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Innovation in Tea Rising Consumer Expectations Challenge North American and British Tea Brands to Innovate Dan Bolton STiR Tea & Coffee Industry International

Innovation in Tea: 5th Global Dubai Tea Forum by Dan Bolton

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North America is evolving a retail model that will supercharge the $90 billion global tea market. Investments in tea retail quicken the pace of innovation with convenience foremost. Sales of bagged, bottled and single-serve broken leaf blends are quickly overtaking conventional. High expectations for taste, convenience and no-mess preparation make specialty tea fundamentally different than most consumer packaged goods. Innovation is paramount. Value-addition is invigorating a static supply chain that will cleft with mechanization at origin. High-margin artisan tea harvested by hand will make up 20% of volume and virtually all profits. Value-addition capabilities are aggregating in Dubai, Germany, China and Sri Lanka. “Specialty tea is in a constant innovation cycle that is attracting a lot of money, with acquisitions leading to expansion of existing lines and bold, new experiments in formulation, ingredients, packaging and retail outlets. The retail segment has attracted $1 billion investment in the past 18 months, clear evidence that investors see huge demand and huge growth opportunity.” Manjiv Jayakumar, President QTrade Tea & Herbs.

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Page 1: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Innovation in TeaRising Consumer Expectations Challenge North

American and British Tea Brands to Innovate

Dan BoltonSTiR Tea & Coffee Industry International

Page 2: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Tea Lollypops (US) “On a health lick.”

Bottled Bubble Tea (UK)

AriZona Tea Flavored Water (US)

Tea for Kids (US)

Tea Innovations

Page 3: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Note: Download 24 examples of tea innovation at www.dmcc.ae

Blending Innovations

Black & Green (UK) Cocoa Cabernet (US)

Tattle Tea Chai (US) QTrade Tea & Herbs (US) Kilogram Tea (Intelligentsia US)

Watermelon Mint (US)

Page 4: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Note: Download 24 examples of tea innovation at www.dmcc.ae

Packaging Innovations

Practical Packaging Educational Message

Clever Concepts

Clean Design

Page 5: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Note: Download 24 examples of tea innovation at www.dmcc.ae

Marketing Innovations

Limited Yellow (US)

Lipton’s 1st Global Campaign

Small holder advocacy (Africa)

Folk art favorite (US)

TV Tie-ins (US-UK)

Marketing to kids (US)

Page 6: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Note: Download 24 examples of tea innovation at www.dmcc.ae

Tea Drink Innovations

Coconut Mango Sakura (US)

Slushies (US)Granita (US) Spiked tea 4% ABV (UK)

Milk Tea (Taiwan) Green Tea Red Bean Frappe

Page 7: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Note: Download 24 examples of tea innovation at www.dmcc.ae

Functional Tea Innovations

Lose Weight

Stop Smoking

Keep Calm

Boost Energy (75 mg/8 oz. caffeine) Build Immunity

Aid Digestion

Page 8: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Note: Download 24 examples of tea innovation at www.dmcc.ae

Teaware & Gadgets

Updated enamel

Disposable Filters (Japan)

Tasting cups (US-UK)

Compartment travelers (GER)High tech

Innovative design (Luyu Tea)

Page 9: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Innovations

Page 10: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Take Aways

Note: Download 24 examples of tea innovation at www.dmcc.ae

$1 Billion Bet on Tea Retail Creative concepts are ready for rapid expansion Innovative tea drinks and food raise average ticket

Convenience is Key to Growth Ready-to-drink accounts for 75% of U.S. tea segment Single-serve tea in capsules and pods is in its infancy

Disloyalty Drives Tea Innovation Declining brand loyalty encourages experimentation Recession bolsters private label manufacturing

Page 11: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Multiple IngredientsC. SinensisHerbalsNutraceuticalsFruit BlendsJuice FusionsFlavored Teas

Multiple FormatsLoose Leaf ArtisanPyramid SachetsSingle ServeFood ServiceIced TeaReady-to-Drink

InnovationWhere is innovation occurring?

Multiple ChannelsRetail | Big BoxSupermarketSpecialty BeverageFood ServiceConvenience StoresAmazon.com

Note: Download 24 examples of tea innovation at www.dmcc.ae

Page 12: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

When sales of the world’s most valuable tea brand stalled… stagnation was attributed to a lack of innovation. Lipton lost the top spot in U.S. convenience outlets to AriZona Tea.In Canada specialty sliced into Lipton’s traditional tea sales.New management made R&D a hot bed of activity, in 2013 Unilever acquired Australia’s T2 retail chain and teamed with Disney Pictures to launch its first global marketing campaign.

Lesson Learned

“We will continue to accelerateour innovations, backed with competitive support, to build long term growth and value.”

– Unilever CEO Paul Polman

Lipton/Unilever

Page 13: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

“In a world filled with high-stress wild-in-the-street types like Animal, you have to take time to enjoy life and 'Be More Tea. '" – Kermit

Be More Tea™

Lipton is second only to Coke as the world’s most widely consumed prepared beverage. Global sales: $2.7 billion (2012)

Lipton/Unilever

43 million Oscar night viewers; 5.5 million YouTube downloads.

The global revamp will cost Unilever $40 million, double last year’s ad spend.

The goal is to make “Lipton into the global iconic brand it deserves to be.”

Wisdom of Kermit (Banjo Serenade) Wisdom of Kermit (Rainbow)

Page 14: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Take Away 1

Big Bet on Tea Retail• Ready for rapid expansion• 3,500 > 5,000 tea shops• Tea increases avg. sale• After hours food & drink

“We are going to elevate the tea experience in the same way we did for coffee,” Starbucks CEO Howard Schultz told investors, “We are going to reinvent and create an opportunity for a new source of revenue and profit.”

Bloomberg BusinessWeek , March 20, 2014

Page 15: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Innovation in Retail Concepts

Page 16: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Teavana Fine Tea + Tea BarFounded: 1997 | 366 Stores | U.S., Canada and MexicoThis is a bold and inviting modern vision of tea retail. Success rests on three consumer desires:• A desire for a “third place” away from home

and office that evokes conversation and calm — a respite amid urban congestion.• A desire to learn more about tea, its history

and health benefits.• A desire to sample and explore tea beverages in

a setting that encourages experiment, customization and service.

Starbucks CEO Howard Shultzpromised “to bring breakthrough innovation to the tea category in the U.S. and Canada.”

Page 17: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Teavana Fine Tea + Tea Bar150 Teas | TisanesTeavana operates 366 stores with plans to open 1,000 more in the U.S. and overseas within five years. Adding 5 stores a week is easy. Starbucks has 20,000 locations in 64 countries and opens 1,500 coffee shops a year.

Page 18: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

DAVIDsTEA150 Teas | Tisanes• Tea-to-go hot or cold• Clever, colorful packaging• Teaware designed in-house• A new tea every month• Limited Edition Collections

Updated Seasonally

“The cup has the infuser inside with a top on it. That’s why it’s the perfect tea mug. We were so excited.” ­­­­– Oprah Winfrey

Page 19: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

DAVIDsTEAFounded: 2008 | 107 Stores in the U.S. and Canada“When it comes to blending we like to think outside the cup.Tea can be so much more than the leaves of a tea plant – for us, it’s any plant, herb or spice that can be infused in water. It’s all about discovery. We respect tradition but we like to have fun with it too,” – Co-Founder David Segal.

Page 20: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Love at First Sip: Cha2OA­California­nightclub­marketed­to­kids­aged12-16­and­open­from­10­a.m.­to­1­a.m.Boba Tea: To subdue those soft-balls cravings.Bakery: For your sweet-craving taste buds.Restaurant: Appease your grumbling tummy.Lounge: Relax, ease frustrated muscles.Drinks­come­in­two­sizes:­­­­Standard­$3.15/16oz­­­­Greedy ­­$5.99/32oz

Page 21: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

New Tea Drinks CoconutMangoSakuraAllure$5.95/24oz.

BlackberryMojitoLimeCooler$3.95/24oz.

Coco CaramelSea SaltLatte$5.95/16oz.

• Milk Tea• Laughing Budda• Cold Shoulder• Pom Pom Peach

All $5.99/32oz.

Green TeaRed BeanFrappe (Venti)$SGD7.70/$6 US

Cha2O, Artesia, Calif. Teavana Fine Tea + Tea Bar, New York City, Starbucks Singapore. Teavana photos by Linnea Covington.

Page 22: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Trendy Tea Food Breakfast

Rice Porridge,Scallions,ToastedGarlic Nori,CilantroSriracha,Tamari $12

PaleolithicWildSalmon,Smoked Duck,Squash,Kale Salad,Steamed Beets$20

LunchFrench ham and spinach over roasted tomato on store-baked four-cheese flatbread - $8.95

Samovar Tea Lounge, San Francisco. Teavana Fine Tea + Tea Bar, New York City. Teavana photos by Linnea Covington.

Page 23: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Bright Blends

Page 24: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Take Away 2

Note: Download 24 additional slides with innovation examples at www.dmcc.ae

Convenience is Key to Growth Ready-to-drink accounts for 75% of U.S. tea segment Single-serve tea is in its infancy

“Cold tea brings a huge amount of dynamism to this market, and opens up a new consumption occasion, and access to a much younger consumer.”

– Winfried Hopf, Unilever Executive Vice President Beverages – Chairman T2

Page 25: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

ConvenienceAmerica is a land where convenience counts. Making tea is messy, requires some precision and takes time to steep. This is why RTD teas make up nearly 75% of the entire U.S. tea market.• RTD tea sales grew to $5.1 billion in 2013, up from $4.8 billion in 2012.

Convenience outlets sold 1.2 billion RTD tea units earning $1.23 billion.• Consumption has risen to 5 gallons per year for everyone over 18.• Premium bottled brewed teas and specialty showed the greatest growth.

Unsweetened iced tea in 2012 grew more than 16% in dollar sales.

Sources: CSP 2013 Beverage Report SymphonyIRI GroupSoft Drinks in the US, Euromonitor International, July 2013AC Nielsen, 2012. Adult population: 240 million (2012)Thanks Colleen Norwine, BW Coopers.

Page 26: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Ready to Drink Tea

“Other companies now recognize the opportunity and are hopping on the iced tea bandwagon. That’s fine. We’ll be where we’ve always been -- out front, leading the way.”

Barry Cooper, founder of Cooper Tea Co., is a pioneer in the expansion of premium RTD tea in convenience stores. Cooper’s bottled teas and concentrates are unique in the market for their extensive certifications. He explains the 8.6% increase in unit sales in c-stores in 2012 is two-pronged:

1) a reflection of consumer demand for convenience

2) the increasing focus on health and wellness.

“The non-GMO movement is likely to have an increasing impact on the RTD market,” according to Cooper.

Page 27: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Head to HeadNestlé Nespresso - $4.4 billionDominates Europe ($300 million| 3% U.S .)Keurig Green Mountain - $4.4 billionDominates North America (0% Europe)

• All major brands in the segment: Top five earned $100 million*Lipton | Celestial$32 | KGM$29 | Bigelow$12 | Snapple$11 Million

• U.S. household penetration 15%Canadian household penetration 20%European household penetration 20%

• Coffee preparation at home (past day) 29% drank single serve | 53% drip brew

National Coffee Association 2014 National Coffee Drinking Trends Study; NCA Market Research Series; Euromonitor International.*IRI Total U.S. Multi-Outlet w/C-Store (Supermarkets, Drugstores, Mass Market Retailers, Gas, Select Club – 52 Wks. End Jan. 26, 2014.

Single Serve

Harney & Sons

Page 28: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Innovative Hot BrewersCapresso

Page 29: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

CO2 crystals in the pod insure precise carbonation. Coca-Cola’s portfolio of 575 beverage brands includes:Teas (26)

FUZE Tea | FUZE (fortified juice)Gold Peak TeaHonest Tea (No. 1 organic)Nestea | Lipton Pure Leaf

Juice (Minutemaid - Hi-C)Juice Drinks (Honest Fizz)Energy Drinks (Enviga – Burn – NOS)Sports Drinks (Powerade)Enhanced Waters (Glaceau)

Page 30: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Cold Beverage Opportunity

Page 31: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Innovation is valued in every category But North America has recently launched some unusually clever and creative retail and packaged beverage concepts.The result is that tea availability per capita in the U.S. has climbed to 9.3 gallons (2011) which is the highest level since 1918 when consumption peaked at 11.3 gallons. — USDA ERSNorth America is the 4th largest tea importer.

Why? Disloyalty.

Page 32: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Take Away 3 Disloyalty Drives Tea Innovation Declining brand loyalty encourages experimentation Recession bolsters private label manufacturing

Consumer expectations for conventional tea brands are raising the stakes for North American retailers. Customers who purchase tea are more likely (55%) to stay with a familiar brand than most categories but almost half think nothing of changing brands for something new. – Hartman | FMI Research

Page 33: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Brand Loyalty DeclinesBrand loyalty declined in 2013 forthe third straight year in a broadmarket survey of 350 brands in 28product categories. Private labelsare thriving: 88% of those surveyed say private label brands are just as good as national brands. Consumers are much more frugal. Only 27% say they will revert to national brands when the economy gets better. – DeloitteAmerican Pantry Study. In January 2013 Deloitte surveyed 4,047 respondents in 28 product categories and more than 350 brands. P at Conroy, vice chairman and U.S. Consumer Products Leader said that “one of the most notable year-over-year trends in the study is how embedded frugality has become due to the recession. Prudent consumers and improving perceptions about store brands are squeezing national brands’ position. The gap between the few ‘must have’ brands on shoppers’ lists and others on the shelf may be widening.”

Page 34: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Constant Innovation Cycle“Specialty tea is in a constant innovation cycle that is attracting a lot of money, with acquisitions leading to expansion of existing lines and bold, new experiments in formulation, ingredients, packaging and retail outlets. The retail segment has attracted $1 billion investmentin the past 18 months, clear evidence that investors see huge demand and huge growth opportunity.”Manjiv Jayakumar, President QTrade Tea & Herbs

“Innovation is the key to opportunities in tea.”

Page 35: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

How Big is the Opportunity?• One trillion cups consumed each year.• Euromonitor International estimates

the global tea market at $87.5 billion. • Bottle tea and coffee is expected to

generate $125 billion by 2017.

• U.S. Tea Market: $10 billion• Canadian Tea Market: $4 billion• U.K. Tea Market: $1.3 billion

$£€Euromonitor. Global Tea Market. MarketsandMarkets, revenue from tea and coffee has grown10.9% since 2011 when RTD sales were estimated at $69 billion globally.

Page 36: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Tea DrinkersWith more than 290 billion liters sold in retail and foodservice, tea is the world’s most consumed beverage, outpacing bottled water, carbonates, beer and coffee. Euromonitor (2012)

U.S. TeaPop. 313.9 millionPer capita: .5 lb.79 Billion servings44% Drink tea daily65% Use tea bags

14% Loose leaf84% Black

15% Green6-10% Herbals*

15% Hot | 85% Iced 25% Drink RTDPods: 15% homes

Canada TeaPop. 34.88 millionPer capita: 1.1 lb.9.7 Billion servings54% Drink tea daily96% Use tea bags ≤20% Loose leaf

57% Black 25% Green

18% Herbals*97% Hot | 3% Iced 11% Drink RTDPods: 20% homes

U.K. TeaPop. 63.23 millionPer capita: 4.3 lb.60.2 Billion servings87% Drink tea daily96% Use tea bags

4% Loose leaf98% Black2% Green

≤5% Herbals*99% Hot | 1% Iced ≤5% Drink RTDPods: ≤5% homes

Mintel International. Euromonitor International. Tea Associations Canada, Tea Association of the USA, British Tea Council. Calorie Lab Daily Mail So How Do You like your cup of tea?

Page 37: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Specialty Coffee & Quick Serve Café U.S. Cafés: 26,500 | Breakfast: 12.5 billion visits +3%Starbucks: 13,279 (US) 1,324 (CAN) | $57 billion salesDunkin’ Donuts: 7,600 | Tim Hortons: 859 (US) 3,588 (CAN)Peet’s Coffee & Tea: 250 | Caribou Coffee: 560Independent cafés: 5,000 (+6% sales growth)Small chain cafés (< 30 units – 5.5% sales decline)Limited service restaurant sales growth ranking 20131. +9.0% Cafés - Starbucks (8%), Dunkin’ Donuts (3.4%)2. +9.0% Bakery Cafés - Au Bon Pain3. +8.5% Asian Noodles - Panda Express, Manchu Wok

Technomic, limited=service restaurant ranking 2013

Page 38: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Coffee Shop Opportunity

Tea Drink (16-oz) Tea Price Cup Lid Ingredients Cost Profit MarginIced Tea (loose-leaf) .09 2.25 .09 .03 $.12 (Sweetener/Ice) .33 $1.92 85%

Tea Latte (w/skim) .09 3.25-4.25 .09 .03 .024 x 13 oz = $.31 .52 $2.73 84%

Tea Latte (w/whole) .09 3.25-4.25 .09 .03 .027 x 13 oz = $.35 .55 $2.70 83%

Chai (brewed w/h&h) .20-.30 3.95-4.25 .09 .03 .031 x 7 oz = $.22 .64 $3.31 84%

Chai (mix w/water) 1.15 3.95-4.25 .09 .03 Water 1.15 $2.80 71%

Tea Drink (12-oz) Tea Price Cup Lid Ingredients Cost Profit MarginBulk Tea + t-sac .09 1.90-2.75 .07 .03 Water .19 $1.71 90%Teabag .13 1.50 .07 .03 Water .23 $1.27 85%Pyramid Sachet .43-.48 1.90-2.75 .07 .03 Water .53 $1.37 72%

Daily consumption is high at 61% with 79% of adults drinking coffee in one form or another. NCA’s drinking trends survey shows a pronounced shift to gourmet/specialty with 34% partaking daily. The Canadian Coffee Association shows 65% drank coffee the past day and 37% drink tea daily. There is no comparable report on past day tea drinkers in the U.S. but 158 million Americans (51%) reported drinking tea in the past year.

National Coffee Association Drinking Trends Survey, January 2013. Canadian Coffee Association national survey of past day coffee drinkers (2013) Specialty Coffee Retailer April 2011 Steeping in Profits.

“Going from bagged to loose-leaf teas doubled our sales,“ says JP’s Coffee in Holland, MI.

Page 39: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Tea is UndervaluedDespite accounting for 29% of global beverage volume tea commands only 13% of value.“That is the point that makes us at Unilever so excited, because there is a real opportunity to uptrade this category. Tea is the hottest beverage in the beverage landscape." - Winfried Hopf, Unilever Executive Vice President of Beverages - Chairman T2

Page 40: Innovation in Tea:  5th Global Dubai Tea Forum by Dan Bolton

Dan BoltonSTiR Tea & Coffee www.stir-tea-coffee.com [email protected]

Tea Biz BlogBetter Business Insightwww.tea-biz.com [email protected]

Mystic Media1108-21 Roslyn RoadWinnipeg, MB R3L 2S8CANADA204 788-1359 (office)204 230-7125 (mobile)Skype: dwjbolton