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The tea category continues to derive much of its volume growth from developing markets, as the retail channel in these countries develops. In developed tea markets, such as the UK, tea consumption occasions and retail sales of tea have declined as consumers have increasingly hectic lifestyles and a broader repertoire of beverage options. As a result, the emphasis is on stimulating value growth, and the category is seeing a high degree of premiumisation.

Tea pods represent a premium new tea format that is having an impact in markets where single-serve beverage machine ownership is high i.e.: North America and Europe. With a much higher price relative to tea bags, this format is helping to drive value growth. Many tea pod brands have a strong focus on flavour innovation, and offer convenience. Relatively few brands occupy a positioning based on tea quality, and this could be an opportunity going forward, particularly in light of the number of exclusive tea making machines that are now available. Tea pods are aligned with particular single-serve beverage systems, which tend to be used primarily for coffee. Several brands in Europe are experimenting with single serve beverage systems designed specifically for optimal brewing of tea. These brands are heavyweights of the tea category and include Unilever, Redco Foods (Teekanne) and Nestlé. This development is likely to influence the quality of tea in pods as such machines will be for tea aficionados only.

While herbal and fruit infusions are driving category growth in many western tea markets, they have yet to be picked up and showcased by RTD tea brands. This category has a tremendous opportunity to harness consumer interest in botanicals and create new beverages that offer consumers the natural, healthy and functional benefits that these ingredients provide. 

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