tea market trends in china, russia, germany & india
DESCRIPTION
This piece looks at key emerging trends in the tea industry.These trends are urbanisation, premiumisation, health and CSR. The chosen markets are key growth areas for tea.TRANSCRIPT
1
BY
IMPERIAL COLLEGE LONDON
T4 CONSULTANTS
TEA INDUSTRY ANALYSIS BASED ON THE GLOBAL EMERGING TRENDS
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If you have any questions, please contact:
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2
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
11
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:
LinkedIn: Ken Ife
Thank You!
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