The rise of matcha and its implications on the beverage industry
Image: Blank Street Coffee
Once considered a drink only for the Japanese elite, matcha has since become a mainstream consumer product with its popularity steadily building globally over the last 10 years, and the category has been seeing accelerating momentum of late. According to RBC Capital Markets, Google search interest has spiked to a 10-year high.
Matcha’s vibrant green colour aids in its ‘Instagram-ability’, spurring its popularity among influencers and Gen Z. However, matcha is considered a healthy beverage (not the matcha lattes and frappés that are heavy on sugar or cream). The way in which the Camellia sinensis plant is grown in order to produce matcha, allows for the accumulation of catechins, (−)-epigallocatechin-3-gallate (EGCG) in particular, is most abundant in matcha. It is these catechins that provide high antioxidant properties and give matcha its reputation as a healthy drink. The amino acid L-theanine provides sustained energy and reduces jitters. Research has shown that antioxidants can help lower blood pressure and bad cholesterol levels, as well as boost energy and metabolism. Antioxidants have also been found to help reduce cell damage — excessive cell damage can lead to various health problems, like heart disease, cancer and aging.
Future Market Insights reported that the matcha market in 2023 was worth USD $2.7 billion and is expected to reach $7.1 billion by 2033 — a CAGR of 10.2 percent. FMI attributes this growth to the interest in its health benefits, as well as to a growing use in skincare and culinary applications such as confectionery.
Source: RBC Capital Markets
But is matcha’s growing popularity in Western markets leading to a shortage? According to data from the Ministry of Agriculture, Forestry and Fisheries (MAFF), Japan produced 4,176 tonnes of matcha in 2023 which is up nearly three times 2010 production levels. While demand for matcha is tracking to normal levels within Japan, the country exports more than half of their produced matcha due to increased demand from health-conscious consumers in Europe and the United States. Nik Modi, co-head of global consumer & retail research at RBC Capital Markets, in a recent report, wrote, “The Japan Times reported increasing concern of a matcha shortage as production has neared a tipping point. Both the growing and production (drying & grinding of tea leaves) are operating near capacity with limitations on further expansion. Growing of the leaves is limited by agricultural growing space and the long maturity times (up to five years) for shrubs. At the same time, production is limited by the machinery’s slower grinding speeds and further complicated as matcha can quickly become stale after it is ground and need to be stored whole and ground as needed.”
Some Japanese farmers are experimenting with agricultural techniques to help increase yield and improve the quality of the tea leaves, while some tea farms are converting or expanding their fields specifically for the cultivation of tencha, the raw material used to make matcha. Furthermore, local government initiatives are encouraging the growth of matcha production in key growing areas in Japan.
Given matcha’s rise in popularity, RBC Capital Markets leveraged Numerator Insights to analyze its potential impact to other categories. It created a proxy for the matcha category, aggregating three retail brands but also acknowledged a portion of matcha is also consumed away from home at coffee shops. According to Numerator’s data, new matcha buyers are shifting their beverage spending, buying less energy drinks, ready-to-drink teas, sports drinks and RTD coffees (see graph). This makes sense given matcha’s natural overlap with tea and the less jittery caffeine boost it offers.
RBC Capital Markets believes matcha-based drinks will continue to see momentum – as long as production can keep up – as consumers are prioritizing health and wellness and want functional beverages that provide subsequent benefits.
