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Tea Market

Global Tea Market Overview

Tea is the most widely consumed beverage in the world, after water. Rising tea demand is a significant component of the worldwide beverage market growth.

Tea is also one of the lowest cost beverages consumed globally, although some specialty tea goes for high premiums.

Tea is categorized using several different criteria; the most common is oxidation. Differing degrees of oxidation produce white, green, yellow, oolong, black tea, and dark tea. Herbal tea, while not technically tea, still falls within the product category of tea.

China has been the largest tea producer globally for over a decade. The major tea-producing countries are China, Sri Lanka, India, Kenya, and Indonesia. These nations are the most important producers globally; they represent almost 75% of global production. When sourcing tea for your tea business, there are advantages and disadvantages of using different nations as your suppliers.

Consumers consider tea to be healthy, and the product caters well to the wellness market. Science supports consumer perception of tea as a healthy beverage. Tea has potent antioxidants and minerals, such as potassium, magnesium, calcium and manganese.

Tea also offers consumers a range of health benefits. Studies have found tea consumption helps reduce cell damage from free radicals, lowers cholesterol levels, and facilitates healthy weight loss. The real and perceived health benefits of tea account for the popularity of green and black tea in the market. Herbal tea is gaining popularity and proving to be a relevant tea trend.

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Market Size and Growth

The global tea market was valued at nearly 200 billion U.S. dollars in 2020. It is expected to grow to over 318 billion dollars by 2025. During this period, the tea market is expected to grow at a CAGR of 9.72%.

The black tea segment contributed to the highest growth rate of the global tea market in 2020, accounting for US$24.3 billion. However, the green tea segment is expected to experience the highest growth from 2020 to 2028. This growing tea segment is expected to reach US$ 30.5 billion.

Other segments contributing to tea market growth include oolong tea and herbal tea.

Market Forces

Tea is prevalent in many emerging markets due to dominant tea cultures. Growing health awareness and disposable income has helped the tea market grow in established markets (e.g., United States). Specifically, the rising disposable income of the urban middle-class drives tea consumption and market growth.

Millennials frequently consume premium and health-oriented tea. Within the last five years, the out-of-home tea market has grown; various tea bars have been opening worldwide. Countries like the United States, Europe, Japan and Russia, are among the countries reflecting this trend of out-of-home tea consumption.

Consumers' changing lifestyles (e.g., an emphasis on health and wellness), a growing awareness of tea’s health benefits, and a willingness to spend, drives tea demand. The inclusion of additional healthy ingredients in tea (e.g., turmeric), is also driving the tea market forward. This trend is strengthened by linking ingredients in tea blends to specific health benefits (e.g., anticancer).

“Health and wellness are driving growth in the tea market, and retailers thread a needle between capturing growth and complying with the FDA claim regulations.”

Chris MacNitt,

Tea Development Lead at Starbucks

To capture such growth many established tea retailers are repositioning their products as lifestyle brands, hoping to reach more consumers. Established tea brands repositioning themselves in such a way often use social media marketing and digital PR (e.g., celebrity endorsements, influencer campaigns) to promote products.

Market Trends

Two macro trends shape the tea market, while fifteen other tea trends also influence the markets.

Growth in Herbal and Green Tea

Black tea is a large established market; growth in the tea market is primarily within the green and herbal segments. Strong consumer awareness of the health benefits of green tea propels the growth in this tea category.

Global green tea production is expected to grow at a faster rate than black tea. Much of the increase in green tea production reflects demand growth in China and in the Asia-Pacific green tea market. However, the increase in green tea production also reflects China’s attempts to satisfy global demand. China's export of green tea has been recording steady growth. China exported USD 685.67 million of green tea in 2019 compared to USD 648.56 million in 2016.

Increasing awareness of the benefits of herbal teas is driving similar growth, and these changing consumer tastes and preferences affect the tea market. The introduction of additional healthy ingredients in tea by blenders and retailers also fuels the market growth.

Asia-Pacific is Leading the Global Tea Market

Rapid growth in per capita income drives the tea market forward. Much of the recent per capita income growth is occurring in developing countries of Asia-Pacific.

Currently, Asia-Pacific has the largest market for tea consumption. It is characterised by robust economic growth in a number of developing countries, such as China and India. This economic growth creates a growing middle-class, with a preference for premium tea blends and brands.

Given higher disposable income, this growing middle-class segment often upgrades purchases from unpackaged tea to packaged and bagged specialty tea. These large, macro changes have the potential to develop into stronger and longer trends.

Premiumization and Specialization

While tea bags remain dominant in western markets (e.g., United States), specialty tea is growing; at home, and out-of-home consumption of specialty tea is increasing. This changing consumer behavior is contributing to the premiumization of tea.

Millennials are increasing their tea consumption, and they are specializing in product knowledge. The increasing number of tea education programs (e.g., tea sommelier, tea champion) is turning tea consumers into experts. The term “tea course” has shown steady, niche interest over the last five years, punctuated with spikes of interest.

Tea expos and events, such as the World Tea Expo, also play an important role internationally in shaping the speciality tea market. In North American markets, tea expos and events help turn tea from a commodity product into a flagship specialty product among millennials.

Market Opportunities

Introduction of New Tea Flavors to Create Opportunities

The growing demand for herbal tea, and new flavors of tea, provide growth opportunities for the tea market.

The launch of new tea flavors offers growth opportunities in the market; such teas include fruit and herbal teas (e.g., chamomile tea, peppermint tea). Other opportunities for growth include organic tea, green tea blends, and white tea.

Much of the demand for new herbal teas is driven by the utility and potential health benefits those teas offer. For example, the flowers used in Chamomile tea offer consumers utility and health benefits. Chamomile tea's greatest utility is as a sleep aid; it improves sleep quality. Chamomile tea also promotes digestive health, controls blood sugar levels, improves heart health, and has other health benefits.

Online Tea Stores

Buying tea online is now mainstream. Online tea shopping boomed throughout the pandemic as consumers demonstrated interest in the health and immunity benefits associated with tea. In addition, the closing of many brick-and-mortar tea shops during the pandemic drove consumers to purchase online.

Market Constraints

The increasing trend of coffee consumption threatens tea as a substitute product, constraining growth.

Like tea, coffee offers consumers nutrients and health benefits. Coffee offers nutrients like manganese, potassium, niacin, and other compounds; it also offers consumers a higher caffeine content, elevating the energy level of drinkers more and reducing fatigue. Coffee has been shown to reduce the risk of cancer and type 2 diabetes, heightening the similarities between coffee and tea.

Fluctuating raw material prices act as another significant constraint for the tea market.

Tea Market Segmentation

This article segments the global tea market by region; other forms of tea market segmentation include tea type, packaging, distribution channel, and application.

  • By type: the market is divided into green tea, black tea, oolong tea, herbal tea, and others.
  • By packaging: the market is segmented into plastic containers, loose tea (packets & pouches), paperboards, aluminum tins, and tea bags.
  • By distribution channel: the tea market is categorized into supermarkets, specialty stores, convenience stores, online stores, and others.

Segmentation By Region

The tea market can also be segmented based on region.

There are four general regions in the international tea market:

  1. North America
  2. Europe
  3. Asia-Pacific
  4. LAMEA (Latin America, Middle East and Africa)

This article offers a quick overview of select markets within these regions.

North America

The North American tea market is very competitive. This competitive landscape is dominated by global and regional players, which capture a significant share of the market. Companies that have emerged from the competitive rivalry are Unilever, Hain Celestial Group, and Associated British Foods.

Some growth in the coffee and tea markets is driven by customers seeking healthy beverages. Specifically, consumers are searching for non-alcoholic beverages to select over fruit juices and carbonated drinks.

U.S Tea Market

The tea market in the United States is growing, with Americans consuming larger quantities of tea each year.

In 2020, the U.S. imported nearly $474 million in tea (excluding herbal tea), making it the world’s second-largest tea importer. The customs value of America’s total tea import increased by 3.6% from 2015 to 2020. The top suppliers were China, Argentina, India, Japan, and Sri Lanka.

“Argentina is a strategically important tea producer to American brands selling ice tea. Black tea from Argentina doesn’t cloud when brewed; it’s widely used in RTD ice tea.”

Mackenzie Bailey,

Founder of Steeped Content.

This growth in the US tea market is driven by an increase in the volume and value of tea imports. The increase in health-conscious consumers demonstrates a higher willingness to pay for premium quality tea. These consumers also demonstrate a higher willingness to pay for innovations in tea flavors, packaging, and convenience.

Black tea, specialty teas, and ready-to-drink (RTD) tea are experiencing the highest rates of growth in the American market.

  • Black tea accounts for 85 percent of U.S. tea consumption; it achieved a 2.3% CAGR in imports between 2019 and 2020.
  • Specialty tea sales are growing by roughly 10% annually. Specialty tea includes loose-leaf teas, single-estate teas, rare tea, or ethical tea (e.g., fairtrade, organic).
  • In America, the RTD tea market is expected to grow 4 to 6 percent over the next five years (2021-2025).

The US tea market is highly competitive and concentrated. For example, JAB Holding Company owns several tea and coffee brands: Keurig Green Mountain, Inc., Peet’s Coffee & Tea, Caribou Coffee Co., Stumptown Coffee Roaster, Intelligentsia Coffee, Mighty Leaf Tea, and Tea Forte.

Canadian Tea Market Overview

Canada is not a major tea-producing country, yet the Canadian tea market is reasonably large. In 2020, it ranked nineteenth in revenue. The Canadian tea market was valued at US$1.28 billion in 2020, and is expected to achieve a CAGR of 3.1% between 2021 and 2026.

The Canadian market continues to show a preference for black tea; it's expected to be the best-selling type of tea in Canada. In 2020, black tea accounted for US$470 million in sales, and by 2025 the market is forecast to grow to US$630 million.

The herbal tea segment is also expected to grow over the coming years. Herbal tea manufacturers and retailers experienced growth during the COVID-19 pandemic. This growth is attributable to consumers seeking healthy products, and tea drinkers seeking products benefiting their health and natural immunity. This pattern in consumer behavior drove the Canadian tea market forward.

Tea consumption of tea in Canada is steady; 48% of Canadians drink tea every day. While tea's popularity may rise around Christmas, it has a stable demand throughout the year, which helps insulate Canadian tea companies.

Canadians are aware of the health benefits of tea. As such, Canadian consumers drink a wide variety of teas in reasonably high quantities. Because Canadian tea drinkers value the health benefits of tea, they are open to consuming tea in non-traditional ways (e.g., food, supplements).

Europe

UK Tea Market

The UK tea market reached approximately 1.5 billion GBP in 2020, reflecting a 250 million GBP decrease compared to 2019. Yet, experts expect this setback is only temporary, as the UK tea market is projected to grow at a CAGR of 4.71% from 2020-2025. This CAGR will expand the market from £1,507.1 billion to £1896.8 billion.

Consumers' increasing health concerns are growing the UK tea market; people are shifting their attention from carbonated drinks to tea.

Other factors that are growing the UK tea market include:

  • growth in disposable income
  • evolving preferences
  • healthy ingredients

However, a growing trend toward coffee consumption, and an increase in the cost of tea raw materials, constrains the UK tea market.

Factors affecting the raw material costs of tea include:

  • unpredictable weather in producing countries (e.g., India),
  • high cost of production

Asia-Pacific

The Asia-Pacific tea market reached USD $39,173.3 million in 2020. It is expected to reach a revenue of USD $51,650.0 million by 2028. The sharp increase in tea demand is attributed to strong tea cultures in eastern countries, such as China, India, Japan, and others.

The health consciousness continues to attract people to different types of tea (e.g., black tea, dark tea, green tea, white tea, oolong tea, herbal tea). Innovative packaging and flavors are anticipated to create new opportunities for tea businesses in the Asia-Pacific region.

Indian Tea Market

India is the second largest tea producer globally, after China. However, India has high domestic tea consumption; almost 80% of the country's total tea output is consumed domestically. Black tea is the most widely produced and consumed type of tea in India.

North India leads India’s tea industry, accounting for over three-fourths of output. Assam and West Bengal are the major tea producing states, and produce highly recognised teas named for their origin.

South India’s tea production is concentrated in the Nilgiris, which has lower output than North India. However, many specialty teas are produced in this region, diversifying India’s tea industry.

Latin America, Middle East, Africa (LAMEA)

Experts anticipate the LAMEA tea market to grow at a CAGR of 5.0%, reaching a revenue of USD $6,608 million by 2028.

Other forces are also influencing the growth of the LAMEA tea market. Health-conscious consumers are a growing segment of LAMEA populations, with an increasing awareness of the health benefits of tea, compared to carbonated drinks.

And many businesses are poised to bring products to LAMEA markets effectively. Growth in e-commerce food service is anticipated to drive tea demand in the upcoming years. The increasing availability of tea flavors (e.g., green tea, fruit tea) is also expected to drive the tea demand in the LAMEA region.

Argentina is a significant producer of black tea, and Kenya is the largest exporter of black tea globally.

Kenyan Tea Market

Kenya is the third-largest exporter of tea globally, after China and Sri Lanka; they are the largest exporter of black tea. Much of the tea produced in Kenya supplies the international market; in 2021, Kenyan tea was imported by 50 nations.

Four nations purchase roughly 77.6% of Kenya’s tea exports, creating a significant impact on the Kenyan tea market. For example, Pakistan purchases approximately 40% of Kenya’s tea exports (18.6 thousand tons of tea).

The tea industry in Kenya is an important contributor to the nation's economy. Kenya tea exports contribute approximately 33% (USD $34.98 billion) to Kenya’s 2021 GDP of USD $106.04 billion.

Tea Market Analysis

Porter’s Five Forces Analysis

​​Bargaining Power of Suppliers

Tea leaves are the primary raw material used in manufacturing varieties of tea. Added ingredients also may include fruits, flowers, herbals, artificial flavors, and sweeteners.

Those with deep expertise in tea may claim clear product differentiation based on the leaves themselves. Such experts claim tea terroir, picking, processing, and storage are variables by which tea can be differentiated in the market (e.g., they act as a means to differentiate between high vs low-quality tea).

However, specialty tea is a smaller segment of the market than bagged tea. Specialty tea often consists of loose leaf tea, which uses a higher grade of leaf and appeals to a market segment of consumers who may be better able to taste and assess the nuances of tea quality. Bagged tea often uses a lower grade of tea leaf (e.g., fannings), and consumers are less concerned with the nuances of taste.

The popularity of blends also helps mask the particulars (or imperfections) and the tea leaves used in blends. Such added ingredients can also offer tea drinkers a “better” tasting product.

The size of the bagged tea market and the popularity of blends combine to weaken the bargaining power of tea suppliers, and reduce product differentiation within the raw materials (tea leaves).

However, the comparatively small number of domestic and international raw material suppliers increases the bargaining power of tea suppliers.

Bargaining Power of Buyers

Many tea retailers have little bargaining power as there are numerous small retailers whom suppliers may sell to. Further, it’s not feasible for most retailers to extend downstream; the skills, climatic conditions and capital investment required for tea production decrease the bargaining power of buyers.

The Threat of New Entrants

The threat of new entrants is high in the tea market. Business model innovations (e.g., dropshipping) make it easy for new tea companies to enter the market. However, brands that adopt an easy entry business model (e.g., dropshipping tea) often struggle to differentiate their products. Companies who create their own supply chain (e.g., buy from origin) face greater challenges getting established, but can more easily differentiate their brand and products in the market.

There are some legal barriers and government policies that pose moderate barriers to entering the tea market. For example, products must meet certain safety and labeling requirements.

Three favorable factors attract new entrants to the tea market:

  1. demand for tea is high and retailers can create new blends
  2. demand for tea packaging innovation (e.g., sustainable packing) may allow some brands to differentiate themselves
  3. accessibility of e-commerce platforms (e.g., Shopify) makes launching easier

The Threat of Substitutes

Tea faces many substitute products (e.g., vitamin water), but coffee is tea’s biggest substitute. Coffee is consumed by people approximately twice a day, and also offers an energy benefit to consumers. Tea and coffee are substitutes for each other; consumers will choose coffee or tea based on preference, availability, and preferred benefit (e.g., energy, sleep).

Competitive Rivalry in the Market

The competitive rivalry among leaders in the tea industry is high. The growing demand for tea from different regions has encouraged market players to focus on expanding their business capacity and geographical presence.

PESTLE Analysis

Political Factors

Political factors address how and to what degree a government interferes in the economy. Political forces shaping tea markets vary from country to country.

Such factors often fall within seven broad categories:

  1. government policy
  2. political stability
  3. foreign trade policy
  4. tax policy
  5. labor law
  6. environmental law
  7. trade restrictions

Economic Factors

Economic factors affect the operation and profitability of a business within the tea industry.

Economic factors include:

  1. economic growth
  2. interest rates
  3. exchange rates
  4. inflation
  5. disposable income of consumers and businesses

Such factors may be macro or micro in nature, both significantly impact business operations.

Macroeconomic factors affect market demand and include variables such as interest rates, taxation, and government subsidies.

Microeconomic factors reflect how consumers spend their money. These factors strongly impact B2C businesses, such as tea companies.

Social Factors

Social factors, also called socio-cultural factors, reflect the attitudes and beliefs of markets, and changes in the population itself. To effectively bring tea companies’ products to market, marketers must understand these factors.

Social factors include:

  1. population growth (e.g., Pakistan, the biggest tea importer in 2020, is growing at 2%)
  2. age distribution (e.g., Millennials and Gen Z are more likely to consume tea blends)
  3. health consciousness (e.g., tea to help lower stress levels)
  4. consumer behavior (e.g., buying online, tea subscriptions)
  5. attitudes of social causes (e.g., products that support social causes, like empowering tea farmers)

Technological

The technological landscape changes rapidly. This rate of change impacts the way tea companies bring their products to market; it also affects marketing.

There are three distinct ways technological factors affect tea businesses:

  1. new ways of producing goods (e.g., agricultural and processing innovation)
  2. new ways of distributing goods (e.g., distribution and logistics innovations)
  3. new ways of communicating with target markets (e.g., marketing and branding innovation)

Technological factors include:

  1. technological innovation in tea (e.g., tea scanning technology for better harvesting)
  2. mechanization across the tea vertical (e.g., processing leaves with machines for product consistency)
  3. marketing and branding innovation (e.g., mudwater tea)
  4. business model innovation (e.g., subscription boxes)
  5. automation (e.g., email marketing)

Environmental Factors

Environmental factors are market-driven; they are either enforced by consumer behavior (e.g., purchasing decisions), or natural constraints (e.g., lower production volumes due to climate change).

Companies must respond effectively to environmental factors to ensure they are positioned for long-term growth.

Environmental factors include:

  1. climate change (e.g., drought in Kenya affecting tea production)
  2. pollution and toxicity (e.g., unsafe heavy metal levels in some Chinese tea)
  3. scarcity of raw materials (e.g., purple clay reserves are dwindling, affecting Yixing teapot prices and production volumes)
  4. consumer pressure for more carbon-neutral business operations (e.g., pressure to import first flush tea by boat, rather than air)
  5. consumer pressure for more sustainable products (e.g., biodegradable tea bags, reusable tea tins)

Legal Factors

Legal factors represent mandatory requirements, enforced by governmental branches.

Legal factors include:

  1. health and safety (e.g., FDA testing and labeling requirements for tea)
  2. equal opportunities (e.g., keeping your tea company compliant with hiring requirements)
  3. advertising standards (e.g., certain health claims can be made of tea, others cannot)
  4. consumer rights and laws (e.g., returns)
  5. product labeling and product safety (e.g., language requirements for labeling, storage requirements)

Companies must know what is legally required to trade successfully. If a tea company trades globally this becomes more complicated as each country has its own rules and regulations.

Tea Market SWOT Analysis

Strengths

  • Many consumers consider tea healthy, driving high demand. Tea contains potent antioxidants and minerals.
  • The global tea market is experiencing high market growth. Consumers are making lifestyle changes, and disposable income rises in the urban middle class.

Weaknesses

  • Coffee is a close substitute for tea. Growth in coffee consumption constrains global tea market growth.

Opportunities

  • The increase in organic tea and the launch of new tea flavors create growth opportunities in the market.
  • Growth in e-commerce platforms (e.g., Amazon, Shopify) is expected to increase global tea sales.
  • There is a growing demand for herbal teas among Millennials seeking health benefits.
  • Digital marketing (e.g., content marketing, social media marketing) is used to promote and position products.
  • Eco-friendly packaging (e.g., biodegradable tea bags) resonates with consumers and can differentiate your product and brand.

Threats

  • The global tea market is likely to experience intense competitive rivalry among industry leaders (e.g., Associated British Foods, Tata Global Beverages, Unilever).
  • The growing demand for tea within different regions encourages market players to expand their geographical presence.
  • Climate change poses a threat to many tea producing regions, and may limit retailers access to products.

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About Mackenzie Bailey

She is the founder of Steeped Content. She's the go-to marketing expert in the tea and coffee sector. Industry veterans call Mackenzie "a fresh source of new ideas," and clients say she goes "above and beyond." 

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Do you want to sell more coffee and tea?

Hi, I'm Mackenzie Bailey. I help tea and coffee businesses grow. My only question is will it be yours?

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