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In the beverage industry, it's definitely tea's time

Tea retailers can read the leaves: As more Americans complain about coffee prices and caffeine saturation, an ancient drink is taking off.

May 26, 2013|By Tiffany Hsu, Los Angeles Times

Tea expert David DeCandia has spent his entire 17-year career in the shadow of coffee.

At his employer, Los Angeles beverage chain Coffee Bean & Tea Leaf, coffee comes first in the company name. It also takes up most of the company's processing facility in Camarillo and brings in 90% of the revenue.

But more Americans are complaining that their coffee buzz feels like a hangover, citing concerns about over-caffeination and high prices. DeCandia is reading the tea leaves — and seeing a cultural shift toward his brew of choice.

"The tea industry is going straight up, and at some point, it will reach the level of coffee," he said, standing in a lab ringed by porcelain cups, maps of tea estates and bags of dried Oolong. "It's time. People have maxed out on other types of beverage."

Americans developing a hankering for tea are turning one of history's oldest drinks into what may be the beverage industry's sexiest new offering.

Domestic tea sales at restaurants, grocery stores and shops reached $15.7 billion last year, up nearly 32% from 2007, according to consumer goods research firm Packaged Facts. In the next two years, the market is expected to expand to $18 billion.

The tea-drinking demographic is widening. Aging baby boomers and Redbull-swigging youngsters are expected to buy more tea. Asians, long a key revenue source, form the fastest-growing racial group in the country. Rising interest in ethnic cuisines is drawing foodies to Japanese matcha, Indian Darjeeling and African Rooibos teas.

Hollywood, normally linked with booze endorsements, is also providing a splash of glamour. "Top Chef" host Padma Lakshmi sells teas through her Easy Exotic line of goods. The television drama "Downton Abbey" has turned tea parties into a trend. Celebrity chefs Wolfgang Puck at Hotel Bel-Air and Gordon Ramsay at the London in West Hollywood offer afternoon tea menus.

Corporate America is taking notice. Soda giants PepsiCo and Coca Cola are plugging teas through brands such as Brisk, Honest Tea and Fuze. Tea-infused waters, soft drinks and energy drinks are increasingly prevalent. So too are tea-flavored booze options such as spiked iced-tea brand Twisted Tea and Arnold Palmer Hard, a mixture of iced tea, lemonade and alcohol.

Even Howard Schultz, chief executive of coffee giant Starbucks Corp., is betting big on tea.

Last year, the company expanded its $1-billion Tazo Tea business by opening its first Tazo tea shop. Starbucks also spent $620 million for mall-based tea retailer Teavana, which it hopes to expand to at least 1,000 locations from 300 currently.

"We could do for tea what we've done for coffee," Schultz told investors. "This is a big, big opportunity."

But Earl Grey still has a while to go before overtaking joe.

Last year, the American tea industry pulled in $987 million in revenue at the wholesale level, a tenth of the $9.6 billion for coffee manufacturers, according to research group IBISWorld. And it's not just java — tea consumption domestically also lags behind bottled water, soft drinks, milk and juice.

Still, the ancient brew may be catching up.

Tea drinking is growing in the U.S. at a faster rate than coffee, according to IBISWorld. In the last decade, the amount of tea consumed by the average American grew 22.5% and will rise an additional 3% in the next five years. Coffee slumped 1.9% between 2003 and 2013 and will grow less than 1% through 2018.

Coffee and soda are facing a backlash from authorities and consumers over health concerns. Coffee also is struggling with supply chain disruptions and an overcrowded market.

Tea could rocket past coffee sales by 2017, coffee and tea industry panelists said at last year's World Tea Expo in Las Vegas. Two years ago, a record 281 million pounds of tea was imported into the U.S., according to the Tea Assn. of the USA.

The surge is driven by consumers such as Christopher Caplan, 21, who in the past year has gone from drinking as many as five cups of coffee a day to weaning himself off the "really addictive" stuff with a daily cup of tea.

"It got really bad," the Koreatown musician said of his coffee habit. "And there's so much more variety that you can get out of tea — not all of them caffeinated, so many with ingredients that have healthful qualities."

The tea market is attempting to shatter its reputation as a bland liquid served from unwieldy porcelain pots.

Specialty iced teas — Southern sweet tea, tea lattes, Thai teas, Taiwanese boba and more — are increasingly common on menus, according to the National Restaurant Assn.

The beverage is becoming more portable — a key selling point for an on-the-go nation. The growth rate of bottled tea sales is outpacing that of soft drinks, according to several studies. More teas are being sold in convenience stores and fast-food outlets such as Sonic Drive-In, which in April launched a new line of iced green teas with multitudes of flavor combinations.

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