HEALTHYAN-TEA-DOTE

AMANDA CHATER

Tea is getting an image makeover, thanks in part to the fast-growing ready-to-drink segment.

Dollar sales in food, drug and mass merchants, excluding Wal-Mart Stores, rose 13.3% from 2002 to 2004, nearly twice as fast as overall tea sales, according to Mintel International Group.

"Ready-to-drink tea is a growing category that's really taken off in the past year," said Rick Vernon, chief executive officer of West Point Market, a single, upscale store in Akron, Ohio. He estimated RTD tea sales at his store were up between 10% and 15% in 2005, despite a lack of promotion.

With Americans increasingly concerned about health and wellness, tea's supposed health benefits have a lot to do with its growing popularity.

According to the Tea Council of the USA in New York, tea is a good source of flavanoids, which may reduce the risk of cardiovascular disease, heart attacks and stroke. It may also lower the risk of some cancers, support the immune system and help oral and bone health, attributes sure to resonate with an aging population.

Most of the RTD tea sold at West Point Market is bought by baby boomers, Vernon said. "They're sick of pop and water," he said. "The health benefits have been a big push, especially for green and white tea, but also there are very interesting flavors, such as blackberry-sage and jade-mint, from Republic of Tea."

Bottled teas' flavor varieties have helped their appeal with younger consumers, observers said.

"The traditional tea consumer, historically, has been older and female, but RTD skews younger," said Joe Simrany, president of the Tea Council. Tea has been shedding its once-conservative image as manufacturers promote it as a fun, healthy beverage.

"It's drunk by people wanting to go beyond coffee," said Tom Pirko, president of Bevmark, a food and drink consulting company based in Santa Ynez, Calif. "It features new, contemporary images and is no longer the tea of middle-aged women who sit around with cats on their laps."

Convenience also is big part of RTD tea's appeal. "It's a pain the butt to brew tea, and the tea companies have done a good job of marketing and packaging tea," said Vernon, whose West Point Market carries RTD tea in single-serve containers only.

Food service and the steady flow of new products also are driving interest.

Tea salons in the United States number between 1,500 and 1,700, up from 200 a decade ago, according to Simrany.

Data from Productscan Online, the new-product database of Datamonitor, Naples, N.Y., show 191 stockkeeping units of RTD tea launched last year, surpassing the 135 introduced in 2004.

The variety helps sales, West Point's Vernon said. He has even seen some of his RTD customers migrating to the bagged tea aisle, even though it's on the opposite side of the store.

Simrany said he expects to see more twists on tea-based beverages, such as tea mixed with other ingredients, like Ocean Spray's Juice & Tea beverages, tea blended with juices.

Supermarkets tend to focus on RTD teas in single-serve bottles and cans and merchandise them in multiple locations to encourage impulse buys.

Penn Traffic, based in Syracuse, N.Y., displays single-serve RTD tea near the front of its stores in addition to the beverage aisle. It's bought mainly by teens and college students, with families picking up tea in bigger sizes, spokesman Marc Jampole said.

All RTD tea sold at Associated Supermarkets in New York is single-serve, said Steve Schwartz, a buyer for the 10-store chain. The teas are sold at room temperature from the beverage aisle and from coolers around store perimeters, cross merchandised with prepared foods.

Unflavored tea and raspberry- and peach-flavored versions make up 75% of RTD sales at Associated, Schwartz said. The best sellers are two brands that pioneered the segment, Arizona Iced Tea and Snapple. "Over the years, people have become accustomed to this becoming a mainstream drink. They've also become more educated, so they're drinking more of it," he said.

West Point Market sells RTD tea in its cafe in addition to the beverage aisle. There, it brews China Mist tea and Jet Tea. "We make more money on it in food service rather than RTD, so we don't do it off the shelf, too, because it would take away from the credibility," Vernon said. China Mist's passion fruit tea costs $1.49 for a 12-ounce serving, with free refills; Jet Tea costs $2.99 for 12 ounces.

The store also uses its cafe to cross merchandise RTD tea. Vernon uses Republic of Tea's special merchandising racks, but said that of RTD tea in general, "The packaging is so good, it pretty much sells itself."

Retailers and observers are optimistic about RTD tea's future.

Mintel International forecasts that sales of the segment, which represented nearly one-fourth of the $2.5 billion tea market in 2004, will grow 30% through 2009.

"There will be more imports, and we're making room for new brands since customers are always asking for them," West Point's Vernon said.

Simrany went so far as to predict that the growth of bottled water, the second-most consumed beverage behind soft drinks, will slow and be replaced by products such as tea. "It's following the same track as bottled water, but unlike water, which provides only hydration, it provides antioxidants and flavor," he said.

Supermarkets stand to capture the bulk of future tea sales as retailers integrate them into mainstream aisles, said Seth Goldman, president and chief executive of Honest Tea in Bethesda, Md. "Tea is construed as a natural product, and even when it's on the regular beverage shelf, people still pick it up for health reasons because that's what they recognize."

Readied for Growth

Sales of ready-to-drink tea have been growing faster than bagged/loose tea, to hold an almost equal share of the market.

FDM sales of tea and RTD tea, by type, 2002 and 2004

'02 sales*; % share; '04 sales*; % share; % Change in sales '02-'04

Bag/loose tea: $670; 41.3%; $694; 40.0%; 3.6%

RTD tea in cans or bottles: $557; 34.4%; $631; 36.4%; 13.3%

Instant iced tea mix: $280; 17.3%; $267; 15.4%; - 4.6%

Refrigerated tea: $115; 7.1%; $142; 8.2%; 23.5%

Total: $1,622; 100.0%; $1,734; 100%; 6.9%

Source: Mintel International Group *sales in millions of dollars