Coffee Overkill Has More Marketers Thinking That It's Time for Tea

Specialty Retailers Like Starbucks Are Steeped in Leafy Options as Consumption Climbs

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Chai tea may have been an oddity at Starbucks years ago, but having a lengthy list of leaf-based options has become all the rage among the barista set, thanks in part to consumers having had their fill of grounds.

In December, Starbucks acquired Teavana, a specialty tea chain with 300 locations in the U.S., Canada and Mexico.
In December, Starbucks acquired Teavana, a specialty tea chain with 300 locations in the U.S., Canada and Mexico.

Among specialty retailers like Starbucks, servings of hot tea rose 18% for the year ended February 2013, compared with a year earlier, according to NPD, while the iced variety showed solid growth of 5% over the same period. With the summer months upon us, many chains are rolling out a slew of cold options to quench customers' thirst.

In supermarkets, ready-to-drink tea has been booming for some time; during the past six years, it has grown 58%, to $3.8 billion in wholesale figures, from $2.4 billion. In the U.S. last year, ready-to-drink tea grew 5%, making it the fourth-fastest growing beverage category, according to Beverage Marketing Corp.; it's behind energy drinks, ready-to-drink coffee and bottled water.

But the growth in tea among specialty retailers, and even fast-food chains, is more recent, and part of the reason is that “we're maxing out on coffee,” said Kathy Hayden, food-service analyst at Mintel.

A big sign of tea's increasing popularity in restaurants is the sheer variety being offered. In 2010, the most common flavors and ingredients for tea at fast-food and fast-casual restaurants were chai, green tea and raspberry, according to Technomic's 2012 Beverage Consumer Trend Report. In 2012, though, tea called “sweet” had grown significantly: 7.7% of tea flavors were named sweet tea last year, up from 3.6% in 2010. Other burgeoning varieties are oolong, infused teas and tea-and-juice blends.

Sweet tea, once just a Southern eccentricity, has gone national. After years of offering it regionally, McDonald's in 2011 put its blend of orange pekoe and pekoe-cut black tea with added sweetener on its national dollar menu. A spokeswoman for the chain said that even though it's offered on the national menu, sweet tea is marketed regionally.

Burger King in March introduced peach sweetened and unsweetened iced tea; Wendy's offers unsweetened iced and hot tea as well as a strawberry iced tea, introduced this month. Wendy's will market its iced tea all summer with in-store and digital marketing. The chain's lead shop is Publicis Kaplan Thaler and its digital agency is WPP's VML.

In December, Starbucks acquired Teavana, a growing specialty tea chain with 300 locations in the U.S., Canada and Mexico that's part of what Starbucks estimated as the $40 billion global tea category. The chain already offers Tazo tea through its partnership with PepsiCo. Starbucks CEO Howard Schultz said in a recent conference call that the tea category is “ripe for innovation, and we now intend to do for tea what we have done for coffee.” He added that acquiring Teavana allows the company to add “super-premium estate teas” to its lineup and “introduce and leverage a multibrand tea strategy to complement our existing $1 billion-plus Tazo tea business.”

Though tea may never be as big as coffee for Starbucks, there's potential for significant expansion because of the chain's footprint. “It's pretty astonishing what Starbucks can do,” said Ms. Hayden.

A spokeswoman said the company will advertise a new iced tea product -- Shaken Peach Green Tea Lemonade -- as part of its summer beverage advertising campaign. Teavana will unveil six iced tea drinks, though there won't be an associated campaign.

Caribou Coffee last summer rolled out a line of sparkling teas and juices, including green tea lemonade, and introduced a lighter version of that this month. “We recognize that our fans have diverse tastes and preferences, and we want to make sure there is something for everyone to enjoy,” said Alfredo Martel, senior VP-marketing and product management. Caribou will promote its tea products through digital, radio and outdoor; its shop is MDC Partners' Colle & McVoy.

The big question for chains considering splashing into the category is whether there are enough consumers looking for another occasion in the day to drink tea. There's also a concern that a shift toward tea could come at the expense of coffee and soda. Still, “there's definitely opportunity because it's been underdeveloped,” said Technomic Exec VP Darren Tristano. “A lot of times you're not going to necessarily see more people going out [specifically to buy tea],” he said. But once they're in the store, “you're going to see people getting tea instead of coffee.”

CORRECTION:  An earlier version of this article said BBDO is handling Starbucks' summer refreshment advertising campaign. The campaign was created by various agencies and Starbucks' internal design studio.

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