Russian tea production implies packing and packaging of already fermented tea leaves. 90% of raw materials used in production are bought at tea auctions in places of cultivation, namely in Sri Lanka, India, China, Vietnam, Indonesia, and Kenya. Due to climatic conditions, tea cultivation in Russia is scarce. Primary processed (varietal) tea is produced in Krasnodar Krai, although its share amounts to less than 1% of the total consumption volume. Despite the good taste characteristics of Krasnodar tea varieties, its main disadvantage is its susceptibility to adverse external factors, including climatic conditions, processing, blending, packing and transportation, as a result of which it loses its flavor and aroma.
At the moment, more than 93% of the Russian population are tea consumers. Russian buyers give the most preference to loose black tea in teabags.
The Russian tea market is mature and saturated. As a result of limited quantitative growth, the market is currently developing in terms of quality. Manufacturers have been offering new flavors and blends in an attempt to expand their market shares. The key growing categories are tea in teabags in the mid-price and premium segments as well as leaf tea in the premium segment. In connection with the health and wellness trend, consumption of green tea and fruit and herb tea has been on the increase.
Today, the share of black tea prevails in the overall structure of the Russian market in physical terms: in 2018 it equaled 60%. It is followed by flavored black tea with the share of 20%.
It should be noted that during the past five years, the share of imports was dominating in the market structure. To illustrate, in 2017 the volume of imports was recorded at 168.8 thousand tonnes, whereas domestic production amounted to 103.3 thousand tonnes.
In 2018, however, the situation changed. In particular, domestic output increased, whereas imports dropped significantly compared with the previous few years. Said results indicate that consumption of tea in Russia declined in 2018: a number of shifts took place in tastes of Russian consumers, and the share of tea in the overall structure dropped against consumption of coffee and other beverages, such as chicory.
Russia does not export tea, and virtually all volumes produced are consumed within the country. The share of exports is negligible, and no growth in exports is expected in the short term.
In 2018, the total volume of tea output in physical terms increased by 6.5% compared with the similar indicator for the previous year, amounting to 110 thousand tonnes.
In the structure of Russian output by product type, loose black tea occupies the share of 80%, whereas loose green tea has the share of 20%.
In terms of production volumes, players in the Russian market for black tea can be divided into four categories: large companies, medium-sized companies, small companies, and small business representatives.
The leading producer of both loose black and green tea in Russia is “Orimi” Factory (former “Nevskie Pirogi (Neva Pies)”, subsidiary of “Orimi Trade” Group, Leningrad region). In the segment of black tea, the company accounts for 66% of total production volumes in physical terms (“Greenfield” and “Princess Noori” trademarks), whereas its share in the segment of green tea equals 85% (“Princess Java” trademark).
In 2018, the total volume of tea imports in physical terms dropped by 32% compared with the similar indicator for the previous year, amounting to 114.8 thousand tonnes. As has been mentioned above, last year consumption of tea declined in favor of other drinks, in particular, coffee.
In the structure of tea imports in volume terms, India accounts for the share of 30.7%, whereas Sri Lanka and Kenya have the shares of 22.7 and 13.1% respectively.
According to customs statistics, in 2018 the export direction faced a reduction in supplies as well. In particular, the volume of tea exports in physical terms dropped by 34.3% last year, compared with the similar indicator for 2017, and amounted to 11.1 thousand tonnes. Above all, this is connected with dropping supplies to Ukraine: in 2018, the country moved down to the third position in the list of importers, after Belarus and Kazakhstan. In the past, Ukraine was ranking first among countries importing Russian tea, and its supply volumes used to be several times higher.
Given the decline in tea imports, in 2018 the market shrank in physical terms. In 2018, market size decreased by 16.3% against the indicator in 2017 and amounted to 213.7 thousand tonnes. Above all, declining import volumes played their role. In addition, consumption of tea within the country decreased in 2018.
In the future, the volume of the Russian tea market will depend primarily on imported supplies, as domestic production has not been growing as dynamically.
One of the important trends in the past few years has been the changing consumption structure: the ratio between preferences of packaged leaf tea and teabags has been gradually shifting in favor of the latter. The Russians have been increasingly purchasing tea in teabags. According to “NeoAnalytics”, today, it is purchased by more than 70% of consumers.
Apart from that, consumer preferences in terms of tea varieties have been changing as well: consumption of flavored tea has decreased, and there has been increased interest in green tea, fruit and herb teas, caffeine-free drinks, and various rarer tea varieties, such as white tea, pu-erh, and lapsang souchong. In the short term, said trend will persist.
In terms of competition, trends include leaders of the tea market strengthening their positions and smaller players withdrawing. In crisis, the leading companies have been retaining leadership with the help of a large loyal audience, vast advertising programs and established distribution.
In the future, new small tier 2 and tier 3 players, previously occupying the mid-price and premium niches or operating in individual regions, are expected to increasingly withdraw from the market.
Research Company “NeoAnalytics”
MSc in Social Management