So Much Potential in One Cup of Tea

By Matthew Luke - July 12, 2012 | Tickers: DPS, HAIN, SBUX, TEA, UL | 0 Comments

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Tea is the world’s second most consumed drink. Quick question: What is the most consumed drink in the world? If you answered coffee, you would be mistaken. If you said soda, that would also be incorrect. No, the most consumed drink in the world is water. That’s right. The only beverage that can best the mighty tea is the only drink in the world that falls from the sky. That’s a bit of an unfair advantage, but what can you do? I’ll tell you this though; if freshly brewed tea fell from the sky, water wouldn’t stand a chance. But that’s enough of the beverage trivia. Let’s get back to topic at hand.

Despite tea’s popularity and worldwide dominance over non-water drinks, you wouldn’t realize it’s so popular by looking at American beverage consumption habits. America is coffee country. Espresso Macchiato with soymilk. Coconut Frappuccino with whipped cream. Or just black coffee… black as midnight on a moonless night. Whatever your coffee of choice is, if you are reading this chances are you just finished a cup of coffee a second ago, are drinking a cup of coffee currently, or are about to drink a cup of coffee any moment now. Americans love their coffee.

I’m not much of a coffee person. I love my tea. And as US beverage trends indicate, more of my fellow Americans are starting or ending their days with a calming cup of tea. Tea still has a long way to go in this country though. Tea currently ranks behind water, soda, coffee, beer and milk (in that order). Yes, somehow beer is more consumed than milk. Not exactly sure what that says about us. Anyway… tea is America’s sixth-most popular drink. But changes in American drinking habits are showing a positive trend for tea, as well as a negative trend for some of those other beverages ranked ahead of it.

Call it the "Whole Foods Effect" or maybe the Chipotle "Food with Integrity" movement. Whatever the phrase you wish to attribute to it, a growing number of Americans are becoming increasingly interested, concerned and actively inquiring about the ingredients in their foods and drinks. It is one of the many factors that have made these two companies such great success stories. Consumers no longer want high-fructose corn syrup, aspartame artificial sweeteners or sodium benzoate preservatives. These factors have led to flat (pun intended) to negative soda consumption trends in America. Since 2005, soda has been seeing a steady decline in domestic consumption. Increasingly health-conscious Americans are shunning The Coca-Cola Company's and PepsiCo’s carbonated sugary drinks in favor of healthier beverage alternatives.

What are those alternatives? Well, tea, of course.  After four paragraphs, what else would I be talking about? An increasing number of health-conscious Americans are becoming aware of soda’s ill effects, while also becoming aware of tea’s numerous positive health and nutritional benefits. These include teas that boost the body’s immune system, promote heart health, lower cholesterol, assist with weight loss and appetite-suppressions and teas that are naturally caffeine-free (great for children).

Soda’s pain is tea’s gain. These changing beverage trends and consumer awareness away from soda and toward tea are obviously very favorable for my personal beverage of choice. While soda consumption is down, tea consumption is up. Over the past 20 years, US tea consumption has grown at a compounded annual growth rate (CAGR) of over 6%. And that trend looks to continue, with a 6% CAGR projected for tea through 2014.

Now that I have gone on and on about my love affair with tea, you are probably at the point where you are saying to yourself “Okay! We get it. You have an obsession with tea. Just get to the part where you mention the companies that will profit from this trend!” Alright, alright. Hold on a second. I’m just getting to it. Here are four names that can profit off of US tea consumption:

(But since I obviously can’t stop talking about how great tea is, I’ll also throw in a random tea recommendation from each of these company.)

Teavana Holdings (NYSE: TEA)

Teavana is the purest way to play increased US tea consumption. The company is a premium retailer of loose-leaf teas (as opposes to grocery store tea-bag teas). They sell loose-leaf teas, tea-related merchandise, and prepared beverages. They sell their teas though 223 company-owned stores in the US and Canada, 18 franchises stores mostly in Mexico and their worldwide online store. Earlier last month, Teavana acquired the Canadian tea retailer, Teopia. Canada has similar beverage consumption demographics to America and this Canadian acquisition plays into those same changing trends.

Tea Recommendation: Teavana Precious White Peach White Tea
(Great iced, with a little sugar.)

Unilever (NYSE: UL) 

Unilever is a massive multinational consumer goods company. They sell everything from Ben & Jerry’s Ice Cream and Skippy Peanut Butter to Dove Lotion and Axe Body Spray. Based in the United Kingdom, with large sources of revenue originating from Asia, it is not surprising to find out that Unilever is the worldwide market leader in tea. Their most popular tea brand, Lipton Tea, is available in grocery store aisles in over 110 countries.

Tea Recommendation: Lipton Green Tea with Honey
(Drank this, or similar Lipton bottled teas, nearly every day for three years in college.)

Hain Celestial Group (NASDAQ: HAIN)

Hain Celestial’s niche is selling natural and organic food and personal care products. And quite a niche it is, with the stock up nearly 2,000% since 1994. Hain Celestial’s contribution to the greatness that is tea is their Celestial Seasonings tea company and their line of all-natural, organic and kosher tea products.

Tea Recommendation: Sleepytime Throat Tamer Wellness Tea
(As the name suggests, this is good for sore throats.)

Dr Pepper Snapple Group (NYSE: DPS)

Although Dr Pepper Snapple competes with the likes of The Coca-Cola Company and PepsiCo in the soda category, the Snapple part of the company’s namesake is actually one of the US leaders in ready-to-drink teas. Snapple’s ready-to-drink teas are either the number 1 or number 2 brand in that category (depending on how you measure it). Snapple teas saw a 7% volume increase in 2011, on top of a double-digit volume increase in 2010. Tea is one of the company’s main focuses as an emerging category. If nothing else, tea could be a good hedge for the company against a further decrease in overall soda consumption.

Tea Recommendation: Snapple Green Tea
(My second ready-to-drink green tea recommendation. I love my green tea.)

Starbucks (NASDAQ: SBUX)

Starbucks is the $40 billion gorilla in the room. If any of these companies can change American drinking habits, it is Starbucks. They have already done it once, after all, by showing Americans that coffee doesn’t have to be bland beans from a tin can of Folgers. Starbucks plans to open their own tea shop later this year. Only one is planned thus far, to test how customers will respond to a Starbucks-style tea experience. If successful, Starbucks' entry into dedicated tea shops will only benefit all of these companies mentioned. Increased attention to tea in the US will be the rising tide that lifts all boats.

Tea Recommendation: Tazo Shaken Iced Passion Tea Lemonade
(Love tea. Love lemonade. Great combination.)

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