By Maxim Tvorun-Dunn
In this article, we outline the trends and opportunities that exist in the global tea industry, honing in more specifically on Japan’s tea sector.
Overview of the Global Tea Industry
In a report by the United Nations Food and Agriculture Organization (FAO), the tea industry was reported to have a global market size of 14.5 billion USD in 2016 with a projected CAGR of 5.0% (2016-2024), with China and India making up the bulk of the market. According to IRI Market Research, pre-bottled “Ready-to-Drink” (RTD) tea accounts for almost 50% of the market share.
Globally, FAO notes that “the global tea market expansion is characterized by growing premium and super-premium segments and related health and wellness expectations.” This increase in health-related purchases is likely to have been exacerbated by growing attention to nutritional health benefits concurrent with COVID-19 awareness.
While the pandemic has forced massive restructuring within the tea industry, predicted growth remains at a steady 5.0% according to a 2020 study by Technavio. While the Chinese and Indian tea industries have been hit particularly hard (due to increased US tariffs for China and India’s national lockdown), these changes offer opportunities for considerable market growth in Japan as wholesalers search for new exporters.
Overview of Japan’s Tea Sector
The tea industry in Japan has particularly benefited from such global restructuring, with tea export value increasing to the US, UK, and Netherlands by 130%, 133%, and 142% respectively between 2019 and 2020, according to the Japanese Tea Export Council. Globally Japanese tea export value has increased by 111%. While domestic tea-leaf consumption is in decline, black tea and RTD beverages are expected to grow. One study in the Journal of Economic Structures found that due to recent innovations in fermentation processes, production of black tea in Japan has grown rapidly since 2014.
Challenges Faced by Japan’s Tea Sector
While RTD tea in Japan is expected to grow, Euromonitor International reports that RTD sales and product launches have been disrupted as more consumers are staying at home. Similarly, with the closure of many attractions and tourism, many locations offering traditional tea ceremonies in Japan have stopped offering their services.
As these results stem from a downturn in outdoor foot traffic and travel, the generally high growth potential within the Japanese market offers room for innovation in tea products targeting at-home consumption. Keen marketers may integrate ceremonies into their branding and consumer engagement or operation, filling the gap left by the closure of such experiences outside of the house.
Similarly, while RTD beverages are often chosen for their on-the-go convenience, there is opportunity for at-home consumption in larger package sizes or integration into daily activities. As with many industries, the decrease in outdoor travel means success is dependent on how adaptable a brand is towards at-home consumption. Japan’s tea industry benefits from many of its high potential for at-home consumption and integration into daily home rituals.
Despite significant local green tea production, Japan is in fact the world’s second largest green tea importer (likely due to limited production acreage). Thus, as production lines from China and India become disrupted by the present situation, there may be room for global producers and wholesalers to develop new partnerships in Japan.
Opportunities in Japan’s Tea Sector
As Japan grows as a global tea producer, international firms should seek to partner with key local players. Marketers seeking to capitalise on rising interest in wellness products may take advantage of the global perspective that Japanese green tea is healthy. With foreign and RTD teas on the rise in Japan, global firms have room to expand their businesses, with plenty of gaps in the changing market that can be explored.
Developing partnerships early in Japan’s tea production boom may lead to lasting success in the long run before there is more competition; especially as firms turn away from the temporary pandemic setbacks. Now may be an opportune time to invest in Japan’s tea sector at comparatively low cost. While some segments of the tea industry in Japan are facing challenges, Japan offers considerable room for success across well-placed and smartly marketed retail and e-commerce tea industry segments.
Beverage trends like Bubble Tea and Cheese Tea are always morphing, so there’s an opportunity to create something that Japanese consumers can enjoy as a finished product, rather than relying on shipping loose tea directly to Japan.
Alternatively, feel free to get in touch and see how we can help your business make more effective decisions about navigating the Japanese market.