Tea Market Segmentation
Market segmentation of tea occurs based on type, packaging, and distribution channel.
- 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, aluminium tins, and tea bags.
- By distribution channel: The tea market is categorized into supermarkets, specialty stores, convenience stores, online stores, and others.
Segmentation by Tea Type
Specialty tea market segmentation by tea types may be the most practical way for businesses to monitor the tea market.
Segmenting the tea market by type includes green tea, black tea, oolong tea, herbal tea, and other types of tea. Other types of tea include white tea, yellow tea, and dark tea.
Market analysis shows the black tea segment generates the highest revenue, and black tea is expected to remain dominant until 2027. The dominance of black tea is attributed to the rising numbers of global tea drinkers.
Black tea is popular for its health benefits, including a high concentration of antioxidants and polyphenols.
However, the green tea segment is projected to grow at the highest CAGR until 2027. This growth is attributable to increased health awareness and the growing number of educated tea consumers. Industry tea education programs, such as Tea Sommelier courses, increase the number of informed tea consumers.
“The green tea segment sees fast growth, registering a CAGR of 9.8% between 2019-2027.”
Segmentation By Packaging
The tea market can be segmented on packaging. Doing so creates five packaging segments in the tea market - plastic containers, loose tea, paperboard, aluminium tins, and tea bags. Within each packaging segment, brands with the best tea packaging can distinguish themselves from competitors.
Paperboards are the largest packaging segment, and have the highest share in the global tea market. Paperboard packaging is popular because of its versatility of design and barrier properties.
The tea bag segment is expected to experience the highest growth. Tea bags offer consumers greater convenience than loose tea. Brewing tea with tea bags is easy, and the disposal of the used tea bag is convenient.
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Segmentation by Distribution Channel
The tea market can also be segmented based on the distribution channels. This creates five segments: supermarkets, specialty stores, convenience stores, online stores, and others.
Supermarkets are the most prominent segment; this distribution channel achieved the highest share in the tea market in 2019.
Purchasing tea at supermarkets is a popular option among consumers because it offers a one-stop shopping solution. Supermarkets provide consumers with a wide range of products at competitive prices, typically located in easily accessible areas.
However, the online segment is expected to grow the fastest. More consumers purchase tea online because of increasing internet penetration, increased online shopping on smartphones, and the effects of Covid-19.
Five Principle Segments in the Tea Market
Five market segments that brands may wish to be mindful of are:
- true tea lovers,
- variety seekers,
- transformation seekers,
- tea rooms, and
- the ready to drink (RTD) segment.
True Tea Lovers
This segment is engaged with and educated about tea, and are familiar with origins (e.g., India and Nepal). Some in this segment can taste a cup of tea and identify the product attributes such as origin, processing method, and elevation. These people are discerning, influential, and often vocal in their opinion of specialty tea products.
True tea lovers are less price-sensitive; they prefer high-end tea, herbal teas, and accessories. This segment almost exclusively purchases and consumes loose leaf teas; product quality is important, and often status is too.
These individuals are more likely than other segments to purchase from retailers offering fresh tea (e.g., first flush Darjeeling), as it becomes available each spring. Many members of this market segment know how to inspect tea leaves for quality, and have stances on industry debates (e.g., organic teas vs non-organic teas).
This segment of tea drinkers prefers products that offer novelty and excitement. Aesthetics and pleasant flavours are valued, although less value is placed on the nuances of taste, quality, and origin.
Variety seekers are engaged with the products, have a reasonable willingness to spend, and are more forgiving of imperfections, as long as the taste is good. They may also be willing to purchase more novelty products, increasing your potential for seasonal revenue.
Transformation seekers place more value on the effect of tea, rather than the tea itself. They are seeing products that act as supporting resources to achieve their goals (e.g., weight loss, focus). Transformation seekers are highly motivated by social proof.
Proprietors of cafes and tea rooms often seek high-quality teaware and tea, for use in business operations. This segment values products of sound quality; they are relatively intolerant of risk, product defects, and the need to replace products shortly after purchasing.
Ready to Drink (RTD) segment
Consumers in the RTD segment prefer convenient products that meet their lifestyle needs.
As this is a competitive market segment, strong branding is critical for success. Building a strong brand encompasses many aspects, but in this case, two noteworthy elements are packaging and a clear value proposition.
Choosing a RTD beverage is typically a low involvement decision, one in which consumers want to expend little mental effort in making the choice. As such, social proof can be effective at triggering product trials; it leverages the bandwagon effect and reduces the perceived risk.
Speciality Tea Market Segmentation
There are 1,607 specialty tea businesses in America. Of these 16% (255 retail outlets) are chains with five or more locations. General tea outlets account for 55% of specialty tea retailers, while afternoon tea venues account for 34%. Chinese tea shops represent 7.3%, and Japanese tea shops represent 1.2% of the total.
The American specialty tea retail market annually grosses between $690 million and $1.2 billion.
Tea sold by specialty retails
$320MM to $380MM
Tea sold by non-specialty retails
$310MM to $680MM
Tea sold by international Vendors
$2MM to $5MM
Total retail market size
$690MM to $1.2B
Diversified businesses sell specialty tea, along with other goods. Such companies include cafés or coffee shops with premium tea menus.
As such, general tea stores and afternoon tea shops have a strong presence in the American tea market. Together these two segments account for 89% of specialty tea points of sale. Spice and Tea Exchange is the largest chain store in the U.S. with significant specialty tea offerings; they have 71 locations.
A single store selling a range of tea earns $220,000 to $270,000 annually. Such stores may average online sales between $40,000 to $65,000.
Further specialization within the specialty tea segment can increase profits. For example, vendors exclusively selling Chinese tea can earn more online; such businesses may earn up to $70,000.
Chinese tea is known across America, indicating mass market awareness.
Yet three States show a greater interest in this type of specialty tea. Maine (search interest 100) is the most interested in Chinese tea, followed by Massachusetts (search interest 91) and Connecticut (search interest 74).
Companies with extensive online selections earn up to $110,000 annually, but creating a profitable online tea store requires digital marketing investment.
Three crucial enablers of digital marketing success for online tea stores are:
- Search marketing, which includes search engine optimization (SEO) and pay-per-click advertising (PPC)
- Email marketing
- Content marketing (e.g., blogging)
The three states with the most significant intent to purchase tea online are Connecticut (search interest 100), Nebraska (72), and Illinois (68).=
Three States demonstrate a broad interest in specialty tea: Florida (search interest 100), Texas (80), and California (64).
Other states show greater interest in loose leaf tea, the principal component of the specialty tea sector. The greatest interest in loose leaf tea exists within the western states of America. Oregon has the most interest in loose leaf tea (search interest 100), followed by Washington (94), Idaho (84), and California (79). Colorado (80) is an outlier with a high interest in loose leaf tea.