Category Focus: Tea sales slow, but innovation is up
June 15, 2009
Tea benefits from a reputation for both health and refreshment, which has put it in something of a sweet spot for the past several years. But economic challenges have hit this category as hard as any other, resulting in retail sales losses for the ready-to-drink category, and only a slight gain in the bagged and loose leaf segment, according to data from Information Resources Inc., Chicago.
Canned and bottled teas dipped 1.3 percent in grocery, drug and mass merchandise outlets, excluding Wal-Mart, for the year ending March 22. Tea bags and loose leaf teas were up 1.5 percent for the same period, while instant tea mixes were down 3.5 percent in sales through the measured retail outlets.
Despite the challenges of the category in general, individual brands saw quite mixed results, with some brands enjoying sizable increases while others suffered equally big drops. On the bottled side, Lipton Pure Leaf and Lipton’s diet brands gained almost 21 percent and 13 percent in retail sales, respectively. In bagged and loose leaf teas, Tazo (up 12 percent), Stash (up 7 percent), Bigelow (up 3 percent) and Twinings (up 2 percent) brought in increases. Tazo also made a strong showing in instant tea sales, with a 22 percent gain, followed by 4C with a 3 percent increase.
But private label teas were the big winners of the past year. Store brand canned and bottled tea sales jumped almost 55 percent, and they gained more than 9 percent in bagged and loose leaf sales. Private label instant teas grew more than 3 percent. The only place store brands failed to pick up significant increases was in the refrigerated tea cooler. Private label brands grew 1.8 percent in chilled teas, but branded products such as Turkey Hill, Red Diamond, Swiss Premium, Milos, Minute Maid and Pom Light teas far outsold their private label counterparts.
The economy has had such an impact on tea sales that Mintel International, Chicago, revised its forecasts this spring for U.S. tea and ready-to-drink tea sales, predicting they will come in at a little more than $3.6 billion for the year, down 0.6 percent. Next year, however, it anticipates a bounce of 2.3 percent.
“People are drinking more tea at home and buying in larger packaging, that’s why there is a decline in ready-to-drink canned and bottled tea,” says Garima Goel-lal, beverage analyst at Mintel. “This has happened for the first time in the last five years, so this is a trend that is influenced by the economy.”
In addition, consumers are trading to more affordable options, says Brian Morgan, research analyst at Euromonitor International. “In both ready-to-drink and hot tea, a lot of the growth came from the premium end. That has slowed down,” he says. “They are trading down to things that are a little more basic or lower in price.
“But I don’t think the culture of consumption has changed,” he adds. “People who are interested in buying tea are still buying it and want to have it, but perhaps they’re buying less expensive kinds or they’re not as adventurous with trying new things or more expensive varieties as they were.”
A wave of change
One company that has bucked the economic trend during the past year is Bethesda, Md.-based Honest Tea, which grew 66 percent, according to Seth Goldman, president and “TeaEO.” The company has new distribution through the Coca-Cola system to thank for the increase, plus a little PR help from the new president. Last year, The Coca-Cola Co. invested in Honest Tea, buying part of the company and putting the brand on Coca-Cola trucks in many new markets for a huge distribution boost. And during the 2008 presidential campaign, news reports had Barack Obama placing orders of his favorite Honest Tea products so he could drink them on the road.
“That’s been fun,” Goldman says. “There’s been some fun exposure that we’ve gotten because of that. It’s neat because it’s very authentic. We wouldn’t be allowed to have him as a paid spokesperson, even if we wanted to.”
Goldman says Coca-Cola’s distribution partnership has allowed the brand to enter entirely new regions of the United States such as Idaho, Utah and other Western markets, as well as venues such as universities.
Like industry analysts, Goldman believes part of being successful in today’s economy is an affordable positioning, despite Honest Tea’s organic label. “We’ve always sought to make organics accessible and affordable,” he says.
New to the Honest Tea lineup this spring as been a Mango Green Tea variety and Honest Mate, a yerba mate-based product for the natural foods channel. The company also has converted a number of the products in the Coca-Cola system to Fair Trade certification.
“That has a been a really satisfying step,” Goldman says. “As we expanded with Coke, we really made a point of ingraining the mission of the brand into those products.”
In addition, the company switched to a new lighter weight PET bottle, using the Graham Packaging Escape bottle, which is 6.5 grams lighter than the original.
“The technology with hot-fill is hard because a bottle that goes through a hot-fill line has to withstand temperatures of 190 degrees so it has to be thicker than a water bottle,” Goldman says. “Obviously, being concerned about our carbon footprint, that’s a significant step, and really, to the naked eye, it’s indistinguishable.”
Andy Schamisso, chief executive officer at Inko’s, Englewood, N.J., says a new packaging option also has been part of his company’s success this year.
“Inko’s introduced our three top-selling SKUs in a 64-ounce family size, which was in response to demand from customers on our Web site,” he says. “It turned out to be good timing as these jugs are considered to be value items.”
In addition, the company added Lemon and Unsweetened Original varieties to its line of white teas, switching out the Lychee and Cherry Vanilla flavors.
Schamisso says Inko’s sees the current economic situation as a chance for smaller companies to make inroads that might not be available during other economic periods. “We see big opportunities in grabbing what this little company can while others retrench in down markets,” he says.
In addition to new products, the tea segment has been a key place for strategic partnerships. Pepsi-Cola Co. and Unilever expanded the Pepsi/Lipton Tea Partnership last year to include a third partner, Starbucks. Pepsi and Starbucks had their own strategic alliance with Starbucks ready-to-drink coffee products, and the new agreement adds Tazo ready-to-drink teas to the Pepsi/Lipton tea party. The deal includes manufacturing, marketing and distribution of Tazo ready-to-drink products in the United States and Canada. Kraft Foods will continue to be responsible for Tazo bagged teas.
Pepsi and Unilever also added to their lineup this spring with a new sparkling green tea, the first carbonated offering in the Lipton line. Lipton Sparkling Green Tea initially launched in Berry, and diet and regular Strawberry Kiwi flavors.
Nestle Waters North America, Greenwich, Conn., has been a water-only entity for years, but in 2009 it has partnered with both Sweet Leaf Tea and Arizona Beverages for new tea-based ventures.
In March, Nestle Waters invested in Austin, Texas-based Sweet Leaf, with an option to buy the company. As part of the arrangement, Nestle relocated Dan Costello to Austin to serve as president of Sweet Leaf, reporting to Chief Executive Officer Clayton Christopher. It also will name two directors to Sweet Leaf’s board.
Sweet Leaf says the investment has the potential to transform the tea company from a regional brand to a national brand within 24 months. In preparation, it revamped its packaging this spring, adopting a new, taller proprietary bottle with updated label graphics. It played up Sweet Leaf’s Granny icon, based on Christopher’s real-life grandmother, to bring the story and the brand’s inspiration to life.
The redesign was particularly focused on consumers in the markets the company will enter with the new Nestle partnership. “What we were most concerned about was the opinions of the people who had never heard of us before, because that’s still the majority of the population in the United States,” Christopher told Beverage Industry in April.
Nestle also teamed up with Lake Success, N.Y.-based Arizona Beverages on a new tea and water hybrid beverage. The companies announced the creation of Arizona Tea Waters, a line of organic-certified low-calorie, tea-infused waters. The initial product is based on Nestle’s Poland Spring water in the Northeast, and will contain organic green tea, organic cane juice and fruit extracts. It will have 20 calories, and the line will include Green Tea, Yumberry Green Tea, Mandarin Orange Green Tea and Pomegranate Green Tea.
As the partnership expands, it will use Nestle’s other bottled water trademarks such as Deer Park in the Mid-Atlantic, Ozarka in the Central South region, and Zephyrhills in the South.
Arizona also extended its partnership with Fairfield, Conn.-based Bigelow Tea this year. The companies teamed up two years ago to swap tea skills, with Bigelow producing Arizona bagged teas and Arizona bottling Bigelow ready-to-drink tea products. This month, they add Bigelow organic ready-to-drink green teas in Acai White Cranberry, Original Green, Lemon Ginger and Mango Lychee varieties. The products are sweetened with organic cane juice for 50 calories per 8-ounce serving.
“It’s really been a very fun project because [Arizona Chief Executive Officer Don Vultaggio] has a lot of the same philosophies as we have at Bigelow â€” that’s really about quality and great packaging and value,” says Cindi Bigelow, president at Bigelow Tea.
“The organic ready-to-drink has a taste profile that was very important to us,” she adds. “There is a gentle tea taste to it with lovely fruit, and it’s not too sweet.”
In addition, the company added a line of organic bagged teas this year that includes green, black and white teas, as well as herbal and rooibos varieties.
“The organic tea category is a small slice of the pie, yet at the same time, a very growing, vibrant slice of the pie,” Bigelow says.
In all, Bigelow’s lineup now includes bagged and loose leaf teas, ready-to-drink products and K-Cups for home brewers, giving it products for almost all consumption opportunities.
Like others, Bigelow feels her company’s positioning as an affordable brand has been essential to its growth in the current economy.
“In these tough economic times, people are turning to a reasonably priced product that they can enjoy that gives them a moment of relaxation,” she says.
“All categories are going to go through times when they’re experiencing rapid growth and times when they’re not as robust,” she adds. “I believe opportunities abound in the consumption of tea.”
Euromonitor’s Morgan echoes that thought, indicating tea’s slowdown will likely be short lived.
“While in the short term, you might see a slowdown or perhaps a decline in the high-end version of things, this category should be more resilient because it does combine all of these various factors of natural and healthy and refreshing and being well established in other cultures. Other categories might have a few of those, but not others. I do think that, in the end, it will weather the storm.”