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What Is Fueling the Thirst for Ready-to-Drink Tea?

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The ready-to-drink category

The World Tea Expo in early May included a presentation about ready-to-drink tea by Anton Angelich & Rob Bent. The ready-to-drink tea category has experienced rapid growth over recent years, as it combines the benefits of tea as a healthier beverage with the portable convenience of a prepared beverage that is ready to consume.

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Outperforming traditional sodas

According to the Beverage Marketing Corporation, volumes in the ready-to-drink tea category in the US grew by 3.7%, outperforming carbonated soft drink (or CSD) volumes, which declined by 1%. Declining soda volumes and the shift in consumer preferences to healthier beverages has prompted beverage companies like Coca-Cola (KO), PepsiCo (PEP), and Dr Pepper Snapple (DPS) to expand rapidly into the ready-to-drink tea and other alternative beverage categories. These three beverage companies together account for ~1.7% of the portfolio holdings of the iShares Core S&P 500 ETF (IVV).

The Tea Association of the USA (or USTA) states that the ready-to-drink tea category has grown over 15 times in the last ten years. The wholesale value of ready-to-drink tea in the US increased to an estimated $5.2 billion in 2014, compared to $0.2 billion in 1999.

Innovation in the category

The ready-to-drink tea category has seen some interesting innovations over the recent years in terms of packaging and new flavors. Coca-Cola’s Gold Peak and Fuze ready-to-drink tea brands have achieved huge success, with each of these brands generating over $1 billion in retail sales in 2014. Coca-Cola has innovated many variants in its ready-to-drink tea portfolio. The company’s Gold Peak tea brand is available in several flavors, including sweet tea, lemonade tea, unsweetened tea, diet tea, raspberry-flavored tea, and green tea.

Coca-Cola is the second largest component of the Consumer Staples Select Sector SPDR Fund (XLP) and makes up ~9.0% of the ETF. Coca-Cola also constitutes ~1.5% of the portfolio holdings of the iShares Russell 1000 Growth ETF (IWF).

PepsiCo has a major presence in the ready-to-drink iced tea category through its Pure Leaf and other brands. In the next part of this series, we’ll look at the specialty tea segment.

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