Food & Beverage | July 2014 | By Barney Wolf

Very Cool

Iced tea gains traction as consumers seek healthy, innovative beverage options.
Iced tea servings are up 25 percent at quick-service restaurants since 2009. thinkstock
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For many Americans, there’s nothing like drinking a tall, cold glass of iced tea on a hot summer’s day. Whether plain, sweetened, infused with fruit flavors, or part of a specialty beverage, iced tea is increasingly popular nationwide.

Limited-service restaurants have seen solid growth with iced tea—freshly brewed, fountain dispensed, or bottled—the past few years, according to market research firm The NPD Group. Regular iced tea servings declined during the recession, but since 2009 have risen about 25 percent at quick-service eateries. Sweet iced tea had a slightly larger gain. Meanwhile, restaurant beverage servings have overall been flat.

“Iced tea is a growth market, and there are good opportunities” in foodservice, says Bonnie Riggs, restaurant analyst at NPD. “That’s why there’s a lot of discounting going on in the category, and tons of advertising, especially related to tea’s healthy halo.”

Iced tea is relatively inexpensive, which is one reason some operators can sell it for $1 or less per cup. At the same time, it’s rich in antioxidants—higher in green and white teas than black—with less caffeine than coffee or many carbonated drinks.

“Consumers believe it’s better for you,” Riggs says. As demand continues to increase, additional flavors will become available, “which will make its appeal even greater.”

Tea is the world’s second-most-common beverage, behind water. Most black, green, white, and oolong tea is produced by the same plant, although varieties differ depending on the growing region, the time of year tea leaves are picked, and the way they’re processed. Herbal teas are made from infusing herbs, spices, and other plant materials in hot water, while chai is a mix of tea, herbs, and spices. Some operators mix tea with beverages like limeade and coconut water, add milk to create lattes, or use chocolate as flavoring.

In addition to being refreshing, iced tea accompanies food well.

“The tea pH is almost the same as water: mild but with flavor,” says John Buckner, director of marketing for Concord, North Carolina–based S&D Coffee and Tea, the biggest supplier of tea at limited-service restaurants. “It compliments fried foods, like burgers and chicken, and spicy foods like Mexican. Around [North Carolina], sweet tea is the perfect compliment to pulled-pork barbecue. It’s so mild, it doesn’t compete with the food.”

Sweet tea used to be a Southern phenomenon, but one S&D’s client, McDonald’s, made it mainstream around the country. Now many quick-service and fast-casual restaurants offer both unsweetened and sweetened iced tea.

Tea also has grown in popularity because it’s a good base beverage for a variety of flavors, whether it’s made with fruit juices or a simple lemon slice. Raspberry and lemon are common flavors, and many eateries offer a mix of tea and lemonade sometimes known as an Arnold Palmer. The greatest flavor growth last year was pomegranate, Buckner says.

Simple, consistent brewing systems, often four gallons in size, have helped make tea more dependable. “Consistency is the key in [quick service],” he says.

In recent years, green tea has gained fans because of its taste and antioxidants, and quick serves are adding it to menus that already feature black iced teas. Last year, Sonic launched a line of freshly brewed green iced teas, including unsweetened and sweetened versions, along with peach, mango, raspberry, blackberry, and mint mix-ins. Sonic reports its green iced tea is growing in popularity. Dunkin’ Donuts, meanwhile, added Rainforest Alliance Certified iced green tea this spring.

Not all owners embrace iced tea, however. Statistics from market researcher Datassential found iced tea on the menu at 74 percent of limited-service restaurants in 2013 after being at about 78 percent the previous five years.

“I wouldn’t say this drop is a trend until we see it for a couple of years, but iced tea may have lost ground among some restaurants,” says Maeve Webster, Datassential senior director. “There are so many options out there, and we really haven’t seen a lot of innovations.”

Still, there are plenty of operators who see great potential for tea, including Howard Schultz, chairman, president, and chief executive officer of Starbucks. The company acquired Teavana in late 2012 and is putting its own spin on the tea retailer. The first Teavana Fine Teas + Tea Bars opened last year in Manhattan and Starbucks’ hometown, Seattle. Twenty more are projected to open this year, including units in Chicago and Los Angeles.

“We are more convinced than ever that we have the opportunities to transform the tea category to the way we have transformed coffee,” Schultz told analysts in December.

Starbucks units sell several varieties of lightly sweetened, often flavor-infused teas shaken with ice, plus iced tea lattes and Tazo bottled teas. But Teavana stores go further. Teavana’s regular iced teas include Citrus Lavender Sage, infused with sea buckthorn, lavender, and sage, plus pineapple and orange. Among specialty iced teas is the Sparkling Dragonfruit Devotion, which is slightly carbonated and infused with herbs and fruit. The tea bars also feature craft iced tea fusions and iced steamed milk tea lattes.

Teavana is likely to assist Starbucks stores, where the biggest barrier for tea “is the perception that Starbucks is solely about coffee,” says spokeswoman Holly Hart Shafer.

In April, Oprah Chai Tea, created by media star Oprah Winfrey and Teavana teaologist Naoko Tsunoda, became available at both Teavana and Starbucks. It is black tea blended with rooibos leaves and infused with cinnamon, ginger, cardamom, and cloves.

The idea of a tea bar is not new. Denver-based fast-casual Asian chain Tokyo Joe’s has featured a five-kettle tea bar in its restaurants for years.

“Tea is very important to what we do,” says Larry Leith, founder and chief innovation officer. “Tokyo Joe’s is an Asian grill, so you would expect us to have tea, but we sell a lot more iced tea than hot. It does well with sushi, rice bowls, and salads.”

There have been two signature iced tea blends since Tokyo Joe’s began, and the company experimented with many others before settling on its current lineup.

In addition to a China black iced tea, the chain features two green iced teas: a Japanese Sencha variety flavored with quince essence, and a pomegranate-flavored offering. There is also passion fruit black tea and raspberry and hibiscus herbal tea.

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