Conscious Tea: 4th Global Tea Forum - Dubai, April 2012

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Conscious Tea
North America is awakening to the taste of fine tea and investors are seizing the opportunity. While most consumers reach for tea without thinking, growing numbers are making a conscious choice. As in the past the majority prefer the convenience of tea bags and bottled teas. What has changed is their preference in the tea itself: They want healthful, sustainable, environmentally friendly, flavorful tea ― not just flavored iced tea.

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Conscious Tea: 4th Global Tea Forum - Dubai, April 2012

  1. 1. Those who reach for tea without thinking are drinking unconsciously Conscious Tea North America is awakening to the taste of fine tea and investors are seizing the opportunity By Dan Bolton Editor & Publisher World Tea News | Tea Magazine www.WorldTeaNews.com www.TeaMag.com
  2. 2. OVERVIEW Conscious TeaSeeking variety – most diverse beverage market in the world. Aspirational MotivationAmerica rewards suppliers of convenient/quality tea.Game Changer in FoodserviceMartin Bauer/Beverage House deal will energize concentrates. Tipping PointInvestors see tipping point. Realigning. M&A to speed it along. The OpportunityConvenience: Key to chilled. Education: Key to specialty. Timing is NowRecession reinforced health, drove home value: Tea is both.
  3. 3. Five Key Market FactsThe U.S. Tea Market hit $8.6 billion in 2011 (Canada $400 million)packaged tea accounts for $2.15 billion, specialty tea $1.3 billion.Mintel International predicts tea to grow 50% between 2011-16. Accelerating growth: Projected at 6.6% in 2012 – 8.7% in 2014. U.S. is now second largest global importer of tea (volume). The declared value of imported teas rose 10% on steady volume. Convenience: RTD sales were $6.5 billion in 2011, up 5.2%. Investors are working feverously to develop new products and build retail infrastructure with unprecedented cash. Marketing soon to follow. Source: Mintel International Customer Survey, Tea Association of the USA Fact Sheet
  4. 4. PART I: Egalitarian TeaNorth America is a diverse, egalitarian tea market where matcha androoibos attract the same demographic: 157 million drink tea daily. 85 % of tea is consumed cold 60 % prefer sweet fruit flavored tea 37 % prefer organic tea to conventional Green tea imports up 200% in 10 years, worth $1.5 billion (2010)Retailers know taste is tops but variety and constant innovation arecritical now that health benefits are well understood. Offerings mustaccommodate cultural preferences such as greens for Asians and fruitblends for Hispanics… today retailers also must offer flavors by seasonand for several holiday occasions and recently by origin/estate. Source: Mintel International Customer Survey, Tea Association of the USA Fact Sheet
  5. 5. TREND: EVOLVING MARKETHealthy Blends: Blended with fruit and vegetable juices, tea benefitsfrom health-halo attributes such as freshness, local, all natural,anti-oxidant-rich ingredients and add-ins with functional benefits.2Hard Tea: Mixing beer, hard lemonade, hard apple cider and otheralcoholic bases with tea just got a big push from Molson (Coors BeerIced T), Anheuser-Busch (19th Hole) and Samuel Adams (Wicked Tea).Millennials: Nielsen reports 72% of Millennial households drink tea.The mix of men and women is nearly even among 17-34 year olds.1Beverage as Snack: Tea-based smoothies (matcha) attract consumersseeking beverages as a between-meal snack or light meal.2Anti-energy: “Relaxation” drinks are positioned as a way to take abreak and relax for consumers with a hectic lifestyle.2 Tea is relaxing. Sources: 1) Nielsen MarketTrack 2011, 2) Technomics: Canadian Beverage Consumer Trend Report.
  6. 6. TREND: Beer Iced TeaThis month Molson Coors Brewing will introduceCoors Light ICED T Beer in Canada. It contains4 % alcohol and no caffeine and follows AnheuserBusch’s announcement they are rolling out 19thHole, a mix of tea and hard lemonade. Not to beout done, Samuel Adams is expandingdistribution of Wicked Tea to the entire country.The company reported a 54 % sales jump in 2011earning $85.6 million in F/D/C/MassMarket.A real opportunity lies in the fact this is a continent of well educated,high-minded individuals who make notoriously bad beverage choices.You are in a position to help cure what ails us…. and perhaps save usfrom ourselves. You can help us to regain our health.
  7. 7. Total U.S. Tea Imports TREND: Imports Up Black Tea ImportsKg (000) Green Tea Imports 140,000 127,468 Kg (000) 120,000 100,000 80,000 60,000 12,054 Kg (000) 40,000 22,169 Kg (000) 20,000 - 2003 2004 2005 2006 2007 2008 2009 2010
  8. 8. TREND:Tea InclineIn 2011 importersbrought in 212metric tons andvalued their teaat $641 million.This marks a 10 %increase in valueover 2010 and aan acceleratingupward trend. Source: US Department of Commerce GATS database, compiled by FAS. Stats generated March 11 2012.
  9. 9. Value of Tea Imports from China $140,000,000 $114,451,000 (2011) $120,000,000 All Tea 24% increase over 2010 Black Tea $100,000,000 Green Tea $74,027,000 $80,000,000 65% of total value $60,000,000 $40,424,000 $40,000,000 35% of total value $20,000,000 $- Source: USDA/FAS Global Agricultural Marketing Database/GATS Stats retrieved March 31, 2012
  10. 10. TREND:Value UpImports rose invalue in 2011.Asian green teasshow big gains:Japan up 30 %S. Korea up 27 %Taiwan up 25 %China up 24 %India up 12 %Argentina 10 % UK down -21% Kenya -12% Source: US Department of Commerce GATS database, compiled by FAS. Stats generated March 11 2012.
  11. 11. PART II — Investment Opportunity The market for convenient/healthy/quality tea is underdeveloped.The seven-year retreat of soda extends to even diet soda — creatinga rare opportunity to gain market share. Soda: $74.2 billion (2010).* RTD is fastest growing beverage segment, now $6.5 billion (2011). Innovations in tea concentrates will soon revolutionizefoodservice preparation and energize botanicals.A pioneer in organic tea concentrates and a very clever marketer toldme the other day that “given the current vitality of the industry andthe fact that the big players are starting to get serious aboutstrengthening their positions in tea, it is entirely possible that theRTD category will grow by 6 % to 7 % a year which would bring theindustry to a projected $10-11 billion dollars by 2016.” Source: Per capita consumption of soda peaked in 1998 at 864 eight-ounce servings.2008 – 760 | 2009 – 736 | 2010 – 728. Beverage Digest. Stats sheet.
  12. 12. Investment Activity Spells Opportunity Coca-Cola’s acquisition of organic Honest Tea (which grew to 100million bottles in 2010) changed the landscape for market leadersLipton and Arizona Tea and partner Nestle. In January declining sales of Nestea led Coke to dissolve its long-standing partnership with Nestle, a move that followed Nestle’ssuccessful acquisition of $50 million organic SweetLeaf and Tailwinds.Tata is now closing in on Arizona tea and Coke is investing heavilyin Gold Peak, its refrigerated ice tea while launching a line of cold-fillteas under its FUZE brand to replace Nestea. Meanwhile the Pepsi-Lipton Tea Partnership now holds 24 percentof the market, a share worth $653 million. What’s next?The lights in Unilever’s R&D labs are burning late into the night. Source: Per capita consumption of soda peaked in 1998 at 864 eight-ounce servings.2008 – 760 | 2009 – 736 | 2010 – 728. Beverage Digest. Stats sheet.
  13. 13. Teavana Consolidated StatementTeavana Holdings operates 200 stores: 184 in 37 states arecompany-owned with 16 franchised locations (13 in Mexico).Expansion: 54 stores in FY 2011 with 60 in 2012 growing to500 with franchise growth in the Middle East and Canada.Sales: Net $168.1 million (FY2011) Sales & Administration expense: $50,571,000 (FY2010) Net income: +48% to $17.8 million Online sales growth: 56% (7% of net, goal is 10%) Average store net: $82,193 IPO Asking Price: $17 (July 28 - NYSE) Same store sales: +8.6% Share Price: $20-$25 ($22.36 on 3/30/12) Sales per sq. ft.: $994 Market Cap: $800+ million History: $63.8 million (FY2008) Fiscal year-to-date (March 31, 2012) $90.2 million (FY2009) Net Sales: +35% to $168 million $124 million (FY2010) Net operations: +34% to $31.6 million $168 million (FY 2011) Fiscal 2012 Revenue: Est. $208 million Source: Second Quarter Financials, Sept. 2, 2011, Teavana 2011 S1 NYSE, Ticker Symbol: TEA FY2011 Report 3/31/2012
  14. 14. Barriers to Entry are Lowering DISTRIBUTION: Distribution is the most significant barrier toexpansion for mid-tier suppliers and can only be overcome throughacquisition by majors. Majors are eagerly buying innovative lines. MARKETING: Marketing is very expensive in the highly competitivebeverage segment but this is a rare opportunity to grab share. Sodalast registered growth in 2004 and continues to decline. Per capitasoda consumption has fallen to 728 eight-oz. servings. Consumers arespending on either value or premium drinks: Tea offers both. RECESSION: Consumer cash is once again on the table (retail salesare rising despite job market) making this a good time to act.
  15. 15. TREND – Foodservice ConcentratesEighty percent of tea leaf is consumed as fresh brewed ice tea.More than 50 of that volume is brewed in foodservice outlets.Loose leaf (& pods) ConcentrateInconsistent (fresh taste) Consistent (stale taste)Labor Training, Cleanup MinimalFood Safety Closed system: Food Safe Discard leaf/pods Little waste disposal (discard/recycle)Advantages of concentrates: Easy to mix. There is no time awayfrom the sales counter, you make only what you need. Ease ofintroducing next generation botanicals.
  16. 16. Martin Bauer & Beverage HouseBeverage House: Proprietary process, supplier since 1984.Martin Bauer: Botanicals, tea, extracts supplier 135 years.“The biggest challenge to the concept of replacing brewed leafwith a liquid concentrate has been quality, but today’stechnology allows us to produce authentic tasting tea productsthat are difficult to tell apart from a fresh brewed tea,” – Richard Enticott, President & CEO of Martin Bauer Inc.
  17. 17. Healthy Beverage Format In March Starbucks opened the first of what will be many Evolution Fresh shops. Starbucks acquired Evolution in Nov. 2011 as entry into the $3.4 billion and growing cold-crafted juice category. A patented interactive juice dispenser is used to personalize orders. TAZO has a spigot.
  18. 18. Jamba Juice & Talbott Tea Jamba Juice Company will retain the Talbott Tea name and phase out Mighty Leaf Tea, now in 440 of the company’s 750 locations. These include 307 company- owned and operated stores and 443 franchise-operated stores with 19 more overseas. Talbott a 10-year old specialty brand is expected to expand its retail presence in specialty grocery, giftShane Talbott, 40, right ,and 15-year partner StevenNakisher, 42, founded Talbott Tea 10 years ago. It stores, hotels, resorts and spas.was named a favorite by Oprah Winfrey in Nov. 2010.
  19. 19. Argo Tea Argo Tea, headquartered in Chicago, Ill., is a pioneer in tea concentrates in foodservice, offering tea lattes and food. There are now 20 locations in the Midwest and 5 in New York City.
  20. 20. PART III – Specialty Retail Drivers TASTE. Media & marketers keep the health attributes of tea top-of-mind but taste remains the primary attribute cited by 77 % of respondents who purchase tea. Others buy it because it is refreshing (68 %) and healthy (42 %) AVAILABILITY. The more readily available, the greater overall sales. Canadian grocers stock larger selections of specialty tea and advertise tea more aggressively. Convenience stores with high CSD see some RTD tea growth and even vending is embracing tea. CONVENIENCE. Tea travelers, FUSO® tetrahedral and pyramid tea bags, bottom dispensing infusers for loose leaf in restaurants and premium bottled and canned teas (Ito-En, Numi, Republic of Tea) make it much easier to find and enjoy premium quality tea. Source: Tea & RTD Tea in the US. Packaged Facts, Oct. 2011.
  21. 21. Urban success.San Francisco’s three SamovarTea Lounges promote tea cultureamid 150 teas and gourmet foodand together gross morethan $3.2 million annually. From left: James Norwood Pratt (Author), Joshua Kaiser (Rishi Tea), Jesse Jacobs (Samovar), David Lee Hoffman (Phoenix Collection), Ahmed Rahim (Numi Organic Tea).
  22. 22. DAVIDSTEAExpansion to a national chain of tea stores seemed destined for 25-year-old David Segal, founder of DavidsTea. Sales at the first Toronto store in2008 quickly topped $3.8 million. Backed by retail veteran Herschel Segal(Le Chateau) the Mont-Royal, Quebec-based firm has opened a half dozenannually locations annually since then.DavidsTea stocks 120+ varieties of tea withmany flavored and seasonal blends. A 50gpouch of DJ-1 from the Jungpana Estate sellsfor $15 and a 250g tin is $75 ($300 kg). AJapanese Iwachu Hailstone Teapotsells for $108. The company operates76 stores in Canada’s provinces and Queen St., Torontorecently opened two new stores in New York City. Lansdowne St., Peterborough
  23. 23. CAMELLIA SINENSIS, MONTREALAnnual buying trips mean all 250 teas are sold within a year. A$20,000 air exchange system ensures perfect conditions in their32-seat space. Tables for two focus on the tea. The shop’s fourowners, tasters all, limit expansion to three shops and 30 staff.The retail/wholesale operation makes up 85% of sales. The teahouseearns 5% of gross sales and online sales contribute 10%.Tea is sold in 50 and 100g pouches. Rareteas in 25g pouches. The average ticketis $12-$15. Online sales average $10-15.An organic Fairtrade DJ-1 Darjeeling is$16 for 100g or $320 per kg. More than 95% of Camellia’s teas are purchaseddirect from growers around the world.
  24. 24. AMERICAN TEA ROOMThis California tea bar seats six. A pot sells for $5. Tea service withscones and snacks is $20. Top selling Nirvana, a blend of JapaneseSencha, berries, figs and kiwi retails for $15/100g. Food is 4% ofsales. Yet the American Tea Room grossed $1.5 million in 2010 and2011 selling premium loose leaf and teaware. How does he do it? A typical transaction consists of four $15-20 bags of tea with an accessory. Average ticket is $89 and topped $100/Q4 (2011). On Mar. 20, 2012 he grossed $17,000 ($907 per sale) his best day yet. Exceptional online sales. Relentless marketing. Ever-changing offerings.
  25. 25. AMERICAN TEA ROOM“We paid $340 per kilo for a white Darjeeling, and therest in the $200 range. We are ordering several firstflushes. I will be in Japan to inspect the first flush Sinchaon sight in late April and we will be bringing in bothwhite and slightly more oxidized first flushes fromDarjeeling. Our prices for pre-Qing Long Jing are $35 to$80 for 100 grams. We have been fortunate to sell David Barenholtz, founder of themore than 40 kilos of various first flush between May American Tearoom,and July (when we usually run out). We would buy Beverly Hills, Calif.more but much of the finest and rarest first flush goes Arya Pearl:to Germany so it is not so easy to get the quality we $52 – 2 ozwant. Our Arya Pearl (white Darjeeling) was $144 – 7 oz $256 – 14 ozextraordinary last year. It really helped out with sales.” Inventory 7 kgs.
  26. 26. Specialty Tea Growth Store count will rise to 4,500 with Teavana +500 and new format stores Jamba Juice +450 and Evolution Fresh +? Expansion of distribution has made organic and specialty brands widely available (Honest Tea and Sweetleaf Tea) Renewed emphasis at coffeehouses to upgrade tea offerings Increased menu choices in restaurants (green|loose leaf) Continued recognition of tea’s healthy properties leading to a switch to tea from carbonated soft drinks.Americans are making a conscious choice in teas.“The horizons for tea indeed look bright.” Packaged Facts Source: Tea & RTD Tea in the US. Packaged Facts, Oct. 2011.
  27. 27. THANK YOU FOR ATTENDING North America Awakens to the Taste of Fine Tea Investors Seize the Opportunity www.WorldTeaNews.com +1 204 788-1359 (CAN) Dan@WorldTeaNews.com +1 650 576-0306 (US) Skype: dwjbolton 1108-21 Roslyn Road Winnipeg, MB R3L 2S8 Canada www.TeaMag.comDan Bolton Dan@TeaMag.comEditor and Publisher
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