Coffee vs. Tea

In previous posts, we have established that the market for coffee retailers is absolutely saturated and that smaller stores are now experiencing declines while even the growth rate at Starbucks has slowed considerably. But even when there are too many shops, most can be supported by a growing market, and so it begs the question, "How is coffee doing these days?"

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On a global level, tea is still the dominant beverage by volume, with drinkers consuming 1.7 trillion cups of the stuff last year versus 984 billion cups of coffee. That's a significant difference. But these tea numbers are juiced by the presence of heavy tea drinkers in China and India, where a hefty percentage of the world's population resides, and where the tea is fairly inexpensive. In the U.S., the number of cups of tea consumed has climbed by 6.5% since 2012 and at the same time tea sales have increased by almost 10%. This means that Americans are drinking pricier tea despite the demise of Teavana, a high end Starbucks concept that failed this year. Perhaps that concept was a bit ahead of its time. But globally, coffee makers and retailers have performed surprisingly better than have the tea people. The coffee industry represents $79 billion in sales compared with $42.7 billion for tea, which means that consumers have been drinking some pretty expensive coffee.

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Tea makers, for their part, have been ramping up marketing efforts to make the tea bag a bit more appealing to consumers by adding specialty ingredients and premium packaging. But some marketers, believing that the tea bag itself might be a barrier to consumer adoption, are offering alternatives to the traditional bag with European consumer products giant, Unilever, offering tea products in capsule form. And retailers such as Peet's, with its Matcha Green Tea and Dirty Chai lattes, are now offering more coffee-esque tea drinks in hopes that they can diversify their product offerings and be on the forefront of an emerging trend. Will consumers pay more for tea as they have done for coffee over the past 50 years? Indeed it remains to be seen just how much of this is wishful marketing and how much of it reflects changing consumer attitudes.

Discussion: Do you think that specialty tea can overtake coffee in terms revenue? How are "substitutes" such as energy drinks affecting the coffee and tea industries at the present time?