Need to Know

Tea industry news for the week of May 18.

  • Boba Tea Tops Beverage Delivery Lists
  • East Africa Update
  • Turkish Tea Harvest
  • Robotic Waitstaff Serves Tea
  • Nepal Asks India to Resume Tea Imports

Boba Tea Tops Unique Food Orders

In March YELP! marketers decided to find out what food and beverages people across the country were being delivered right now! Data scientists tracked how frequently a dish is ordered in each state relative to its popularity in other states.

“When we first looked at the results, pizza delivery reigned supreme, which is no surprise since it delivers well and it’s perfect for a family night in. However, we dug into the data to find the most uniquely popular delivery order in every state*, and that’s when things got interesting,” writes YELP!

Winners include a run on crayfish in Texas, poke bowls in Indiana, pad thai in Washington, sushi in South Carolina and naan in Wyoming but guess what topped the list of delivery orders in California last week? How about Michigan? and Hawaii?

Boba tea.

“What we found was a mix of delectable dishes and drinks that tell a story of how American taste buds differ from state to state and region to region,” according to the company.

Click here to see the full list.

*Samuel Hansen at Yelp! employed a natural language processing technique called term frequency-inverse document frequency (TF-IDF), which quantifies how frequently a dish is ordered in a state relative to its popularity in other states.

East Africa Update

Rwanda’s tea sector, largely spared from lockdowns, saw a marked increase in production during the first quarter. The harvest totaled 9,000 metric tons generating $27.6 million in revenue, which is up by 15% from the same period in 2019.

But there are still formidable challenges getting that tea to market.

East African tea growers truck tea destined for export to the auction at Mombasa. Kenya’s borders remain open during the coronavirus pandemic, but Tanzania and Kenya required each driver be tested before crossing.

The result offers a lesson in what can go wrong. A shortage of testing supplies and the sheer number of truckers led to delays that extended from hours, to days, to weeks. Few of those who were tested showed symptoms and none were quarantined while they awaited results. Unable to afford hotel rooms they slept in or under their trucks, cooked together and played sports to kill time. Some wore masks but many did not and very few practiced social distancing. During the two weeks ending last week 150 truckers crossing into Kenya at Namanga tested positive and were eventually ordered back across the border but by then they had infected hundreds of local merchants and fellow truck drivers.

The Washington Post reports that beginning this week, only drivers that have tested negative prior to arrival at the border will be permitted to cross. Uganda has since discovered dozens of infected truck drivers crossing from Kenya. Zambia closed its border to Tanzanian truckers. Kenya is the largest tea producer in the region at approximately 500 million kilograms followed by Uganda which harvests 60 million kilos annually; Tanzania at 35 million, Rwanda at 30 million and Burundi at 9 million kilos per year.

At the Mombasa auction Rwanda growers earned an average $2.68 per kilogram of tea last year, followed by Kenya growers who received an average $2.59, Burundi at $2.21 per kilo, Tanzania $1.36, and Uganda $1.21. The overall average price was $2 per kilo.

Kenya currently has 1,214 confirmed COVID-19 cases, according to Johns Hopkins Coronavirus Resource Center. There have been 51 deaths. Tanzania is reported to have 509 confirmed cases with 21 deaths. Rwanda has 327 confirmed cases with no deaths reported as of the second week of May.

Holiday Travel Restrictions Eased for Turkish Tea Growers

Climate dictates that Turkish tea be harvested in three flushes, unlike Africa, Sri Lanka, and Southern India where plucking continues year-round. Tea is grown there on sparsely populate hills facing the Black Sea where growers depend on seasonal labor.

This year’s spring flush was interrupted by a March 28 lockdown to prevent spread of the coronavirus. Fatma Genc, a researcher at Istanbul’s Marmara University, told The National, that 50,000 tea farmers were unable to prepare their fields for the harvest. Ramadan, which began April 23, complicated timing for Muslims.

“The failure to harvest this year will make it difficult to meet even domestic demand,” said Genc told the newspaper. “Tea prices, which have been hiked twice in a row this year, will increase even more if the producers cannot go to the field.”

This week farm owners and laborers from across the country were finally able to travel to northern Turkey on trips extending through the three-day Eid al-Fitr festival that follows the Muslim holy month of Ramadan. Seasonal labor from neighboring Georgia and Azerbaijan continue to face border restrictions leading to some creative solutions. The city of Findikli in Rize hired locals to harvest around half of the 30,000 metric tons produced nearby in an agreement that spans six months. Workers harvest for 10 days and while the leaves for the next flush are growing they complete municipal projects.

In Rize Province, the heart of the growing region, 16,000 laborers were given permission to travel between fields and home. The Provincial General Hygiene Council required testing at least one member of each family, about 6,000 in all. Screenings continue.

The provinces of Rize, Trabzon, Artvin and Giresun produce around 260,000 metric tons of tea annually, most of it sold domestically. Turks consume an average 3.5 kilos of tea a year, more than any other country. While much of the tea is imported, a significant shortfall is expected due to rising costs and the fact that much of the domestic tea went unpicked. Caykur, the state-owned producer that supplies 60% of the country’s tea is running a deficit and facing additional costs due to the pandemic. Caykur purchases tea from 200,000 independent farmers.

Turkey has 157,814 confirmed COVID-19 cases with 4,369 deaths, making it ninth on the list of countries most impacted by the pandemic, according to the Johns Hopkins Coronavirus Resource Center.

Tea garden in Turkey’s Rize Province, along the Black Sea.

Robotic Waitstaff Serves Tea

Tearoom Robot Reduces Contact with Waitstaff Easing Customer Concerns

The Tea Terrace, a small London-based chain of tea rooms that was forced to close during the March outbreak intends to open this July with the assistance of family-friendly robots.

Forbes magazine reports that managing director Ehab Shouly found while surveying customers that fear of crowding and contamination by waitstaff were their greatest concerns. Spacing tables was a relatively simple adjustment but a previous experiment with automated service at the company’s Surrey tearoom proved prescient. Last July The Tea Terrace became the first restaurant in the UK and Europe to introduce a robotic waitress, named Theresa.

Theresa is summoned by guests using controls at the table. The robot responds to voice commands. Shouly has also introduced functional assistants such as Captain Tom, a bot that delivers up to four trays each with teapot, teaware, and food.

Modifications are underway to expand robotic services to all four tearooms which serve 200 to 300 guests per day on weekends.

Nepal Asks India to Resume Imports

Tea growers in Nepal are seeking the resumption of exports to India, according to Nepal’s Ministry of Commerce and Supplies.

India stopped importing tea the week of May 6 and has not responded to Nepali officials. Periodically India has shown its displeasure with Nepal by refusing entry of tea and other exports such as palm oil.

Purna Kumar Karki, president of Jhapa Tea Entrepreneurs Association, told My Republica that Indian authorities impose non-tariff barriers on Nepali products from time to time “for no reason.”

Sanjay Bansal, chairman of the Darjeeling Tea Association (DTA), recently appealed to West Bengal Chief Secretary Rajiva Sinha to regulate the sale of Nepal tea to save the Darjeeling Tea Industry. Darjeeling growers maintain that Nepal undercuts their unique tea which is protected with a global Geographical Indication certifying its authenticity.

Bansal told The Statesman Nepal did not impose a lockdown and growers there have been producing at a high rate since February. “These teas are ready and are in the process of being shipped to India through the Indo-Nepal land borders in West Bengal to be sold in the local markets by taking advantage of the absence of Darjeeling Tea in the market due to the lockdown restrictions,” said Bansal.

In a related matter, Federation of Chambers of Commerce & Industry, North Bengal (FOCIN), has requested Chief Minister Mamata Banerjee to allow small wholesale and retail shop owners to open their establishments.

Need to Know

Tea Industry News for the week of April 27

  • The Pandemic’s Impact on Specialty Tea
  • Starbucks Reports 60-70% Decline in US Sales
  • McKinsey & Co.: Consumers Are Readily Abandoning Brands
  • Sri Lanka: March Tea Exports Drop by Half
  • Retail Innovations: Samovar Tea Lounge Offers Free Meal Monday.
Sri Lanka tea gardens are practicing safe harvesting techniques making up for lost weeks following government-ordered closures. Photo courtesy Lumbini Tea Estate/Gayan Samaraweera.

It is too early to predict the impact of a looming economic downturn with accuracy. Still, a mid-April survey of U.S. tea retailers by Sinensis Research found that 81.8% of the specialty tea business has laid off staff, with 31.7% of American tea shops temporarily closed.

Abraham Rowe, who conducted the survey, reports 2.3% of tea businesses are permanently closed two months into the crisis. “I expect this number to increase if the lockdowns last through the end of May,” he said.

“Many of the businesses still operating report that they expect to close if sales do not pick up, or if they are unable to secure assistance in the form of loans or grants to continue operations,” according to Rowe.

“Specialty tea business revenue is expected to decline to 65% of 2019 sales, suggesting an overall loss of about $133 million to $154 million in tea sales by specialty tea vendors, and likely much greater losses from coffee shops and cafes that sell specialty tea,” writes Rowe.

“The coronavirus pandemic has devastated people and businesses across the world,” says Rowe, but “it’s too early to get a complete picture of the pandemic’s damage to the industry.”

  • Around 9,200 of the jobs held by tea professionals are gone. The average number of staff laid off at closed business is approximately 10, and at open businesses around 5. Layoffs and store closures represent a “devastating loss of talent and expertise” since the crisis first curtailed business activities in March, according to Rowe.
  • Most tea business owners remain optimistic. Rowe found that 93.3% of shop owners expect to reopen after the pandemic has ended and restrictions are lifted.
  • The number of businesses selling online has increased by 7%, and many companies have noted a significant increase in online sales and curbside pickup.
  • Shops that weather the initial lockdowns “can expect sales to decline between 20% and 80% this year, depending on their region and the extent to which the shop had to close or change their business model.”
  • Supply is becoming a challenge: 31% of open businesses report supply chain interruptions.

Revenue Forecast

Assuming that restrictions limiting normal operations last six months, “I predict 2020 revenue to decline to about 65% of the estimated $340 million to $400 million in 2019 sales,” said Rowe, adding that 96% of businesses that remain open expect revenue to decline for the year. “Very few of these businesses expect to grow in 2020,” he said.

A massive portion of specialty tea is sold by cafes and coffee shops, many of which are currently closed. “The number of businesses doing in-store bulk tea retail has declined by almost 50%, and the number of businesses serving prepared specialty tea has declined by more than 50% — afternoon tea service has ended almost entirely in the United States,” he said.

Rowe cautions, “these data only represent the impact on the retail market, and not the wholesale market, though a few comments on the impact on the wholesale market are included in his report.”

“I suspect that the wholesale tea market has seen even more damage than the retail market because of this, with revenue declining perhaps as much as 75% or more,” he said. Tea shops have reported that tea wholesale to foodservice clients has declined to zero, and it seems possible that larger wholesalers are feeling this same impact.

Rowe, who founded Sinensis Research in 2019, said his firm is providing research on the pandemic and its impact on the tea industry at no cost.

“Please support this research by exploring our products, such as the State of the Industry Report ($29.95). If you’d like to work with us to get up and running as an online store and get sales moving again, get in touch,” he said.

See related: Tea Shop Closings.

Starbucks Comps Decline
While Starbucks reported a decline of only 3% in comparable U.S. store sales for the quarter ending March 29, same-store sales plummeted 65-70% as the new quarter began, according to executives. Half of the company’s U.S. stores are now closed, leading to a 46% decline in earnings. Most workers will return to cafés in May, and the chain expects to reopen most closed locations in June, according to Good Housekeeping Magazine. Full-year revenue is expected to decline by almost 10%. In 2019 same-store fourth-quarter growth was a positive 6% for the U.S. division.

Consumer Behavior Insights

McKinsey & Co. is closely tracking changing consumer behavior in response to the COVID-19 crisis.

“Consumer behavior has changed across several dimensions: consumption by category, channel selection, shopper trip frequency, brand preference, and media consumption. These shifts, combined with forecasts for virus containment and economic recovery, are critical for commercial strategies,” according to McKinsey. Beverage sales in the grocery channel were up 36% during the period March 1-21, a situation that has led to restocking issues as consumers stocked up. Consumers are making 15% fewer shopping trips and buying enough for two or more weeks.

“Our research found that 30 to 40% of consumers have been trying new brands and products. Almost half of these consumer switches are because the desired product is unavailable, while an additional 19% decided to purchase cheaper available options. Of the consumers who switched brands, 12% expect to continue to purchase the new brands after the pandemic,” writes McKinsey.

Sri Lankan Tea Exports Decline

The bottom fell out of Sri Lanka’s generally robust tea export market in March following dismal yields in February. Tea export volume and value each declined by half compared to March 2019. Tea in packets dipped to 6.3mn kgs from 12.7mn kgs in 2019. Production of teabags dropped more than 1 million kilos from 2.4mn kgs in 2019 to 1.3mn kgs in March 2020. Revenue for all categories of tea was SLRs11.6 billion ($60.1 million) in March 2020 compared to SLRs22.5 billion ($116.7 million) in March 2019, as reported by the Daily News. Anil Cooke, managing director at Asia Siyaka brokers, explained that export activity virtually came to a halt before the government agreed that growing and processing tea is an essential industry.

Retail Innovations

Samovar Tea Lounge in San Francisco introduced Free Meal Monday in April and has since served 1,100 customers a free lunch of rice stew with vegetables, eggs, and tea. The give-away promotes sophisticated Samovar Life subscription meals starting at $19 for breakfast, $27 for lunch, and $37 for dinner. Meals are delivered Thursday through Sunday, and pickup service is available at all three of the 20-year-old tea room’s locations. Shipping is free from the company’s online tea store. The company is also delivering groceries.

Free Meal Monday

“We’ve never launched so many programs in such a compressed amount of time and while facing so many challenges.”

Samovar Founder Jesse Jacobs

From its inception, Samovar founder Jesse Jacobs viewed customers as a community celebrating the tea lifestyle. That is why he chose the URL: www.samovarlife.com.

Jacobs generates more than $1 million a year at his tea lounges, which feature wholesome food and superior tea. He is grateful to customers, rewards loyalty, and is genuinely concerned with their well-being. He will soon launch a virtual meditation and tea tasting. “I just keep waiting for word that the covid-19 situation has a clear solution, some clean exit plan that gets things “back to normal.” But the reality is, well, more sobering,” he writes. Check out his latest blog post: Reality As It Is: What a U.S. Admiral and Burmese Meditation Master Taught Me About Surviving the COVID-19 Pandemic.

Upcoming Events

The U.S. will report 1QTR GDP on May 1. Globally the impact on economies is “fairly catastrophic” writes market researcher firm Statista.

Singapore reported its economy contracted by 10.6% between January and March despite having initially kept the virus in check. The historic and unprecedented drop in Chinese GDP of 6.8% already made headlines. Japan’s economy contracted by an annualized 7.2% in 4QTR 2019 and is expected to decline another 5% in 1QTR 2020.

Central Banks in France and Italy have projected quarterly losses between 5% and 6%. Experts expect the U.S. economy to contract by 5-10% and the UK economy by as much as 13%.

Global 1QTR GDP

A Call for Standards – Need to Know

What tea professionals need to start the week of Dec. 8, 2014 —

A Call for Standards

By Austin Hodge

The last decade has seen a boom in what the industry calls ‘Specialty Tea’, but if you ask for a definition you will come away confused.

What is so special about ‘Specialty Tea’?

Not much. A close examination reveals commodity tea that has been adulterated in some way, typically by blending ingredients such as pieces of fruit, exotic herbs or flower petals. Since the ingredients are dried, tea blenders spray (yes, spray) on lots of flavor. I’m using the word “commodity” to include any large-scale tea where the production goal is quantity over quality. There are great quantities of traditional tea growing in every tea producing country. These include green tea, puer tea, wulong tea, white tea well as black tea. There are also an endless variety of herbals incorrectly labeled teas.

Why set standards for ‘Specialty Tea’?

Without standards, the market faces chaos. Where would France be if it had not established standards for wine almost 500 years ago? Italy followed suit and prospered. Stop and think, would the debate over which is better — Italian or French wine — have turned out differently if the Italians had been the first to set standards?

Picking Standard for Breakfast Qimen Tea

Picking Standard for Breakfast Qimen tea is two leaves and bud

It’s important to understand that standards not only define products, they establish markets, and whoever defines a market, controls it. It is undebatable that the French have created admirable markets for their wine, as have, more recently, specialty coffee retailers.

The chaos in the ‘specialty’ tea market comes from the fact that no one, from buyer to seller, actually knows the value of the tea they are buying or selling, or how to clearly establish its value. Price is derived mostly from marketing — price is certainly not based on the quality of the tea. In a practical sense, words like “quality”, “value”, and, “excellence” have been watered-down into obscurity as much as “specialty.”

Nowadays, tea is whatever the merchant says it is, opening a lot of ground for dubious interpretation. In contrast, standards are consistent and independently verified. The specialty coffee industry has done an excellent job of establishing standards, which has lead to levels of excellence and increased profitability enjoyed by the entire coffee industry.

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Coffee and tea both began as rarities for the rich, evolved into commodities for the masses and are gradually becoming artisanal offerings – the choice of connoisseurs.

Everyone my age remembers that back in the day, coffee was either the Red Can (Folger’s) or the Blue Can (Maxwell House). There were neighborhood diners and corner cafes where a cup of coffee cost a quarter. This was coffee’s “First Wave.” Americans annually drank an average of 10 lbs. of coffee per person. Per capita consumption was measured by the gallon because the efficiencies of the commodity model made it cheap.

The turning point was 1974 when independent coffee shop owners established a standard for “Specialty Coffee.” The adoption of standards launched the “Second Wave.” Pioneers such as Alfred Peet at Peet’s Coffee & Tea, Starbucks, and Coffee Bean & Tea Leaf would not exist without these standards. Innovations in growing, sourcing, roasting, packaging, and coffee brewing followed.

The market for specialty coffee was more sophisticated, resembling its European counterparts. Coffee of this quality command a higher price; it no longer had to be cheap. Thus “quality” coffee became easily distinguishable from commodity coffee.

The term “Third Wave” was coined around 2002 when small coffee businessmen traveled to coffee farms to source direct and eventually became experts in every aspect from growing to roasting to brewing. This took the small retail coffee businesses to a new profitable level that could differentiate itself from the like of Starbucks and company. Once in control of the entire supply chain, not only did standards raise retail margins for retailers, the discovery of great coffee also opened the door for a respectable wholesale business selling to other quality businesses whose business models did not include working the complete supply chain.

The “Third Wave” aspires to an even higher level of coffee experience. It begins with direct sourcing. Only direct sourcing can insure quality and answer questions about fair trade and farming methodology with confidence. Third wave coffee also places high value on production and preparation: the goal is to get the best possible cup. Third wave coffee owes its existence to Starbucks for building the market for better coffee, and for establishing the benchmark. Retailers exceeding that level could not profit in the market that Starbucks created. Third Wave roasters realized they needed to get a whole lot better to beat Starbucks, and to do so they needed expertise and transparency along the entire supply chain.

Similarly, two years ago Starbucks changed the tea market dramatically for small independent tea businesses when they bought Teavana. From here on, every small tea business is going to be defined in relation to the nearest Teavana, like it or not.

Picking standard for LiLi Xiang tea

Picking standard for LiLi Xiang tea is three top leaves

The difference between coffee and tea is that there are no standards that give tea business the tools to beat Teavana. Starbucks redefined the market for coffee on almost every level. They will do the same for tea. Small tea businesses and major tea corporations alike are going to feel the heat. Without standards, Teavana, with its extraordinary marketing muscle, can define tea quality any way they want.

If standards for specialty tea mirrored the standards for specialty coffee the only tea that could quality as “specialty” is tea judged to be within the top 20%. Most of the tea sold as specialty tea in the West would be disqualified. Just as there is with coffee, few multimillion dollar companies are going to support standards for quality in the tea industry.

Why would they?

Tea’s “Third Wave”

In the spring of 2014, Jesse Jacobs of Samovar Tea, wearing a cream-colored canvas apron over a fashionable t-shirt, announced the coming of the tea industry’s Third Wave.

But can the tea industry really be on the verge of entering into a movement equivalent to that of the coffee industry? Even though both tea and coffee have the Starbucks Corporation in common, it is going to take the tea industry a very long time to catch up to the sophistication of the coffee industry. The discussion about standards for ‘Specialty Tea’ has not even begun.

Picking Standard for Liu An Gua Pian. The second opened leaf is picked as soon as it matures to the size of a pickers thumb

Picking standard for Liu An Gua Pian. The second opened leaf is picked as soon as it matures to the size of a picker’s thumb

Looking forward, a profitable market for small tea businesses will require standards. These need to be objective, understandable, and replicable. Standards provide growers with a definable goal for crops and harvesting. Standards enable tea makers to formulate products clearly identified by buyers, which give the producers incentive to get better. Direct sourcing will become increasingly important for the tea businessman. Consumers will actually know what they are paying for and where it originated.

Establishing standards brought extraordinary advantages to coffee growers including unimaginable financial success. A small Brazilian coffee grower this month won the Alliance for Coffee Excellence’s 100th Cup of Excellence (COE) competition to earn $50.20 per pound at auction, the highest price ever paid per pound for COE coffee. He took home $106,000 in a country where the per capita income is less than $1000 per month. What is noteworthy is that Brazil is the largest commodity coffee producer in the world. Think what standards for quality would mean for small holders in India and Africa, areas still economically strangled by the colonial commodity system. Establishing an objectively evaluated standard establishes value that can be communicated thru the supply chain to the customer. Excellence is the reward.

China is realizing the benefits of standards in its domestic market for tea right now. Their tea industry was destroyed through a 150 years of war and internal strife. As China recovered following World War II and the Mao era, tea was mediocre at best across the country. More than a decade ago China set standards for quality and freed tea makers to create and profit from their own business. Since then, China has experienced a renaissance in tea making: tea being produced for the domestic market is the best it has ever been in history; China has become the largest tea producing country in the world, gets the highest prices for its tea, and has the highest average price for tea. China has the best teas in the broadest categories; it has defined standards, and grows the largest percentage of tea using traditional, chemical free growing practices.

The coming of standards is inevitable. Small businesses that are dedicated to quality in real terms, not just in the marketing of their products, will benefit.

It took years for standards to impact coffee, but things will move quicker with tea due to the benefits of the information age. The tea industry is ready for professionals to lay the groundwork for “Third Wave” tea. Let’s leave it to Teavana to push the second wave along in building the market, like their parent company did.

What is great about getting the ball rolling towards standards for quality and, eventually — excellence — is that small businesses that are struggling to establish new business models need not worry, for the best practices for quality in the tea industry go beyond the reach of corporations, economies of scale, and deep pockets of marketing departments. Standards are the essential tool for the tea entrepreneur.

So become a pro, take some Chinese classes, and get you passport up to date, and by all means study the Specialty Coffee Industry. They have become experts in coffee on every level. You might want to remember that this year Peet’s hired a woman that is fluent in Chinese and has a masters degree in tea from Zhejiang University.

Standards, direct sourcing, transparency, expert level knowledge about tea and its culture, logistical mastery, inventory management expertise, and tea preparation skills are all requirements for ushering in tea’s third wave. Herein lays opportunity, challenge, and the promise of excellence. Let’s hope tea entrepreneurs’ passion for tea is strong enough to take them where they’ll have to go.

Austin Hodge is the founder of Seven Cups Fine Chinese Tea in Tucson, Ariz. http://www.sevencups.com

Copyright Austin Hodge.

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Tea Biz serves a core audience of beverage professionals in the belief that insightful journalism informs business decision-making. Tea Biz reports what matters along the entire supply chain, emphasizing trustworthy sources and sound market research while discarding fluff and ignoring puffery.


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Service and Innovation

Service and innovation differentiate tea retailers. At its core, specialty tea is a commodity since most blends use similarly sourced mid-grade green or black tea enhanced with ingredients and flavor.

The lowest tier in the sector consists of tea-only blends that are bagged and retail for less than $300 a kilo. The entry point is $5 for 200 grams (equivalent to a 100 ct. box of 2-gram teabags) or $25 per kilo with many supermarket teas selling for $7 to $8 per box ($35-$40 per kilo). This tea costs $2 per kilo at origin and is blended with similarly priced teas for consistency. It costs $1 to ship a kilo to the U.S. and less than $1 to fill, tag and box 100 tea bags. Marketing established blends is a rising cost. Store-brand competitors pressure national brands but there will always be a place for bottom-shelf tagless tea bags selling around a nickel to a dime.

The upper tier is loose leaf with fruit, spice and floral inclusions, pyramid bagged, gift boxed or in tins. A 25-gram pouch of specialty blend sells for $15, earning retailers $300 per kilo. Retailers get only 5-cents a tea bag selling Lipton but they sell a lot of Lipton. Nearly every home in the country has a nationally branded tea in the pantry. Fewer than one in ten are willing to pay $1 a tea bag for a foil-wrapped Tea Forté pyramid (with 4 to 6 grams of tea) but grocers selling Adagio, Rishi, Numi and Republic of Tea are getting $250 a kilo a ten-fold premium.

The core component of these teas arrives in shipping containers warehoused and blended by a few gateway importers with entrenched (often family) supply chains originating in China, Taiwan, Japan, Sri Lanka, Kenya and India. Raw materials for blending are very similarly sourced and priced with tea often the least expensive component. There are an infinite number of blends and taste sensations but remarkably little variance in a warehouse stacked to the ceiling with four million pounds of tea.

This is why service and innovation are critical to retail success. Service is the key point of differentiation. It begins with that first impression, the cold-call presentation that gives buyers a reason to believe that working with you as a wholesaler will benefit their business. There are often two or three wholesalers with identical price points pitching a retailer whose first concern must be to meet the needs (within limitations) of his or her customers. The fact that sales of these similar teas are growing is due to the nearly continuous introduction of new formulations and experimental blends and the presence of color, texture (chunks and leaves, not dust) and intense flavor (often added).

This suggests the path forward is to innovate with taste and convenience foremost. Cultivate in those who show interest a more sophisticated appreciation of the profitable, highest quality teas. Tell the story, let them taste the tea. Repeat. Repeat. Repeat. Retailer and customer advance in step with sellers bringing ever-larger numbers of specialty tea drinkers into the tent where a growing percentage of newly-converted tea lovers share and spread the joy of discovery after readily paying the always-reasonable price for the pleasure of a fine cup of tea.

LinkedIN: Share you thoughts on the importance of service and innovation.

—- Dan Bolton

Need to Know (Sept. 16, 2013)

What you need to start the week.

  • Big Investment Consortium Backs Coffee Bean & Tea Leaf
  • World Tea Expo | Healthy Beverage Expo Move to Long Beach in May 2014.
  • India Green Leaf Price Minimums a Pittance

Retail News

LOGO-CoffeeBean&TeaLeaf_240pxLOS ANGELES, Calif. – Investments, mergers and acquisitions fueling tea retail during the past 18 months are approaching an unprecedented $1 billion.

Remarkably, investments in coffee retail during this same period top $10 billion.

The latest move is a sizable (but undisclosed) investment in California-based Coffee Bean & Tea Leaf. The deal was disclosed Friday by a consortium led by private-equity firm Advent International in Boston and CDIB Capital (the overseas investment arm of Taiwan-based China Development Financial Holdings Corp.) along with Mirae Asset Private Equity, a Korean venture.

The privately held Coffee Bean & Tea Leaf was founded in 1963 and has a large-scale tea blending facility in Camarillo, Calif. The company owns 178 stores and franchises 764 stores in 30 countries with 250 in Korea. It opened its first Asian store in 1996.

Victor Sassoon and his brother Sunny remain significant shareholders, according to a Sept. 12 release.

“Since 1996, we have worked very hard to build The Coffee Bean into the global and innovative company it has become today that touches the lives of millions of guests every week. The Coffee Bean & Tea Leaf® celebrates its 50th anniversary this year and we feel very blessed and excited to join our new partners in continuing to realize the Company’s significant potential as we look forward to the next 50 years of growth on all levels,” according to a joint statement by CBTL Executive Chairman Sunny Sassoon and Victor, who is CBTL CEO Asia.

The Coffee Bean is the largest independent global player in a dynamic industry,” said Jeff Case, a Principal at Advent International. “The coffee and tea market is poised for continued growth, driven by rising coffee consumption globally and an expanding middle class in Asia and other growing economies throughout the world. We believe this investment will serve to accelerate the brand’s development and market share and we look forward to working with the management team to accomplish that growth.”

Will Kussell, a member of Advent’s Operating Partner program, will serve as Vice Chairman of The Coffee Bean Board of Directors. Kussell was previously president and chief brand officer of Dunkin’ Donuts Worldwide where he led the successful repositioning of the company as a coffee and bakery segment leader, increasing U.S. sales from just over $1 billion in 1994 to more than $5 billion in 2009. He also established an international growth strategy for Dunkin’ Donuts that led to a 60% sales increase from 2004 to 2009.

CBTL President and Chief Executive Mel Elias told Nation’s Restaurant News “The brand was well accepted in Asia, in part because The Coffee Bean had long focused on premium tea in addition to coffee — offering a leg up in a part of the world that had yet to adopt coffee-drinking ways.

The brand’s emphasis on tea will also be an advantage in the U.S., where consumer interest in tea is booming, Elias said. “When I started about 15 years ago, tea was about 4 percent of sales. Now it’s 15 percent, and it’s our fastest growing category,” he told NRN reporter Lisa Jennings.

Coffee Retail Investments

CBTL (Private) – $undisclosed – Advent International (Sept. 2013)
Master Blenders 1753 (Public) – $9.8 billion – Joh. A. Benckiser Group (April 2013)
Caribou Coffee (Public) – $350 million – Joh. A. Benckiser Group (Jan. 2013)
Peet’s Coffee & Tea (Public) – $974 million Joh. A. Benckiser Group (July 2012)

JAB paid $73.50 a share, a 29 percent premium for Peet’s in July 2012 and $16 per share for Caribou, a 30 percent premium. The company then paid $9.8 billion or $16.71 a share for Master Blenders, the largest coffee acquisition in history. Illinois-based Sara Lee Corp. became Hillshire Brands last year, spinning off its international coffee and tea business in June 2012 to create DE Master Blenders 1753. The previous high was the $3 billion paid by JM Smucker Co. for the Folger’s coffee brand which it purchased from Procter & Gamble Co. in June 2008.

Tea Retail Investments

T2 (Private) – $80 million est. Unilever (Sept. 2013) – See Tea Biz T2 Post
Teavana (Public) – $620 million Starbucks Coffee (Nov. 2012)
DAVIDsTEA (Private) – $14 million (April 2012)

Tea represents at least 10 percent of sales at the coffee firms listed above with greater margin contribution than coffee. This means the Peet’s, CBTL and Caribou deals represent at least a $150 to $200 million investment in tea retail. Tea represents much less of the the Master Blenders portfolio which include Tea Forte and Pickwick Tea, a multimillion dollar brand with about 70 percent of the Dutch market and 12 percent of Europe’s tea sales. If you assume Unilever paid at least $80 million for Australia’s T2 the total investment in tea retail tops $1 billion. Unilever did not disclose what it paid for T2.

Accolades

LOGO-HealthyBeverageExpoLONG BEACH, Calif. – Tea is only one of several categories of beverages eroding carbonated beverage’s 45 percent share of throat.

Ready-to-drink teas, sparkling teas and juice fusions, bottled and fortified waters; natural juices like coconut and juice blends all bring health benefits welcomed by young and old.

Healthy Beverage Expo focuses on better-for-you beverages with healthful ingredients, facilitating the dialogue surrounding what “healthy” means to the industry and ultimately the consumer, according to organizer George Jage, founder and director of The Beverage Group (formerly World Tea Media).

The Healthy Beverage Expo and World Tea Expo will co-locate at the Long Beach Convention Center May 29 – 31, 2014, Jage announced last week.

LOGO-WorldTeaExpo“Moving World Tea Expo and Healthy Beverage Expo from Las Vegas to SoCal is a strategic decision that many industry leaders asked us to consider,” he said.

The combined theme for the event: “ReThink Your Drink: Better Beverages, Better Business,” was inspired by Long Beach’s own “ReThink Your Drink” efforts to encourage healthier consumption.

The event will generate an estimated $2.3 million for the local economy, according to the Long Beach Business Journal. “The World Tea and Healthy Beverage Expo is a cutting-edge-type of program, so it brings people who are innovators and are trendsetters into our city,” Convention and Visitor’s Bureau President Steve Goodling told Business Journal Assistant Editor Tiffany Rider.

“I’m delighted to welcome World Tea Expo and Healthy Beverage Expo to Long Beach,” said Long Beach Mayor Bob Foster. “Long Beach is the perfect fit to host these two expos as our City is certainly a health-minded community, and I look forward to showcasing our City’s waterfront, attractions, local businesses and beaches.”

The decision to relocate World Tea Expo is a smart move for these reasons.

  • Long Beach is a great venue. The downtown is vibrant, the waterfront lovely and the facility is first-rate. Accommodations are reasonably priced, there are great restaurants in walking distance of the venue and the weather and cooling onshore winds combine to make Los Angeles quite pleasant that time of year. More significant, the move encourages a wide range of beverage retailers to attend. I exhibited at the convention center for several years as publisher of Natural Food magazine, a trade publication circulated among grocers. Specialty and natural grocery buyers are far more likely to travel to Long Beach. In addition Southern California is a hub of beverage distributors including some of the nation’s largest bottlers.
  • There are 460 tea retailers headquartered in Southern California. Expo has always been the ideal place for exhibitors to spend a few minutes face-to-face with their key customers. The move to Southern California won’t change that. The region is home to some of the largest specialty tea importers (International Tea Importers) and blenders (QTrade Teas & Herbs) wholesalers (Sungarden Tea) and retailers (Coffee Bean & Tea Leaf) all staunch Expo supporters. Together these firms supply much of the nation’s premium teas.
  • While World Tea Expo remains the leading trade show and conference focused on premium teas, its foundation is enhanced by exposing retailers to innovative products with consumer appeal. Parent company F+W Media rebranded the division to emphasize this broader range of “good-for-you” drinks. Healthy beverages are of growing importance to beverage retailers who wish to generate most of their income from non-alcoholic drinks. The alternative is to serve food which changes the character of the establishment as food sales exceed 50 percent of total revenue. The two shows share a theme this year but The Beverage Group will continue to emphasize the importance of premium tea hosting the World Tea Expo and World Tea East and producing the North American Tea Championships, operating the World Tea Academy and publishing World Tea News.

“We’re thrilled about the new opportunities and business this will bring attendees and exhibitors, and the Expos will see more ‘walk-ins’ and local ‘traffic’ from SoCal, as the area is one of the west coast’s most dynamic beverage marketplaces,” said Jage. “In addition, Long Beach is the perfect host city with its ideal climate, charismatic city-center and numerous attractions. We know the tea and healthy beverage communities will be excited about the Expos’ move and how it positively impacts their participation in the shows and their organizations,” he said.

Learn more.

Origin

KOLKATA, West Bengal, India – This week marks the debut of a minimum benchmark price for green leaf in several of India’s tea growing regions. The Tea Board of India notice insures small growers will be guaranteed at least the average sales price at auction from the previous month.

The prices are announced by district. In Darjeeling and North Dinajpur the August price averaged INRs 11.15 per kilo (18-cents/kg) and in Jalpaiguri (Doers) INRs 11.72 (19-cents/kg). In Assam prices were generally higher ranging from 21-cents to 29-cents per kilo. It takes 4.6 kilos of green leaf to make a kilo of tea.

Learn more.

Tea Biz serves a core audience of beverage retailers in the belief that insightful journalism is one of the most effective forms of professional education. We write about what matters along the entire supply chain, emphasizing trustworthy sources and sound market research while discarding fluff and ignoring puffery. If there is nothing we can add to your understanding of the issue, we leave it alone.

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Need to Know (Sept. 9, 2013)

What you need to know to start the week.

  • Unilever buys T2, Australia’s $50 million market leading tea retailer.

Retail News

T2 Logo

T2 Logo

COLLINGWOOD, Victoria – Unilever kicked off their retail shop game with a Lipton store 15 years ago but later fumbled the ball in Belgium and stumbled with Bru World Cafes in India. Last week’s surprise acquisition of T2, Australia’s top specialty tea retailer, puts Unilever’s retail team back in the game.

Unilever has much to learn from T2, a premium tea retailer founded in 1996 by Maryanne Shearer in Fitzroy, Australia. The company currently operates 40 stores, mainly in Melbourne. T2 reported 12-month sales of $52.5 million through June of this year. The tea company offers a range of blended teas found in specialty grocery as well as many leading cafes, restaurants and hotels in Australia and nearby Asian countries. The company, which employs 300, opened 11 retail stores in the past year including its first in New Zealand and “has been growing double-digit and has significant potential,” according to the Unilever press release announcing the deal Friday, Sept. 6. The purchase price was not disclosed.

T2's Chappel Street Shop

T2’s Chapel Street Shop

The acquisition “will allow us to bring the benefits of scale and access to new markets to the T2 business and for both businesses to share tea category expertise,” said Unilever’s President of Refreshment Kevin Havelock.

“We also like the fit with T2, bringing a fast-growing, premium tea business to complement our portfolio that we can leverage like we have done with other acquisitions in other categories (e.g. TRESemme that came with the Alberto Culver acquisition and which we have quickly launched in new countries like Brazil and Indonesia),” added Trevor Gorin, Unilever Head of Global Media Relations.

“We are delighted that we have found a home for T2 that has such a depth of knowledge of tea and has pioneered sustainability in the industry,” said T2 Managing Director Shearer. “Both I and the T2 team are looking forward to working alongside new colleagues in Unilever’s tea business to realize the full potential of the business we have spent the last 17 years building.”

Dynamic Business reported that “Shearer’s teas enjoy cult-status amongst connoisseurs and modern drinkers alike, and she’s built a booming retail business at a time when many are folding… using her product development and visual merchandising skills (Shearer) created a retail experience Australians hadn’t seen before.”

TEABIZ-T2MaryanneShearer_Tasting3_200px

CEO Maryanne Shearer

Shearer, 50, who has twin boys and a 12-year-old daughter, is recognized as one of Australia’s top entrepreneurs. She operated a homeware company prior to founding T2 and worked in the fashion and interior design industry early in her career.

“Maryanne Shearer has created a whole new retail category and built a powerful brand in her T2 business,” said Janet Holmes à Court, chair of the Australian judging panel that awarded Shearer the 2012 Veuve Clicquot Business Woman Award.

“What was the hardest part about establishing T2?” Dynamic Business asked her in 2012.

“In the beginning it was convincing everyone that a retail tea concept was a viable business idea, then once we were trading and the idea took off, it was understanding the importance of a healthy business and finding the balance between left and right brain priorities,” she answered.

T2 Retail Store

T2 Retail Store

Shearer clearly gets it. T2’s teaware selection is functional with vibrant eye-catching design. Her first shop featured daily in-store tastings, open canisters displayed on tables and staff trained to encourage customers to smell, touch and compare teas. The shops are a model of what is unfolding in the United States and a tested platform for Lipton to expand globally.

While the company is smaller than either the 100-store DAVIDsTEA headquartered in Montreal, Canada or the 300-store Teavana, T2 similarly pioneered the winning retail concept in its home market and is now Australia’s leader in specialty tea.

Blends like Strawberries and Cream (which retails for $31 for 250 grams) and Citrus Punch ($12.80/100 g), Organic Chai ($12.40/100 g) and orthodox teas like Iron Goddess of Mercy ($45/100 g) are marketed at prices familiar to Teavana or DAVIDsTEA customers. Stores feature a tea wall, offer samples and tastings as well as more formal personalized training for their best customers.

The hip three-tiered loyalty program rewards 25 credits after $500 in purchases. Points are worth $1 each and redeemable in-store and online. T2 customers are invited to the Secret Tea Society after buying $2,500 in goods, a threshold that earns private tea training and “a multitude of niceties.”

T2 Tea

Selection of T2 Teas

Last November Starbucks paid $620 million for Teavana, a publicly traded company with margins superior to the coffee giant. Acquiring T2 (regardless of price) is a potential game-changer for Unilever which is not known for its loose leaf offerings and must expand its range to include premium tea brands. The T2 brand will add retail dollars to an already lucrative Australian portfolio that includes 125-year-old Bushells, a national brand founded in Queensland.

See: How much of a premium does it take to make premium tea special?

According to Euromonitor International, the Lipton and Bushells brands led Australia’s tea market in 2012 with 31% off-trade value share.

T2 Bottled Teas

T2 Bottled Teas

“Despite gaining in actual sales terms, Unilever’s value share slipped one percentage point from 2011, as the instant tea category expanded beyond Lipton Chai Latte and Bushells, resulting in the company’s off-trade value share dropping from 66% in 2011 to 58% in 2012 within instant tea despite gains in actual sales terms.

Details on the market can be found in the April 2013 report: Tea in Australia.

The purchase brings to mind Lipton’s two-year experiment in tea retail in Old Town Pasadena, Calif. The Lipton Tea House opened in 1997 with 52 kinds of loose leaf teas unavailable in other channels. The storefront’s light wood and chrome interior resembled Starbucks coffee houses. Patrons could order scones and a tea latte − made from tea, milk, cinnamon and other spices.

“The idea is to show consumers how interesting and diverse tea can be,” Gasper Ferraro, then-director of finance for Lipton’s food service division, told London-based Design Week in February 1999.

The venture could not meet revenue targets and was closed in 1999. Unilever’s Bru World Café a small chain of coffee shops that opened in July 2011 in Mumbai, now with three locations, continues to struggle. These attempts at store front retail and a European retail concept that failed in Belgium take on new relevance as Starbucks tweaks the already-successful Teavana model, with plans to expand into urban and suburban lounges in America as well as overseas.

Rumors this time last year predicted Unilever would open retail tea shops in Britain in 2013. Will Unilever instead supercharge T2’s already ambitious expansion plans?

Tea is a strategically important category for Unilever Australia, said Unilever Australasia chairman, Clive Stiff, “Our Lipton and Bushells brands are two of Australia’s oldest and best loved tea brands … We know tea drinkers are increasingly looking for new and diverse tea flavors, so we are delighted to be bringing T2’s premium and exciting range into the fold. T2 is a great Australian success story – a story that we now intend to continue with Unilever.”

T2 Tea Wall

T2 Tea Wall

The company website notes: “T2 has unfurled and blossomed over the last 17 years, and now sells enough tea per month to make 8 million cups!”

Australia has a population of 22.7 million who share a British tea habit that once rivaled the motherland. Per capita tea consumption was 2.67 kilos in 1964 but dropped by half to 1.3 kilos in 1985 as coffee became popular and soda sales rose to 73.10 liters per person. Consumption at half a kilo still lags the 1.9 kilos per capita consumed in the U.K., according to statistics compiled by the Food and Agriculture Organization of the UN.

Tea is making a strong showing in the market with a health and wellness message that resonates with young people, according to Shearer who credits travel for inspiring her creativity.

“Creating a wonderful taste experience with teas from all over the world gives T2 the opportunity to educate, excite and surprise T2’s customers,” she writes. “The customer experience is always our priority and that’s why we love what we do.”

Online the company states that: “Tea lies at the very heart of the T2 philosophy. Sourced from all over the globe, there are over 200 teas in our ever-expanding range, embracing all varieties. From the fanciful flavors and scents of herbal and fruit tisanes, to the revered tender white teas, the herbaceous greens, to the strong and heady popular blacks, the T2 tea range is multifaceted and full of adventure.”

The acquisition is subject to customary closing conditions, according to the release. Learn more.

Export News

HAMILTON, New Zealand – Zealong Tea Company continues in business despite reports of its demise, according to its owners.

The miscommunication stems from the arrival of bulldozers at the estate’s original farm on the northern edge of Hamilton. The 27-acre parcel was sold to residential developers following complaints from neighbors that the company used noisy helicopters to combat frost on the fragile leaves of its oolong stock.

Spokeswoman Gigi Crawford told NZ Farmer that the Gordonton house and Discover Tea experience remain in operation. Ten years ago when planted the farm was well removed from housing. It was subsequently zoned for residential use. Neighbors in the vicinity complained at the use of helicopters to circulate air and prevent frost damage.

The company which exports premium organic oolong and other teas to Asia and Europe will focus its attention on developing lands near Gordonton, investing up to $5 million in a new visitor center and leaf drying plant, according to Crawford.

Health

HOBART, Tasmania – A doctoral student at the Menzies Research Institute has demonstrated green tea prevents rats from getting diabetes.

Helena Ng, a doctoral candidate at the Institute, told The Daily Telegraph that her discovery in rats was made possible by a new test that detects early signs of diabetes. Her work adds to studies that suggest components in green tea may prevent, but not cure diabetes.

Rats fed an unhealthy diet that normally led to the early stages of diabetes avoided the condition when the diet included concentrated green tea, the equivalent of 200 cups a day.

Tea Biz serves a core audience of beverage retailers in the belief that insightful journalism is one of the most effective forms of professional education. We write about what matters along the entire supply chain, emphasizing trustworthy sources and sound market research while discarding fluff and ignoring puffery. If there is nothing we can add to your understanding of the issue, we leave it alone.

Tea Biz posts are available to use in your company newsletter or website. Purchase reprint and distribution rights for single articles or subscribe. Custom content available. Click here for details.