tea market trends in china, russia, germany & india

1

BY

IMPERIAL COLLEGE LONDON

T4 CONSULTANTS

TEA INDUSTRY ANALYSIS BASED ON THE GLOBAL EMERGING TRENDS

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LinkedIn: Ken Ife

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Introduction.....................................................................1

Literature Review.........................................................2-6

Results and Discussion............................................7-12

References...............................................................13-19

Table of Content

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The hot beverages industry has shown a positive growth of 11% globally, reaching

an all time high in 2011 (Euromonitor, 2012f). Tea is a dominant driver of the

industry volume as consumers consume tea in larger quantities and on more

occasions.

Tea has become more popular as people see it as an alternative hot drink that

boosts energy, provides relaxation and ensures health benefits. By looking at the

global tea industry, tea continues to grow significantly; for example, the value has

nearly doubled from year 2010 at US$26 billion (£17.24billion) to US$39.4 billion

(£26.12billion) in 2011 (Euromonitor, 2012f).

The tea manufacturers are facing significant changes in the market. One of them is

the competitors’ aggressive entrance to the premium market in order to capture on

the value growth (Euromonitor, 2012e). They are able to achieve premiumisation by

offering high quality products and innovative packaging in response to the

consumers’ higher willingness to pay. Meanwhile, the increase in health conscious

consumers has shifted product preference from black tea to tea with health benefits

such as green and fruit/herbal tea. Furthermore, the rise in urbanisation has created

another challenge for the company as it has led to the boom in cafe’ culture

(Euromonitor, 2012e). This results in the change of tea consumption from in-house

to out-of-home. In effect, the company needs to act on expanding their distribution

channels. Regarding ethical consumerism, many companies have started partnering

with ethical labels such as Fairtrade and Rainforest Alliance in order to respond to

consumers’ expectations of sustainably sourced and grown products (Moore, 2010).

1. Introduction

3.2.1 Urbanisation

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The following literature review provides the necessary background research on the

significant trends impacting the tea industry. Within this section, the four trends will

be discussed which includes urbanisation, health and wellness, premiumisation and

ethical consumerism.

Urbanisation as the process by which an increasing proportion of the country’s

population starts residing in urban areas. According to Regmi (2008), urbanisation

can lead to structural changes in food consumption patterns due to the change in

lifestyle, increase in disposable income and product varieties.

Mintel (2012) conducted a research on the effect of urbanisation on beverage

consumption behaviour and found that along with urbanisation, young people under-

35 are the least likely to drink tea at home as they tend to eat breakfast out of home.

Therefore, Mintel believes manufacturers should expand the distribution through

alternative channels such as vending machines to engage with the out-of-home

drinkers. Euromonitor (2012a) predicted that as a result of urbanisation, the

preference in tea bags will increase along with the boom in cafés. Urbanisation has

also lead to a stronger demand towards higher-end tea as people have higher

disposable income.

3. Literature Review

3.1 Introduction

3.2 The Impact of Major Trends on Tea Consumption Behaviour:

3.2.2 Health and Wellness

3.2.3 Premiumisation

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Health and wellness trend is a major driver in the hot beverage market. The

increase in health awareness has led to 7% growth in demand for products offering

health benefits such as vitamins and food supplements (Euromonitor, 2012b).

According to Dexia sustainability research (2009), the trend has been responded by

many multinational companies such as Kraft, which encouraged customers to have

responsible consumption. The report also suggests that over 70% of consumers rely

their purchase decisions on a Guideline Daily Amount nutrition label.

The trend is also impactful in tea industry, which has led green tea to grow at 2.6%,

in comparison to black tea at 0.6% in 2009 (Food and Agriculture Organization of

the United Nations, 2010). Not only in developed nations, but consumers in less

economically advanced countries are also shifting towards healthier options of

beverages (Meziane, 2007). The researches identify huge opportunities for tea to

capture on this trend.

Premiumisation is one of the most important strategies that can drive leading

manufacturers to be innovative and win in the highly fragmented FMCG market.

According to Meziane (2007), the constant reinvention of premiumisation and the

emergence of “super premium” products drive both prices and perception of

premium products into the mainstream. This trend has been validated by

Datamonitor (2010b), which states that premiumisation has continued to develop in

more product categories and has achieved higher price tiers.

Tea has also experienced a strong consumer demand in premium products

especially among regions with high tea consumption per capita such as the Eastern

3.2.4 Ethical Consumerism

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Europe (Euromonitor, 2012a). This resulted in global tea sales value growth of 12%

compared to 4.4% in volume growth in 2011, which shows the evidence of

significant price increases. Premiumisation allows tea manufacturers to pass on the

increase in tea prices to consumers without being overly criticized. (Silverman,

2012)

Ethical consumerism is a rising trend among consumers in every industry across the

world. In coffee and tea industries, consumers are becoming aware of how the

ingredients are farmed and whether farmers are facing unfair wages and poor

working conditions (Euromonitor, 2013d). In a European study, Singh et al. (2012)

stated that social responsibility is important to 70% of the respondents when

choosing a product. Hoek et al. (2012) reported that some consumers can be

influenced by ethical claims and would be willing to pay more for those brands. In

recent years, companies in many countries have partnered with ethical labels such

as Fairtrade and Rainforest Alliance in order to ensure consumers that their

products are sustainably sourced and grown (Euromonitor, 2013d).

However, some of the researchers doubt if the positive attitudes towards corporate

social responsibility would lead to improved purchasing behaviour. The research by

De Pelsmacker et al. (2005) stated that consumers’ buying behaviours are not

consistent with their positive attitudes toward ethical products. This finding is

supported by Deng (2011), as only 12% of the customers will make an actual

purchase in response to the enterprises’ ethical activities even though 44% of them

feel positive toward the ethical behaviours.

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Based on the studies mentioned above, the effects of three major trends -

urbanisation, health and wellness and premiumisation have been proven to be

significant and therefore should be utilised. Urbanisation would lead to more tea

being consumed on the go whereas tea would be purchased from alternative

distribution channels including vending machines and cafés. As tea is being

associated with health benefits, consumption rates will grow due to the increase in

the number of health conscious consumers. Moreover, premiumisation enables tea

manufacturers to achieve higher profitability by adding value to the product. While

social responsibility has been the focus of many companies, there are still ongoing

debates regarding whether purchase behaviour will be influenced by ethical

concerns.

3.3 Conclusion

5. Results & Discussion

Market Overview

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Based on the primary and secondary research, each trend has a different degree of

impact on different countries. In order to tailor suitable and effective

recommendations, the most significant trends that determine customers’

preferences in certain countries should be analysed.

Four countries are selected as the focus of this research including India, China,

Russia and Germany. According to Euromonitor (2012c), China, India, Russia are

the biggest tea markets worldwide ranked at 1st, 2nd and 4th respectively in terms of

tea consumption volume. Based on the market size and growth potential, those are

the major markets in which tea providers should emphasize on. In addition,

Germany is an interesting tea market in which consumers are extremely health

conscious.

The Chinese tea market value is £6,608 million in 2012 and is expected to grow

42.8% to £9,436 million in 2017 (Euromonitor, 2013g). According to Food and

Agricultural Organization of the United Nations, tea consumption per capita was

approximately 0.8 kg in 2011 (Chinafrica, 2011). With the increase in population and

disposable income, China is believed to be the largest potential tea market.

Green tea remains the largest tea type because of the Chinese tradition, having the

largest consumer base and the most extensive product mix (Euromonitor, 2013g).

Traditional tea market is highly fragmented with only a few large players and many

small players.

5.1 China

Trends: Premiumisation & Health and Wellness

Market Overview

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Meanwhile, the key driver of Chinese tea market is instant tea, which is gaining

significant popularity due to its convenience (Companiesandmarkerts.com, 2013).

Instant tea registered a robust growth among all the tea categories with retail current

value growth of 19% in 2012 (Euromonitor, 2013g).

In traditional tea market, premiumisation becomes the main trend. Packaged tea is

expected to replace unpackaged tea as the tea industry is becoming more

consolidated and consumers will increasingly consider branding (Euromonitor,

2013g). This statement has been verified by interviews with Cao, Researcher of Tea

and Food School of Anhui Agricultural University. Consumers are placing higher

requirements on the quality and brands of tea, pushing tea producers to upgrade

their offerings.

Health issues and food safety are the main concern of Chinese consumers. The

credibility of the tea industry has been affected by the scandal of pesticide residues

in tea (The Standard, 2013). Customers showed low trust on the quality of tea bags

and doubted the ingredients according to the focus group. This is expected to pose

challenges to tea bag consumption.

The tea market in India is valued at £866 million in 2012 and is expected to grow to

£1,044 million by 2016 (Euromonitor, 2012i). The domestic consumption of tea per

capita is approximately 750 grams, which is relatively low compared to Russia at 1.3

kilos; this offers a huge potential for tea to grow (Charhai, 2010). Moreover, the

branded tea category has shown a rapid increase in demand with 20% CAGR and is

5.2 India

Trends: Urbanisation & Health and Wellness

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expected to double within the next few years. The two largest tea players are Tata

Tea and Brooke Bond, both of which are mainly present in the loose black tea

category while Hindustan Unilever led sales with a retail value share of 29% and

was followed by Tata Global Beverages (25%).(Euromonitor, 2012i)

Urbanisation has led to the change in landscape of tea market in India. The

percentage of urban population is expected to increase from 31.16% in 2011 to 40%

in 2013 (National Institute of Urban Affairs, 2011). Consumers are constantly in

search of convenient product packaging to match with their busy lifestyles, leading

to more tea being consumed on the go.

Urbanisation has also contributed to the change in consumer behaviour towards

health and wellness trend. This is because consumers are becoming more educated

and earn higher disposable incomes, which drives them to be more health

conscious on purchase decisions especially among young working professionals.

Economic Times (2011) consumer survey stated that 50% of the adults in the 25-34

age group and 60% of those in the 35-44 age group are making higher attempts to

eat healthy. This has also led to the increase in demand of healthy tea including

herbal and green tea in which the latter is the fastest growing category with 11%

increase in volume sales (Euromonitor, 2012i). Tea is also becoming more popular

as a refreshment beverage to help relieves stress especially among the middle age

consumers (Nielsen, 2012a).

Market Overview:

Trend: Premiumisation

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The tea market in Russia is valued at £2,347 million in 2012 and is expected to

increase by 4.5% over 2012 to 2017 (Euromonitor, 2013j). Tea is one of the most

saturated categories within the non-alcoholic drinks. The market has one of the

highest per capita consumption rates of approximately 1.3 kg, while average global

per capita consumption of tea was 0.3 kg (Preparedfoodsnetwork, 2013). Tea is

being consumed by more than 90% of consumers on a daily basis.

As the market has become saturated, manufacturers are left with little room for

volume growth. Therefore, premiumisation is the biggest opportunity for tea

producers to drive on the value growth. This trend has emerged as the unit price of

tea increased by 6% in 2012 due to inflation and rising popularity of premium tea

products. (Euromonitor, 2013j)

Quality teas occupy 30% of the market, with another 50% and 20% represented by

medium-quality and low-quality tea, respectively. According to Kumanovsky, Head

of Research at ZAO LMS Investment, the share of quality teas will continue to grow

and that of medium and poor-quality ones will shrink as household incomes rise

(Russia Beyond the Headlines, 2012). Tea players are expected to focus on

improving the quality of their products and introducing packaging innovations.

The wellness trend has received great attention in Russia. The analysis on Russian

food and drinks market reveals that urban dwellers increasingly make deliberate

5.3 Russia

Market Overview:

Trend: Health and Wellness

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choices of healthy food and drinks (Nielsen, 2008b). However, the increasing

attention on health has not largely affected tea consumption patterns as black and

green tea showed similar growth results in 2012. Russian consumers have long

developed preferences with no major changes (Euromonitor, 2013j).

Due to the traditional tea drinking culture in Russia, quality tea is highly preferred..

According to the focus group, customers showed low trust in tea bag with one of

them arguing, “tea bags are not so authentic”.

Revenue of the German tea industry was €1,473.4 million (£1,265 million) in 2012

and this equates to 23.3% of the hot drink market’s value. The total volume sales is

expected to grow by 4.8% CAGR from 2012-2017 (Euromonitor, 2013h). Germany

is the world’s largest fruit/herbal tea. Meanwhile, green tea showed strong growth of

3.6% in 2012 in terms of value and organic tea has increased in importance

(Euromonitor, 2013h). The market leader is Ostfriesische Tee Gesellschaft (OTG),

which has 3 tea brands targeting different segments. The second largest player is

Teekanne; it focuses on offering health and wellness teas. According to the focus

group, with extensive product portfolios of leading players, customers are facing

choice overload.

German consumers are more health conscious and demand for natural ingredients

(IMB, 2012, Nicklaus, 2013). As a result, German’s fruit/herbal tea sales are

expected to increase by 6.4% (Euromonitor, 2013h). The ageing population

supports this trend as it leads to a large group of people whom health is a major

5.4 Germany

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concern, affecting their eating habits (S.C. 2013). According to Datamonitor (2008a),

50.5% of German respondents are influenced by health benefits when purchasing

food and beverage products.

Learn More:

If you have any questions, please

contact:

[email protected]

LinkedIn: Ken Ife

Thank You!

mailto:[email protected]

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