The Background
Tea may still be an inherent part of British society, but in our fast-changing culture the nation's love affair with the traditional three-sugar, brick-red traditional cuppa is on the wane as other drinks step into the breach. In 2002, the tea market was worth £655m, but sales declined to £623m in 2004. In response, tea brands are striving to stem the slide by focusing on 'healthier' variants such as herbal, fruit and green teas that appeal to a younger demographic.
The tea sector is being squeezed by several different factors. In the hotbeverage market, coffee has risen in popularity in the UK, especially with the growth of coffee-bar culture, while on the other side, soft drinks such as bottled water and fruit juice are more likely to be consumed by younger consumers than tea.
Tea differs from many FMCG products in that the UK's ageing population is benefiting its sales. The proportion of adults aged 55-64, a demographic that drinks tea heavily, is increasing and is expected to grow by 6.2% by 2009.
Some tea products are performing better than others. Herbal and fruit teas, which are gaining in popularity, are often positioned as 'health' or 'well-being' products. Green tea (and more recently white tea), for example, is promoted for its high antioxidant levels. Sales in the herbal and fruit tea category increased by 30% between 2002 and 2004, and it is now worth almost £64m. In the same period, speciality tea sales rose 50% to £104m.
The increased popularity of speciality teas, such as single blends like Assam and Darjeeling, should help stem the decline of overall tea sales, and because there are better-quality and organic teas more consumers are trading up to them. Health concerns about levels of caffeine intake have also encouraged a move toward herbal teas and has bolstered the decaffeinated market.
One of the major impacts on the sector is the fall in consumption of tea at home. At current prices, this dropped by 10% between 1998 and 2003. Where tea was once the mainstay, adults now drink soft drinks or wine instead. Conversely, out-of-home consumption has risen, due mostly to the cafe culture that has emerged over the past 10 years.
Loose tea, too, continues to lose ground as a result of consumers' increasing desire for convenience and ease of preparation. In 2004 it accounted for just 4%, or £27.2m, of tea sales.
Brand loyalties
The sector is dominated by five producers: Tetley, Unilever Bestfoods, Premier Foods, Associated British Foods and Bettys & Taylors. Tea drinkers tend to be loyal, with 55% saying they always buy the same brand, according to TGI.
The Tetley Group, which is now owned by Indian company Tatu Tetley, owns the leading UK tea brand, Tetley. It accounts for 27% of retail sales and has employed a new product development strategy to help it overtake PG Tips.
In recent years Tetley has introduced a range of variants, including organic tea bags in 2001 and Tea Therapy in 2002 - a range of black teas containing blended herbs, which was rebranded last year with a stronger emphasis on health and wellbeing under names such as Tetley Plus Uplifting and Tetley Plus Calming.
In May 2004 Tetley introduced a range of teas that included speciality, fruit and herb and green tea variants aimed at broadening appeal and encouraging more frequent consumption.
Unilever Bestfoods owns Brooke Bond, which in turn owns PG Tips. It had an estimated 24% share of retail tea sales in 2004, worth more than £149m. In 1996 the company was behind one of the biggest innovations in the market when it launched PG Tips Pyramid bags, which are designed to release the maximum flavour and have proved successful. Its PG Plunger loose tea for use in cafetieres failed to capture consumers, however, and was withdrawn last year. In July 2004 the company launched a DCaf range.
Premier Foods, which owns the Typhoo brand, has responded to changing consumer demand by launching the Typhoo Fruit & Herb range in May 2004. This replaced its London Fruit & Herb Collection and is positioned as a healthy beverage that can be drunk hot or cold. Premier also introduced the Typhoo Green Tea Blend, which comprises 40% black tea and 60% green tea, so that it tastes like the former, but has the added health benefits of the latter.
Associated British Foods, which owns the Twinings and Jacksons of Piccadilly brands, claims the two accounted for 60% of green tea sales in 2004. It leads the speciality tea sector, with a 68% value share and £70.4m sales.
In July 2004 Twinings resegmented and repackaged its entire range into sub-brands, each of which is colour-coded. The categories are: Classic, which includes English Breakfast and Assam; Light Classic, including Ceylon; Aromatic, which includes Earl Grey; and Twinings Infusions, which offers more unusual flavours, such as Camo-mile & Spiced Apple, and Strawberry & Mango.
The UK tea market is mature, with penetration of standard tea drinkers sitting at about 80%, according to TGI. But new product development is rife as all the producers try to boost sales and stimulate interest in the sector.
Broadening appeal
The challenge now is to reach younger consumers by making tea more fashionable. Herbal and fruit variants, which have the greatest appeal among 25- to 44-year-olds, are helping to bolster interest among a younger demographic. As such, tea is now moving from a mass-market appeal toward a more specialist approach.
However, Mintel predicts that between 2004 and 2009 the market will decline by 3%, taking sales to £601m by 2009- a fall of 11% in real terms and a 9% drop in volume.
UK TEA MANUFACTURERS BY RETAIL VALUE AND SHARE
2004* 2002 02-04
pounds m % pounds m % % chng
1 Tetley Group 168.2 27.0 163.8 25.0 2.7
2 Unilever Bestfoods 155.8 25.0 176.2 26.9 -11.6
3 Own-label 109.0 17.5 137.6 21.0 -20.8
4 Premier Foods 81.0 13.0 83.2 12.7 -2.6
5 Associated British Foods 62.3 10.0 41.9 6.4 48.7
6 Bettys & Taylors 37.4 6.0 39.4 6.0 -5.1
Others 9.4 1.5 13.0 2.0 -27.7
Total 623.0 100.0 655.0 100.0 -4.9
Source: Mintel
* estimated
UK TEA BRANDS BY RETAIL VALUE AND SHARE
2004* 2002 02-04
pounds m % pounds m % % chng
1 Tetley 155.8 25.0 140.4 21.4 11.0
2 PG Tips 147.0 23.6 168.4 25.7 -12.7
3 Own-label 112.1 18.0 137.6 21.0 -18.5
4 Twinings Speciality* 56.1 9.0 30.8 4.7 82.1
5 Typhoo 43.6 7.0 58.6 8.9 -25.6
6 Yorkshire 37.4 6.0 39.4 6.0 -5.1
Others 71.0 11.4 79.8 12.2 -11.0
Total 623.0 100.0 655.0 100.0 -4.9
Source: Mintel
* includes Jacksons of Piccadilly
TEA MANUFACTURERS BY UK ADSPEND AND SHARE OF SPEND
2004 2002
pounds m % pounds m %
1 Tetley 4.3 24.9 8.1 35.5
2 Brooke Bond 4.2 24.3 7.7 33.8
3 Taylors Yorkshire Tea 1.7 9.8 0.8 3.5
4 Typhoo 1.3 7.5 2.2 9.6
5 Twinings** 1.1 6.4 1.2 5.3
Others 4.7 27.2 2.8 12.3
Total 17.3 100 22.8 100
Source: Nielsen Media Research/Mintel
**includes Twinings Iced Tea and Twinings Traditional Full
ANALYST COMMENT - SANDY LIVINGSTON DIRECTOR, ENLIGHTENMENT
Years ago tea fought the battle with instant coffee through the convenience of the tea bag, and it more than survived the fight.
This battle for 'share of throat' has now been joined by ground coffee and a variety of cold soft drinks. The battleground itself has shifted from convenience to quality, with the added dimension of health.
The fight on behalf of tea is being led by fruit, herbal and green tea variants. The battle is taking place particularly among the growing number of individuals concerned with the quality of what they consume, where it comes from and the effects it has on their wellbeing.
There is a significant growth in willingness to pay extra to avoid artificial additives and to favour 'diet' versions of consumables, as well as a decline in the belief that health foods are bought only by fanatics.
Overall penetration of decaffeinated tea has leapt by 27% in the past two years, and green tea by 33%. Even penetration of fruit/ herbal tea has grown by 2%, from a relatively high base. These figures are dwarfed by the equivalent rises among the most health-conscious consumers.
The future also looks good for tea among the young. Coffee has been in decline among the 11- to 19-year-old age group over the past five years, while tea has held its own against the rise of more 'trendy' (and portable) drinks such as mineral water.
Getting the health positioning right and having the sub-varieties to meet the needs of what can be a highly fragmented demand is one strength tea has over coffee. The latter may also suffer on the home front, as the rise of coffee shops may have moved consumer expectations to such a level that instant coffee may now struggle to deliver.
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