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

The Future of Tea

SOUTHAMPTON, Bermuda — The North American Tea Conference annually hosts an Industry Breakfast to consider difficult issues by engaging stakeholders from all sectors of the supply chain in a Q & A session.

LOGO-TeaInTriangleOrganizer John Snell with Mother Parkers Coffee & Tea writes “this year was exceptional with the various representations from all sectors, including the two largest global tea producers and significant branded and private label packers; pepper this group with a liberal smattering of importers, affiliated trades, Tea Boards and Associations and you have a veritable bouquet of invested industry grey matter.”

“No subject is taboo with everything from labor, legislation and competing land use in the dock. The convivial atmosphere of the tea industry is unique and enables honest debate around these tough issues and I quietly applaud the individual collective to keep the needs of those working in tea at the fore, despite the balance book imperatives of modern business,” reports Snell.

What follows are three of the six questions posed. Each links to a discussion thread. The more who share their opinions on these topics the better. In a few months Tea Biz will summarize the main points and share this with the Tea 2030 project on the Future of Tea.

Question No. 4

North America, like other consuming countries, has constructed many positive release gateways to imports, in order to protect the consumer. The latest is the FSMA offshore Supplier requirements. Is this screening of the food supply chain relevant and what are the ramifications for Producers, Importers and Packers that do not exist within GFSI standards today.

Question No. 5

Given the incredible success that the Tea Association of the US and Canada have had, with respect to addressing the lack of manageable import MRLs (maximum residue levels) for tea, we may have 30 within 5 years. If this is the case, we can Authorities to start applying a little more pressure on imports to live up to these standards. Are we confident that Production will be able to live within these MRLs or is the specter of yet another set of policed benchmarks a call for action for Producers. Should the collective technical committees from all Origins, finally, be interested in pushing for a Harmonized system and which is the right international vehicle for this action?

Question No. 6

If market economics need to prevail then do we need to assess the mechanisms for selling tea in order to increase interest and liquidity?

Is there enough volume to consider a Futures Exchange which could be based on soluble solid content, a scientific parameter rather than a more subjective quality standard, more in line with extract buyers who are used to having a hedging mechanism to work with?

What are the pros and cons for such a mechanism?

Related Posts:
The Future of Tea (Questions 1-3)
Tea in the Triangle: Plotting Tea’s Future

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Tea Association Farewell to Joe Simrany

SOUTHAMPTON, Bermuda — Retiring President of the Tea Association of the USA Joseph P. Simrany on Wednesday basked in the warm wishes of a global tea industry he has served for nearly 23 years.

Simrany, with wife Carol and his adult children, told the audience he is recovering from a recent heart attack and praised incoming President Peter Goggi for not missing a beat during his absence.

Retiring president Joe Simrany graciously accepts a standing ovation for more than two decades of service as head of the Tea Association of the USA.

Retiring president Joe Simrany graciously accepts a standing ovation for more than two decades of service as head of the Tea Association of the USA.

“This has been a labor of love, and while the years have gone by so fast, the memories are the best of my life. Thank you for the opportunity,” he told the crowd of 150 that rose spontaneously in applause.

Chairman Barry Cooper recounted some of Simrany’s many accomplishments and memorable exploits in his travels on behalf of the Association. A slide show depicting two decades of service representing the American tea industry at events on goodwill visits with international business and government leaders.

Elegant gowns and black tie attire reveal the many faces of the tea industry as attendees C.S. Bedi of Rossell Tea, India and Krishan Katyal of J. Thomas & Co. honor retiring Tea Association of the USA President Joe Simrany.

Elegant gowns and black tie attire reveal the many faces of the tea industry as attendees C.S. Bedi of Rossell Tea, India and Krishan Katyal of J. Thomas & Co. honor retiring tea association president Joe Simrany.

The event was also an occasion to celebrate winners of the Gold Medal Tea Competition with the top recognition going to Udaya Kumar of Billamalai Tea Estate, India for its Blue Gate Green Twirl Tea.

Click here to see entire list of winners.

Cooper asked for a moment of silence in memory of Andy Holliday, President & CEO at A. Holliday & Company Inc. Holliday died Sunday on a trip to Italy with his wife.

Cooper handed the gavel to incoming Chairman John Smith, vice president at Henry P. Thomson, Inc. Smith later sat with Tea Biz for a discussion of his vision for the organization. Look for a Q&A next week.

Revelers continued the celebration well into the night.

Last to leave. Banquet celebrants chat well into the night.

Last to leave. Banquet celebrants chat well into the night.

Tea in the Triangle: Plotting Tea’s Future

SOUTHAMPTON, Bermuda — MGVK Bhanu, chairman of the India Tea Board, on Tuesday hosted a calypso evening for 150 tea executives vested in the North American market.

MGVK Bhanu, Chairman of the India Tea Board, greets attendees.

MGVK Bhanu, Chairman of the India Tea Board, greets attendees.

The three-day North American Tea Conference, jointly sponsored by the Tea Association of the USA and the Tea Association of Canada, is focused on the future of tea. As is tradition, business sessions and presentations follow festivities, but the topic spurred serious conversation from the onset.

Global demand is steady with a pronounced shift to higher-quality tea as the growing middle class in tea lands exerts its buying power. However, producers are confronting many challenges including a temporary glut of CTC grade tea.

Bhanu led a delegation of tea producers that spanned his native land. Firms include Rossell, Kanan Devan Hills, Balaji Agro and McLeod Russel India. The East Indians are upbeat as production will top 1 billion kilos with strong exports and a welcoming North American retail market.

Delegations from Africa, Japan, China and Sri Lanka welcome the upward trajectory of specialty tea but voiced concerns mainly centered on stabilizing prices for commodity tea. Sugar, cocoa, coffee and rubber have all seen very significant price increases in the past five years, typically doubling while the price of commodity tea has risen 40 percent. Growers need additional money to invest in modernization of processing equipment and automation where practical.

Attendees at the 4th North American Tea Conference, opening reception Bermuda.

Attendees at the 4th North American Tea Conference, opening reception Bermuda.

Watch for coverage later this week as speakers Anne-Marie Brouder of the Forum for the Future discuss sustainability and Nigel Melican addresses mechanical harvesting. Rick Winslow with Nielsen is presenting a North American Tea Review that will offer consumer insights and Robert Nelson, who presides over the National Coffee Association will describe the remarkable impact of single serve on coffee retail.

TEABIZ-ContestJudges_340px

Gold Medal judges from left John Smith, Shabnam Weber and Nick Salza sniff, taste and touch teas from a dozen countries vying for recognition.

Conference attendees represent the entire length of the supply chain including transport and storage, logistics and financing, harvesting and processing machinery and trading services.

Representatives from European-based dynamos including Martin Bauer, Ahlstrom FiberComposites, Wollenhaupt and Glatfelter mingled with executives from the multinational brands including Unilever (Lipton), Tata, Finlays, Snapple Group, Ito En and Nestle.

John Snell, Mother Parkers and Manik Jayakumar, QTrade Teas & Herbs, judge the Golden Medal Tea Competition entries.

John Snell, Mother Parkers and Manik Jayakumar, QTrade Teas & Herbs, judge the Golden Medal Tea Competition entries.

Specialty tea blenders and importers include QTrade Tea & Herbs, Henry P. Thomson, Sandbar Trading (BW Cooper) ; Haelssen & Lyon, Van Rees (North America) and S&D Coffee.

Retailers Harney & Sons report strong sales growth and the construction of a new bottling plant adjacent to their Connecticut headquarters. The Canadian Tea Association, meeting at breakfast session on consumer enthusiasm for tea once again found that sales of specialty teas once again outpaced commodity tea in that country where 54% of the population drinks tea at least once a week. Association members can review the entire presentation during a webcast in the next few weeks, said President Louise Roberge.

John and Elyse Harney, Harney & Sons

John and Elyse Harney, Harney & Sons

Investors Bet $1 Billion on Tea Retail

Retail News

LOS ANGELES, Calif. – Investments, mergers and acquisitions fueling tea retail during the past 18 months reached an unprecedented $1 billion.

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

LOGO-CoffeeBean&TeaLeaf_240pxThe 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 DE Master Blenders 1753, 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 includes Tea Forte and Pickwick Tea, a multi-million 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.

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

What is the threshold price for premium tea?

From a retailer’s perspective it is tea that grosses at least $300 per kilo.

A 50-gram pouch of specialty tea that sells for $15 puts 30-cents a gram into the retailer’s till compared to between 2.5- and 5-cents per gram for commodity tea.*

Specialty Tea Pricing Benchmark

Price

Qty

Grams

Ounces

Pounds

$300

1

1000 grams (kilo)

36 ounces

2.25 pounds

$150

2

500-gram pouches

18 ounces

1.125 pounds

$15

20

50-gram pouches

1.8 ounces

 

$7.50

40

25-gram pouches

.90 ounces

 

$3.75

80

12.5-gram sample

.45 ounces

 

* 200 grams of Lipton Yellow Label sells for $9.50 or 5-cents per gram in grocery and the same 100-count box sells for $5.09 or 2.5 cents per gram at Costco (9-8-2013)

The tea contained in a $15 packet may or may not be premium quality. I could be an exquisitely handmade, artisanal Orthodox or more likely a mid-grade green or black blended with fruit and flowers and flavor enhanced. It may even be a tisane and contain little or no camellia sinensis and still be labeled special. Customers view premium through the prism of price.

To put this price in perspective, consider that growers in Africa and India produce 1.5 billion kilos of black CTC that sells for an average $3 per kilo with another 1.5 billion kilos of green tea from Asia exported at a similar average. The balance of the world’s annual 4 billion kilos of tea sells for $10 a kilo, with very small quantities of high value tea selling for up to $100 per kilo, according to Rajiv Lochan, founder of Doke Tea and a student of statistics. “So a very rough average of $5 per kilo for bulk teas can be a safe estimate,” he writes. Tea at retail, packets, tea bags and specialty teas have extreme ranges and are difficult to estimate, according to Lochan.

Regardless of what is inside the pouch I believe that $15 for 50 grams is a useful retail benchmark in North America. If customers willingly pay $300 per kilo it must be special.

This is a six-time multiple over the retail price of commodity tea. I borrowed this valuation ratio from the coffee industry which prices specialty grades of Arabica at a premium over “C” or commodity grade green coffee. A six-times multiple is common in negotiations for the highest “specialty grade” coffees.

Below is a technical description of top quality coffee by the Specialty Coffee Association of America.

EMBED: www.scaa.org

Grade 1: Specialty Grade Coffee Beans: no primary defects, 0-3 full defects, sorted with a maximum of 5% above and 5% below specified screen size or range of screen size, and exhibiting a distinct attribute in one or more of the following areas: taste, acidity, body, or aroma. Moisture content must be between 9-13% and when prepared the coffee must be free of cup faults and taints. Coffee that scores 80 points or above on the SCAA’s 100-point scale is graded “specialty.” Only 5- to 10-percent of the world’s annual production qualifies.

Since the large premiums attached to specialty are based on the cup quality as agreed upon by a buyer and seller if the pre-ship sample does not match the arrival coffee, the container can be rejected. This results in a huge loss to the exporter.

Descriptions of tea lack this level of precision. There is no exchange or futures market and no standard cupping criteria for tea. Prices for large quantities (or specialty micro-lots) are negotiated directly with the grower and the rest is sold at auction houses in the tea producing regions of the world.

Should the tea industry devise a standard description of premium teas worthy of a premium price?

Need to Know (Aug. 19, 2013)

What you need to know to start the week.

Origin
DARJEELING, India – An economic blockade of tea will expand this week to include timber as the Gorkhaland Joint Action Committee (GJAC) seeks official recognition of a state to be carved from Darjeeling and Jalpaiguri districts. The five-day protest that began Aug. 19 will slow processing and transport but the bulk of high-quality second-flush tea was exported in June and early July. The first- and second-flush represent 40 percent of the estimated 9-10 million kilos harvested this season but 80 percent of revenue. Autumnal teas and the great majority of lower-grade tea from small holders will bear the brunt of the disruption. The dispute has been ongoing for 25 years. Gorkha are Nepali-speaking citizens of India. There are an estimated 10 million living in northern India. Learn more.

Retail News
LONDON, England – A blend of Tetley original black tea and green tea reflects marketers’ desire to promote tea’s functional benefits to younger drinkers, according to Mintel International.
Beverage Daily noted that convenience is the key consumption driver for a core soft drink target group with consumption expected to rise 9.4% through 2017. The report, Tea and Other Hot Drinks disclosed 20 percent of 25- to 34-year-olds find many herbal teas tasteless but one third indicated herbal teas are healthier than standard varieties. The U.K. survey of 1333 tea drinkers 16 and older was conducted in Feb. 2013. Learn more.

Health
DURHAM, N. Carolina – There is no effective treatment for non-alcoholic fatty liver disease which affects nearly 70 percent of the obese and diabetics. But researchers at Duke University of Medicine and Graduate Medical School reveal “mounting evidence” that caffeine in tea and coffee triggers lipids in liver cells to metabolize which lowers the amount of fat. Tests were done on mice. The findings are to be published in the journal Hepatology. Learn more.◊

Import/Export
NEW DELHI, India – India’s small tea growers do not have ready access to market data to guide pricing. Most rely on agents who currently purchase about 60 percent of tea at the village level or direct. These leaves are then delivered to “bought leaf factories.”  To remedy potential inequities in pricing the Tea Board of India in each tea-producing district announced it will publish the average price of tea along with production statistics, quantity of made tea and the rate it was auctioned. The District Price Monitoring Committees, which include small growers, will establish a useful benchmark but do not require agents to disclose to growers which factory bought the individual grower’s leaf. Learn more.

Accolades
NEW YORK, New York – Miriam Novalle, founder & CEO of T Salon, a 5th Avenue retailer founded in 1992 phoned with word that Oprah Winfrey considers her tea a “must have for the summer.” T Salon’s selection of 12 oz. glass mason jars are recyclable with six 8-gram bags inside, enough to make a quart each of fresh brewed tea, said Novalle. Oprah picked a sencha green tea infused with coconut and pineapple. Learn more.

Whimsy
BEDFORD, England – In the 1840s, Anna, the Duchess of Bedford, was the first to serve afternoon tea, but the 1920s marked the height of the craze, complete with lots of guests, pageantry, servants, silver teapots, fine linens, musicians, elegant teacups, and the best tea money could buy, according to etiquette expert Lisa Mirza Grotts. The Huffington Post offers her concise history and lists The Do’s and Don’ts of Afternoon Tea. Learn more.