Wednesday, November 11, 2009

10% Growth in Tea?

How to win in the tea business...

Nielsen is projecting that Tea is about to surge because "If the recession has proved anything, it’s that American consumers are willing to pay a premium for healthy products."


I would love to see their data, because from what I have seen, CSDs are leading growth (with a significant contribution from Private Label) and the leading tea brand (AriZona) is often the single cheapest product on the shelf - offering the retailer and distributor less margin that any other beverage product. Their 99c cans have been a success dating from 1992, and have spawned hundreds of imitators (for example Snapple now with 79 cent cans). Indeed both Lipton and Snapple have struggled to respond to AriZona's ownership of the bottom end of the market.

The release continues that "Over the next several years, tea’s health halo will gradually return the market to the double-digit gains it experienced prior to the recession, particularly as additional research solidifies the product’s healthful and functional properties."

Let's be clear. Tea has become a cheap, low margin player in beverages.

The days of success driven by hot filled premiumness have disappeared under 99c cans, $2.50 gallons, and players like Red Diamond who fill their gallons cheap at dairies. Undoubtedly tea can grow, and there is some residual interest in tea's health benefits, but the bulk of growth is driven by value, and not consumers willing to pay a premium for healthy products.

The choice beverage makers have to make is whether they want to disappear down the value tea rabbit hole, or whether they can build propositions that can command a premium price from consumers.

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