|Title:||United States top 10 hot beverages by retail sales in pounds sterling and percent change for the year ended June 18, 2011|
Start of full article - but without data
Hot beverages: XXw/e XX June 2011
SALES CHANGE [pounds sterling]m y-o-y.%.
PC Tips Pyramids XXX.X X.X
Nescafe Original XXX.X -X.X
Tetley teabags XXX.X -X.X
Nescafe Gold Blend XX.X -X.X
Own label teabags XX.X X.X
Yorkshire Tea XX.X X.X
Kenco Really Smooth Roast XX.X -X.X
Kenco Rich & Smooth Roast XX.X -X.X
Carte Noire Freeze Dried XX.X XX.X
Douwe Egberts Continental Gold XX.X -X.X
When riots broke out last month, some Brits reached for brooms. A significant number of others turned to the teapot. Within hours of the first unrest, a Facebook group called Operation Cup of Tea was calling on people to forego rioting in favour of staying in with a brew. By midday the page had XX,XXX members. By X.XXpm, XXX,XXX. Both Yorkshire Tea and Teapigs served up fresh cuppas to volunteers cleaning London's worst-hit streets.
With tea so much a part of the national psyche, you'd think the sector would be in amazing shape. But while our once favourite brew still accounts for XX% of all UK hot beverage consumption, tea sales have slipped X.X% over the past year by volume - and its X.X% value growth [Kantar Worldpanel XXw/e XX June] can largely be attributed to commodity-driven retail price rises. Coffee, on the other hand, posted X.X% volume and value growth and now has a XX% share of the market, suggesting price rises have been less severe and that promotional activity has driven volume growth without damaging value.
A quick look at the performance of the leading brands (see right), however, torpedoes this hypothesis. Paradoxically, all bar one of the coffee brands have slumped in value despite the category's overall uplift-while all bar one of the leading tea brands have risen in value, despite tea's stuttering volume sales.
The category's predicament is a startling illustration of what happens when a mature category gets caught in the promotion trap. It is no coincidence that the three biggest promoters - Nescafe, Kenco and Tetley (see PXX) - have all cranked up their promotional activity, according to Assosia (and shelled out the most on advertising - see PXX). Each has been prepared to drive volume sales at the expense of value in this hugely competitive - and increasingly pricey - category.
The problem is that the strategy hasn't worked. In fact, it's spectacularly failed. Only Kenco Really Smooth Roast Instant Coffee has posted an uplift in volume sales - of a modest X.X% [SymphonyIRI] - and all three brands have slumped in value.
The level and depth of promotions are such that the big coffee brands are all struggling - and all that's been achieved across coffee as a whole is a partial mitigation of commodity-driven price rises. In tea, not even that has happened. The promotional activity of Tetley alone has failed to check the impact of wider price rises (tellingly, PG Tips has scaled back its promotions and reduced their depth), or drive broader volume growth. Indeed, price rises in the sector have managed to prompt a fall in volume sales.
Kantar attributes much of the stagnation in tea and, to a lesser extent, coffee to fewer young people buying into the market, as other hot beverages, notably chocolate, vie for their attention. Its prognosis is that tea and coffee will play more of a role in these buyers' repertoires as they get older, but, worryingly, not to the extent they have for previous generations.
With price rises also putting shoppers off, it is no surprise coffee suppliers, in particular, are upping the promotional ante-unfortunately, to little effect.
Nescafe remains the biggest player in coffee with sales of [pounds sterling]X.XXm [SymphonyIRI] for its Original instant and [pounds sterling]X.Xm for Gold Blend. But, despite heavy promotional and advertising activity, Original sales have fallen X.X% in value and X.X% in volume and Gold Blend X% in value and XX.X% in volume in the past year [SymphonyIRI].
Kenco, too, has struggled, its Really Smooth Roast Instant variant down X.X% in value, although up X.X% in volume, and its Rich & Smooth down X.X% in value and X.X% in volume.
Nescafe brand owner Nestle points out that it's not the only big brand to have lost sales and says "the fact that Nescafe continues to retain its position as the UK's best-selling coffee brand, despite the competitive marketplace, is testament to the brand's strength and resilience". It adds that it is now working to drive fresh category growth by appealing to new and younger drinkers. It launched Nescafe Original Xini (coffee, whitener and sweetener) in February, and cites data showing value sales of [pounds sterling]X.Xm in its first four months [SymphonyIRIXXw/e XX June 2011]. A richeraroma Gold Blend variant will hit shelves this autumn.
Kenco, meanwhile, is hoping to boost its 'premium instant' credentials by launching Kenco Millicano - a blend of freezedried coffee with roast and finely-ground beans - earlier this year. It could be a canny move as premium offerings continue to fare well. Heavy promotional activity has limited the value growth of instant to X.X% - although volume sales are up X.X%.
Roast and ground sub-sales, on the other hand, have risen XX.X% by value and X.X% by volume. The coffee shop phenomenon appears to be having a very positive knockon effect on wider take-home grocery sales for premium coffee. Of the big five supermarkets, Waitrose overtrades most in hot beverages - and hot beverages buyer Polly Astbury puts it down to premium coffee.
"Espresso coffee is performing really well and coffee beans are growing at XX% year-on-year," she says. "We have also had sales uplifts of XX% in coffee pods."
As well as more premiumisation, the category can expect to see a wider repertoire of formats to hit the shelves. A choice of formats and price points is key, believes Cafedirect retail controller Ben Styche. "Both our Kilimanjaro and Machu Picchu coffees come in beans, roast and ground, and instant," he says. "Roast and ground is a little like wine - people like to experiment across different origins."
Innovations of this sort are critical in such a high penetration category, believes Martyn Withers, co-founder of branding and design agency Embrace Brands. "There is undoubtedly a market for products offering a new consumer experience," he says.
Interest in new drinks and experiences has also had a major impact on tea, notes Kevin Sinfield, brand manager at Taylors of Harrogate. "Consumers have a much wider repertoire of drinks now, making it hard for mature markets such as tea," he says. "Our approach is simply to offer great quality and very good value for money, and to maintain that despite price pressures."
It seems to be working. Yorkshire Tea has been the standout performer this year, with value sales up X.X% to [pounds sterling]XXm and volume up X.X% [SymphonyIRI]. Sinfield puts the success down to new listings of Season's Pick and larger packs of decaf, increased distribution and the Let's Have a Proper Brew campaign (see PXX).
The brand has a strong message, says Withers: "Yorkshire Tea is a 'stick of rock brand'. However you cut and examine it, the elements are consistent: it is not fussy in its design, but is easy to identify."
Category leader PG Tips needn't fret just yet, however. At [pounds sterling]XXX.Xm, its sales are triple Yorkshire Tea's, though its growth is slower. In the past year, value sales have risen by X.X% and volume by X.X% [SymphonyIRI].
In March, PG Tips launched The New Ones, three 'fresher-tasting' variants, costing sip more than a standard XX-bag box. They already make up X.X% of total normal black tea sales, says Froukje Wijbrandi, category marketing manager at owner Unilever, citing Kantar and IRI data for the four weeks ending X July. "The key challenge is to drive value growth," says Wijbrandi. "There is an opportunity to trade people up into teas like these."
PG Tips has not just used NPD to drive value growth. It has also reduced its promotional activity and the depth of savings offered (see PXX) - unlike arch-rival Tetley, which appears to have paid the price for putting its foot on the promotional gas. It remains the category's second-biggest player, with its regular teabags bringing in [pounds sterling]XXX.Xm - but its value sales have fallen X.X% and its volume by X.X% [SymphonyIRI].
"Tea continues to be a very competitive market, with the main players discounting and promoting heavily," says Simon Attfield, customer marketing controller at Tetley GB. "But it's important to build and sustain consumers' trust in the brand." Undeterred, this autumn will see Tetley focus on its standard teas, adds Attfield, including a '[pounds sterling]X off Tetley XXXs' coupon in the daily newspapers.
While tea and coffee must contend with the challenges of being mature categories, non-standard tea continues to flourish. "The consumer interest is there, it's just a matter of getting the range and the availability to meet it," says Keith Garden, managing director of Only Natural Products, which is doubling its Higher Living range this month with eight new flavours targeted at younger consumers (see pXX).
Charbrew, too, has been tapping into demand for more exciting teas, launching its Tropical Rooibos and Strawberry & Cream teas into XXX Sainsbury's stores in July. And in March Lipton added two variants to its Fruit & Herbal Infusions range, backed by its first TV campaign.
As in coffee, many brands have been wooing younger shoppers, with PG Tips, for instance, investing in an internet 'presence for Monkey - but Twinings has focused on its core customers. A special Royal Wedding blend was followed, in April, by a revamped version of its Earl Grey tea, called The Earl Grey. This prompted the creation of a Facebook group called 'Bring back the original Twinings Earl Grey tea' (see The Grocer, XX August). The producer has since made the previous blend available on its website.
Regardless of the intensity of their NPD or promotions, both tea and coffee face major challenges in the year ahead - not least from hot chocolate. Although it only accounts for X% of the market, sales have risen X.X% by value and X% by volume over the past year [Kantar].
"Hot chocolate is not nearly as seasonal as it used to be," says Helen Pattison, cofounder and director of chocolate company Montezuma's. Chris Jones, business manager at The Spanish Chocolate Company, agrees. "We've been getting regular orders through the summer," he says.
Chai and fudge drinks are also gaining in popularity. Amanda Hamilton, founder of Drink Me Chai, an instant mix requiring milk or water, goes so far as to claim: "Indulgent drinks have stolen a march on tea and coffee, fuelled by the downturn."
Ironically, given tea and coffee's problems appealing to younger consumers, the challenge for chocolate brands will be holding on to consumers as they age, says David Timothy, senior account director for brand and design consultancy Anthem Worldwide. "There's much to learn from coffee brands - how they've built stories around provenance, sourcing, blending and freshness."
Cafedirect is bringing its expertise in coffee to hot chocolate, with a new add-water product, Sao Tome, launched in Sainsbury's in July. Montezuma's, meanwhile, is hoping to boost its youth appeal with its new Mochachino, launched last month, and The Spanish Chocolate Company will launch into plastic tubs later this year.
Innovation in chocolate has had an adverse impact on malted drinks, prompting Horlicks to rethink its positioning. It will relaunch this winter, stressing its health and relaxation benefits (see PXX).
With cocoa supply looking good for the coming year, hot chocolate is primed for further growth. Tea commodity prices, too, are expected to be relatively stable for the rest of this year, says Robert Miles at Mintec. As for coffee, prices for Arabica beans have dropped, he says. Robusta production is down slightly due to heavy rains in Indonesia, but shipments from Vietnam should prevent prices rising further.
The stalwarts of the hot beverages category may not be in hot water for much longer.
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Hot beverages: XXw/e XX June 2011