GT’sLiving Foods kombucha brands earned $257 million, according to IRI. Sales ofKevita refrigerated teas in mass market and convenience were $72 million, up16%; Health Ade tea sales were $44 million and its kombucha earned $15 millionlast year while Humm and Brew Dr Kombucha earned about $20 million each.
Plant-based foodsand beverages are trending and while tea fits the profile, botanicals are nowthe focus of global food and pharmaceutical companies such as Tyson Foods,Nestle, Bayer AG and Bio-Botanica and Martin Bauer Group. Beverage MarketingCorp. reports that functional and wellness beverages account for more than 50%of the non-alcoholic beverage market in the U.S.
The trend favoring plant-basedbeverages is global with ingredients like fruity-floral hibiscus attracting aglobal following.
Tea companies deeply investedin botanicals in the U.S. include Yogi Tea, Traditional Medicinals and HainCelestial, all of which introduced new products in the past two years alongsidetraditional tea companies Bigelow Tea and Harney & Sons. Newcomers to watchinclude WAKUWellness Tonic, a blend of 20 Ecuadoran known as healing water.
Maria Uspenski, founder of the Tea Spot in Boulder, Colo., wrote, “unless you’re a big herbal tea consumer, you may not have heard of Tulsi, Ashwaganda, Rhodiola and Maca.”
“What all these herbs and Turmeric have in common is that they are in a class of plants called adaptogens, first classified in the mid-20th century by a Soviet scientist researching ways to minimize the stress response in active combat aviators,” Uspenski explained.
“Along with green tea and CBD (cannabidiol) which are also adaptogens, they are helping to take functional teas to a new level, one which fits our lifestyles right now,” said Uspenski. “Adaptogens help manage both stress and hormone balance. The balancing response of “adaptogens” is non-specific – that is to say, they help bring the body back to center, regardless of which direction the source of the stressor came from,” she said.
GT’s Living Foods line and Simple Life hemp-infused teas are marketed as adaptogenic.
Consider ingredients that enhance flavor and function, advises Beverage Industry magazine: “There are many types of herbs, flowers, and spices being incorporated into beverages,” said Holly McHugh, marketing associate at Niles, Ill.-based Imbibe. “Herbs like mint and basil, floral ingredients like lavender and rose, and spices like turmeric and ginger are being used in beverages. These ingredients are used because of their inherent health benefits and to add subtle nuance to traditional flavor profiles like true-to-fruit.”
Monitor energy drinkscontaining caffeinated herbs like Yerba Mate and Guayusa as they attractrecreational users concerned with caffeine intake. Energy drinks are a subcategorygrowing at 9.3% per year, according to market research firm FiorMarkets.
Biofortificationrefers to breeding crops to multiply their nutritional value. Nutrient densityis increasing through selective breeding for components such as Vitamin E orbeta-carotene. The emphasis is on delivering micronutrients deficient in staplefoods. Sales are expected to reach $130 million by 2025.
Clinical and weight management drinks are another subcategory to watch. Boalthouse Farms “Perfectly Protein Heart Healthy” refrigerated tea grew by 16% to $15 million in mass market and convenience, according to IRI. Category sales are estimated at $17.7 billion by 2025, according to Fior. Whey-based beverages currently account for 28% share of the protein-based drinks divided into milk, casein, soy, egg and rice. Bland in flavor but easily digested, these RTDs offers unique functionality based on its high nutritional value. Growth rates exceed 7% per year. North American sales were $3.9 billion in 2017.
Market researcher Adam Rowe identified1,607 specialty tea businesses in the U.S. of which 255 are chain outlets withfive or more locations.
The total U.S. specialty retailmarket grosses between $690 million and $1.2 billion annually, according to anationwide survey of tearoom owners and managers by Sinensis Research. Thesurvey was conducted online with data from 400 respondents and 70 randomizedfollow up phone interviews, according to Rowe who launched Sinensis Research in 2019 to monitor the industry.
A single store selling a variety oftea earns $220,000 to $270,000 annually with average online sales of $40,000 to$65,000, according to Rowe. Specialty vendors exclusively selling Chinese teaearn a bit more online, up to $70,000. These general tea outlets account for 55%of total locations. Afternoon tea venues account for 34% of the total andChinese tea shops represent 7.3%. Japanese tea shops represent 1.2% of thetotal.
The number of people drinkingspecialty tea is just a fraction of total U.S. tea drinkers, according to Rowe.“Of the $708 million of tea imported in 2018, only around $12.84 million wouldgo on to be sold as loose tea,” he said. This figure does not include importedherbal teas.
Retail Sales by Vendor Type
In 2019 the biggest winners in foodservice were fast and convenient. Tea does well in this segment as a healthy alternative to soda but casual and fine-dining restaurants have yet to fully appreciate tea. Freshly brewed iced teas is one example of how a simple upgrade improves lunch fare but restaurants that brew fine quality loose leaf to accompany an elegant dessert, and behind-the-bar specialty drinks that feature tea are far too rare.
Foot traffic at traditional restaurants is in decline, according to researchers at TDn2K [since rebranded as Black Box Intelligence]. Restaurant same-store sales were down 2.1% year over year in December, the worst result the industry has seen in more than two years, according to Black Box which surveys 47,000 restaurants generating $75 billion in annual sales. The culprit is over expansion which led to only 0.2% growth in comparable store sales during the second quarter of 2019 as foot traffic declined 2.9%, writes Black Box. Comparable sales (comps) measures the average number of purchases and amount spent per location. These numbers are the primary driver of profitability per location.
“Average comps are (barely) positivebecause of menu price increases, but foot traffic declines are bad news forincumbents, which are losing sales to those chains still expandingaggressively. With profits slim and getting slimmer, many chains are in aprecarious spot after losing customers for so long,” according to the article “America is Eating Out like Never Before, But Not Everyone’s aWinner.”
Starbucks increased sales by $1.97 billion at its 14,606 locations, an 8.3% increase that includes a strong showing in tea. Comps grew 7% at existing stores. Other winners include Chick-fil-A and Domino’s Pizza.
Guests continue to respond well to fine-dining brands, a category which has now posted three consecutive years of sales growth, according to Nation's Restaurant News.
Foot Traffic in Decline
Record holiday sales in 2019 reversedan ominous trend observed in December 2018 when consumers panicked, and salesdeclined to levels last seen in 2009.
This year’s holiday sales, excluding autos, climbed 3.4% despite six fewer shopping days. Note however that it was online sales that stole the limelight, increasing 18.8% compared to 2018. E-commerce now accounts for 14.6% of total retail sales. Foot traffic continued to decline. Sales at department stores fell 1.8% (while online sales grew 6.9%), according to MasterCard’s SpendingPulse report which tracks sales from Nov. 1 through Christmas Eve.
As noted in Retail Dive, Insurance company Euler Hermes concluded in a recent study that some 56,000 stores representing 10.7% of America's retail stores have closed since 2008 resulting in the loss of 670,000 jobs. Retailers participating in the study (41%) described margins falling. E-commerce has expanded 10.5% per year easing pressure on corporate bottom lines, but Euler reports that for every job created in e-commerce, four and a half jobs are lost by traditional sellers.
One of the more interesting studies in the past year involves foot traffic at so called “experiential malls” locations that offer entertainment, host community events and encourage retailers to attract customers with attention-getting marketing. Data analysts at Thasos found that brands including Apple, the Italian food hall Eataly and boutique auto dealerships operated by Tesla are not drawing extra traffic. Thasos notes that foot traffic at enclosed malls anchored by department stores at the best shopping centers in the U.S. peaked around August 2018, slipped as the holidays approached, surged briefly and are declining again. Thasos monitors 100 million mobile phones (with permission) to measure how frequently shoppers visit malls. The surge was in response to promotions observes John Collins, Thasos co-founder and chief product officer. He told CNBC that “if you’re selling merchandise at a loss, you can only do that for so long.”
Atmid-year real estate tracker Coresight reported U.S. retailers had shut 5,994stores, while opening 2,641 but Deborah Weinswig, founder and CEO of Coresightrevised that to 9,000.
“The slowdown we saw in 2018 seems to have been a brief respite in what’s a steady, long-term trend,” she told CNBC.
Globally, forecasts are for soft growth in China and Europe to continue, writes Nations Restaurant News. “The 2020 economic outlook is for more of the same,” according to Joel Naroff, president of Naroff Economic Advisors and Black Box Intelligence economist.
Premiumization is a powerful marketing tool. A few years ago when World Tea News first profiled the Boba Guys in San Francisco they explained tapioca pearls were not a gimmick, but a way of enhancing the experience and flavor of locally sourced ingredients. Andrew Chau and partner Bin Chen have since set the standard for domestic retailers. Imitation is flattery and the flood of better-tasting, not-that-bad-for-you boba chains has surged. Tiger Sugar, an icon in Taiwan where brown sugar striped take-away cups get noticed, opened shops in Los Angeles and New York, the latest in a long queue of competitors that include Chatime, Kung Fu Tea, Gong Cha, CoCo Fresh and Quickly Bubble Tea.
The segmentappears to be crowded but at the store level return business and the novelty ofboba drive sales. Orbis Market Reports estimatesbubble tea globally will reach $8.5 billion by 2024 from $5.4 billion in 2019.Growth, compounded annually is projected at 7.9%.
In addition to SanFrancisco’s three stores, the BobaGuys now have locations in Palo Alto, San Ramon, San Carlos, and Long Beach,Los Angeles and Culver City as well as three stores in New York City.
No one was really surprised when health guru Dr. Andrew Weil announced he is so excited by matcha that he launched a MatchaKari brand with Andre Fasciola. Weil first discovered matcha while traveling in Japan in 1959. Teas, sourced in Uji City near Kyoto, Japan, start at $37 per tin with ceremonial grades selling for more than $60 for 30 grams.
Matcha is the darling of thegreen tea trend. It is versatile, profitable and increasingly popular asAmericans find ways to conceal its grassy reputation. Matcha lattes arepopular, shortbread baked with a few pinches of matcha benefits from its color,subtle flavor and as a health enhancer. AIYA makes matcha sticks to-go andglobal RTD brand Ito En bottles several matcha and other green tea varietiesmade with premium tea leaves.
Globallythe market is estimated from $1.4 to $1.63 billion. Japan and China currently drinkabout $800 million annually. Zion Market Research estimates sales of $4.83 billion by 2024 globallywith annual compound growth of 9.25%.
Sales of Kombucha in mass market outlets exceeded $500 million in 2019. It is a global success with 350 manufacturers world wide, but the U.S. remains the seat of innovation. GT Dave, the founder of market leader GT's Living Foods (which includes kefir, coconut yogurt) is a billionaire at 41 who bottles one million gallons of Kombucha per year at a new 260,000 sq. ft. factory in Los Angeles. Profiled in Forbes he describes how his parents mixed yeast and bacteria to make the tea at home. He was 13 when he took his first sip telling the magazine: “I thought it smelled weird. I thought it tasted weird. I thought it looked weird.”
Enthusiasts largely agree with that description, but Kombucha is that rare medicinal that can be blended with nearly every fruit and some spices. While relegated to natural and health food stores since the 1990s, GT Dave persisted in convincing Walmart and Costco and Kroger it was ready for the mass market. PepsiCo responded to the opportunity by buying rival Kevita for $260 million. The category has since exploded and may soon evolve into an alcoholic category called Hard Kombucha.
Supply is Out of Sync
Tea Association of the USA president Peter Goggi, is concerned that supply continues to outstrip demand. "History has proven that if tea prices rise, the producers will manufacture more tea to take advantage of the higher prices. Producers, by skipping pruning cycles or plucking a little further down on the bush have an almost immediate ability to turn on a volume tap of 20% more tea. The result of more availability and poorer quality: lower prices. Escaping the clutches of this boom/bust cycle will be one of the keys to the long-term survival of the business. There are only two solutions: improve consumption or reduce production," wrote Goggi.
To enhance quality (and discourage the use of pruned leaves) India has for the second year ordered factories closed through February. Yields remain high and the respite enables dormant trees to produce a better spring flush. Other producing regions should follow their lead.
Bowing to consumer demand stirred by the activists at Traidcraft Exchange in the UK, executives at Typhoo, Twinings, Yorkshire Tea, Tata (Tetley) and Clipper Teas in 2018 began revealing the gardens and cooperatives that supply their tea. In 2019 Unilever, which had resisted the practice, published a list of gardens that spans 21 countries . Publishing supplier lists has since become a point of pride with many websites sharing details about terroir and the professional skills that contribute to quality and flavor. After three centuries zealously guarding the identity of suppliers, pledges to treat workers fairly and Unilever's promise to strictly avoid forced labor practices that amount to modern slavery, may soon become the norm for U.S.-based suppliers as well.
"Transparency has been a buzz word in the tea industry for some time now. 2020 is the year for us to figure out exactly what that means," wrote Nicole Wilson, a tea writer and consultant. "Consumers are more knowledgeable than ever. They look for detailed information about where their tea comes from and how it was produced before making a purchase. Social media allows customers to connect directly to producers. Retailers will need to put their cards on the table to remain competitive. Transparently and ethically sourced specialty tea is the way forward," she wrote.
“Weather patterns are changing faster than forecasters anticipated,” observes Jhanne Jasmine, R&D Specialist & Tea Program Educator at Stash Tea Company. “Annual super storms will continue to disrupt tea production and impact product availability, quality and pricing. As a result of these volatilities, it’s important that companies continue expanding their resource options for teas, spices and botanicals to avoid disruptions in production at their own facilities,” she advised.
Adding to this, we’ll continue to experience global political instability which may cause additional price fluctuations of many raw materials. These factors may create some additional challenges for smaller retail tea shops, which are already struggling with rising expenses. With an increase in these consequential price uncertainties, companies would be wise to build a financial buffer in to their 2020 business plan to offset unreliable cost of goods forecasts, she advised.
It’s certainly been a tough year in Australian agriculture – a sunburnt country where rains suddenly halted an extended drought in Queensland “only to create a new set of disasters in the process as the barren earth disappeared under an inland sea,” wrote Nerada tea estate director Toby Poyner. At the onset of winter, a killing frost stripped the trees of leaves. Losses totaled $1 million last year.
Australia’s national science agencyreleased a study of the nation’s 8,000 kilometer coastdocumenting the effects of human-induced climate change. “Extreme climateevents such a heatwaves, floods and drought damaged 45% of the marineecosystems along Australia’s coast in a seven-year period,” according to researchersat CSIRO.
“The cyclone season is an additional challenge for farmers in our home state. Ex-Tropical Cyclone Owen broke records when it dumped more than 700 millimeters of rain in 24 hours in some parts of Far North Queensland just a week before Christmas 2018,” according Poyner who pledged to stand by our employees, many of whom have been with us for decades, so that we remain a viable part of the local economy."
The Last Gasp
Assam rarely experiences big swings in temperature. During the harvest 87.8 degrees Fahrenheit (31 Celsius) is normal.
In June 2013 temperatures unexpectedly climbed to 101.3 degrees Fahrenheit (38.5 Celsius), the highest in 33 years. The following April the temperature reached all-time high of 104.18 F (40.1 C).
In the gardens millions of tea trees took notice. They flex a bit, relaxing as the efficiency of their internal hydraulics improved. Picture the juices flowing as leaf factories begin manufacturing at full tilt. New foliage appears in abundance in a few days. Coarse under leaves that sustain the tree get a rare chance to sunbathe. Dr. Henry Adams at Oklahoma State University explained 99% of the water moving through a tree is used to keep open the plant's stomata (pores that enable the plant to breathe).
Tea trees need more water when it is hot. After a few days of record temperatures, without rain, the previously energetic leaves began to wilt and eventually curl. Budding stops. Trees react to drought by closing the pores that let in carbon dioxide, said Adams. The tree soon begins to experience carbon starvation. Stored sugars and starches keep the tree alive but sensing danger, a few leaves are cast off, lessening demand for water. Drought brings-to-mind brittle twigs and frail, dried leaves but sudden death is a matter of hydraulics and the ability to inhale. If the tree loses too much water too quickly, an air bubble (embolism) will form. When that occurs in the lower trunk the tree cannot transport water from the roots to the leaves, which often proves fatal.
In gardens wereprecipitation (or irrigation) cannot meet the tree’s demand for water they die — not by ones and twos, but suddenly by thethousands.
Tree deaths increase 15 to 20% for every one degree Celsius increase. The number and density of trees stoke the competition for water with each tree fighting for the last drops.
Those that survive experience severe stress and show less resistance to pests. In time every tree perishes.
― Dan Bolton