2014 Beverage Report--Trend: The Stairway to Health. Countertrend: The Road to Flavor

Consumers alternately demand wellness and big tastes, and they’re willing to pay for both

By
Steve Holtz, Online News Director & Beverage Editor

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Iced Tea: The Move to Premium

CSDs’ loss has meant a gain for several other beverage categories, including energy drinks and bottled water. But iced-tea makers believe they’re in a good position to benefit from the slow move away from sodas.

It’s part of what folks at Nestle Waters North America look at as an ongoing consumer migration. “What we see is a lot of households right now leaving CSDs, even diet [soda]; they’re moving into healthier options, and iced tea is considered to be a healthier option,” says Ashley Allen of Nestlé Waters, maker of Sweet Leaf, Nestea and Tradewinds iced teas. “We’re seeing that shift over [to tea], and then those people are migrating to water. So it’s a multistep move.”

Gary Hemphill of Beverage Marketing Group agrees iced tea is hitting a nerve these days. “Today’s consumers have greater awareness that what goes into your body impacts your body,” he says. “People have a greater understanding of the importance of drinking and eating healthier. This overall trend has manifested itself in a movement to products that are better for you, or at least perceived as better for you.”

Consultant Mary Pellettieri agrees, pointing out that iced tea comes with a preconceived notion of being healthier, even if some brands are essentially sodas without the carbonation.

“It’s refreshing. Iced tea is tasty,” she says. “It’s a much more natural, simple product.”

And while volume sales of iced tea are down 2.6% in c-stores through Nov. 1, 2013, according to Nielsen data, sales of premium iced tea were up a remarkable 19.7%.

“The value or mainstream segment, the lower price point, is in decline,” says Jim Donker of Nestle Waters North America. “Where we’re seeing positive growth is in the premium segment of the category.

“The premium products are appealing to the true tea drinker … [who] is interested in a product that tastes like tea and delivers a premium taste. That’s what’s growing.”

Ivan Alvarado of Dr Pepper Snapple Group agrees, encouraging convenience-store retailers to “drive margin by enhancing the position of premium teas. Focus on brands that will help drive profitability (penny profit) for your tea category by placing them in more visible positions.”

And the makers of high-end tea have noticed the trend, too. During a December visit to CSP’s offices, Arsen Avakian, creator of Chicago-based Argo Teas, said his company is focusing on the convenience channel going forward.

“There is an opportunity window [in iced tea] right now, and we’re filling that window as fast as we can,” Avakian said. “I believe the convenience sector is the one [channel] that is making the right choices to serve consumers well into the future.”

Retailers tend to agree, many having made it clear that they don’t need any more 99-cent pre-priced iced teas, even while acknowledging that price has driven the category. “I’m surprised by the resilience of iced tea,” said Lundy Edwards, general manager of retailer Forward Corp., Standish, Mich., during CSP’s Cold Vault Summit. “It’s price-driven. Suppliers are dropping prices to meet” those 99-cent offers.

But it’s been prominent enough to make Lundy “sacrifice CSD space to sell more tea.”


Just the Stats: Iced Tea

2013 unit growth in c-stores through Nov. 30: -2.6%

Bright spots: Consumers interested in high-end products

Pain points: Pre-priced product

If iced tea were a musical entertainer, it would be: The Beatles. It has a long history. Not everyone loves every song (uh, flavor), but most can find something they like.

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