A good insight on luxury French tea today

The characteristics of a luxury
tea
How to define a luxury tea?
Charihane Benstaali
April 2011
April 2011

The characteristics of luxury tea
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Table of Contents
Table of Contents.............................................................................................. 2
Special Thanks .......................................................................................... 6
INTRODUCTION ............................................................................................ 7
HOW IS THIS STUDY ORGANIZED? ...................................................................................8
FIRST: Define the Market......................................................................................................8
SECOND: Identify the market leaders and their strategies ..................................................8
THIRD: Draw the main conclusions .....................................................................................8
KEYS ELEMENTS .......................................................................................... 9
I. MARKET FUNDAMENTALS .................................................................... 10
1. How was tea born?...................................................................................... 10
1.1 What are the legends surrounding the tea’s birth? : The tea dream potential ................10
Chinese legend.....................................................................................................................10
Indian Legend ......................................................................................................................10
Japanese Legend..................................................................................................................10
1.2 Legend aside, how was tea born? ...................................................................................11
2. How is tea made? ........................................................................................ 13
2.1 What is the tea producing process? Why tea cannot be a flawless product? .....................13
Tea categories......................................................................................................................13
White teas, Chinese specialty from the Fujian region...................................................................13
Wu Long (Oolong) teas, specialty of the Fujian province in China and of Taiwan......................15
Black, Smoked and dark teas.........................................................................................................15
2.2 How is tea classified?.........................................................................................................17
The five main tea grades......................................................................................................17
Dust –D..........................................................................................................................................17
BOP – Broken Orange Pekoe ........................................................................................................17
OP - Orange Pekoe ........................................................................................................................17
FOP – Flowery Orange Pekoe.......................................................................................................18
GFOP Golden Flowery Orange Pekoe ..........................................................................................18
TGFOP Tippy Golden Flowery Orange Pekoe .............................................................................18
FTGFOP Fine Tippy Golden Flowery Orange Pekoe...................................................................18
SFTGFOP Super Fine Tippy Golden Flowery Orange Pekoe ......................................................18
2.3 What are the types of choice of tea from around the world? .............................................18
Darjeeling Tea ...............................................................................................................................18
Assam Tea .....................................................................................................................................18
Nilgiri Tea......................................................................................................................................19
Earl Grey Tea.................................................................................................................................19
Smoked tea ....................................................................................................................................19
3. Assessing the quality of the tea: what are the characteristics that will matter
while implementing a luxury strategy?............................................................ 19
4 French tea market overview ......................................................................... 20
4.1 What are the key characteristics of the French tea market?...............................................20
5 French luxury and premium*
tea market overview....................................... 20
5.1 Who are the players?..........................................................................................................20
6 Understanding the structure of supply and demand...................................... 22

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6.1 Who are the suppliers? .......................................................................................................22
6.2 Who are the consumers? ....................................................................................................25
7 Brief overview of the main premium and luxury tea brands.......................... 27
7.1 Luxury, fashion and premium positioning triangle of the traditional French tea market ..27
7.2 A shift in positioning and a refreshed French tea market. .................................................28
7.3 How about the mass market and its premiumization?...................................................29
Part 1 in a nutshell....................................................................................................................30
II THE MARKET LEADERS......................................................................... 32
1 Luxury tea and packaging: Loose tea or in bags? The importance of packaging
in the definition of a luxury tea ....................................................................... 32
1.1 The Lipton product range example ....................................................................................32
Lipton, the business model...................................................................................................33
A global success ............................................................................................................................33
A business model of vertical integration .......................................................................................34
A global and unified strategy.........................................................................................................35
A broadened product range with the introduction of pyramidal tea bags......................................35
Huge investments in communication ............................................................................................35
The Lipton repackaging strategy .........................................................................................36
The pyramidal tea ..........................................................................................................................36
The box packaging.........................................................................................................................37
Future and performances of the new packaging............................................................................38
Where does the price increase come from?...................................................................................39
How did Lipton calculate the premium based on hedonistic values?..................................40
Targeting the top and lower end of the market through product differentiation ...........................41
The Lipton Product range..............................................................................................................41
Analysis................................................................................................................................44
A very competitive first price........................................................................................................44
A wide range of product ................................................................................................................44
Important price variations based on this diversity.........................................................................44
Conclusion ...........................................................................................................................45
Some downsides I would like to point out in the Lipton trading up strategy................................46
1.2 Bags yes but not any bags ..................................................................................................46
2 Mariages Freres: The French luxury tea?..................................................... 47
2.1 History of the Brand...........................................................................................................47
2.2 The dream starts in the stores.............................................................................................48
2.3 The products and services ..................................................................................................49
How to create a luxury tea?.................................................................................................49
How to organize the product range? ...................................................................................49
No luxury product without services: How to create the shopping experience? ..................51
Here, the service is part of the product and it is all the more important since the customer is
not very knowledgeable in this market. In this sector it is very easy to create a luxury
experience guiding the customer through the wide tea selection.............................................51
Product Extensions ..............................................................................................................51
2.4 Very selective distribution .................................................................................................51
2.5 Traditional communication based on positive word-of-mouth and public relations .........52
2.6 A high relative price...........................................................................................................52
2.7 Competition........................................................................................................................53
3 Maison des Trois Thés: Example of a strong luxury store and a weak brand. 54
3.1 The importance of direct sourcing .....................................................................................54
3.2 “The ingredients of the luxury product: complexity and work”*
.......................................55
3.3 The physical scarcity of the products and technical scarcity of the store. .........................55
3.4 Exploration of the travel dream: a travel through time and space. ....................................56

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3.5 Why does it fail in creating a luxury brand? ......................................................................56
“On the importance of the label”........................................................................................56
“Luxury: the product and the brand”..................................................................................57
It lacks the strong cultural dimension..................................................................................57
4 TWG: A Copy Paste of Mariage Freres business model in South East Asia, how
to create luxury in Asia? ................................................................................. 57
4.1 TWG History......................................................................................................................57
4.2 TWG’s successful strategy.............................................................................................58
International Presence ..............................................................................................................58
A very selective distribution.................................................................................................58
A brand platform similar to Mariage Freres.......................................................................59
BRAND PLATFORM ...........................................................................................................59
4.3 The reasons for success......................................................................................................59
Luxury and Tradition...........................................................................................................59
Luxury and services .............................................................................................................60
The tea grand crus selection................................................................................................60
Key figures ...........................................................................................................................60
5 THE KUSMI CASE: A thousand year old product sold in the 21st
century style
....................................................................................................................... 61
5.1 Small introduction to the history of KUSMI......................................................................61
5.2 The brand renovation .........................................................................................................61
5.3 The French-Russian tea brand of the 21st
century..............................................................62
The tradition and modernity ..........................................................................................................62
Kusmi fashion, premium and luxury triangle ......................................................................63
First: A Premium Strategy.............................................................................................................63
Second: A Fashion strategy ...........................................................................................................63
Third: Luxury dimension...............................................................................................................64
5.4 The strength of the brand lies in a very coherent marketing mix.......................................65
A strong positioning.............................................................................................................65
A coherent marketing mix with the premium, fashion positioning..........................................66
Price: A simplified range of prices nearing an average of 12 to 13 Euros ....................................67
Place: A selective yet not exclusive distribution model................................................................67
Promotion: a traditional communication model targeting young women .....................................68
Product: A simplified offering.......................................................................................................69
5.5 What evolutions for the brand? ..........................................................................................70
On the necessity to innovate ................................................................................................70
On the necessity to strengthen the retail network..........................................................................71
Possible Product extension ............................................................................................................72
5.6 The International Development..........................................................................................72
ASIAN DEVLOPMENT: turn a premium experience into a Luxury one through a pricing
and localization strategy......................................................................................................73
JAPAN..................................................................................................................................73
Highlight the Paris Origin..............................................................................................................73
Trading up Strategy .......................................................................................................................73
How to communicate the message to Asian people?.....................................................................74
USA Development................................................................................................................74
A market with a high potential in the high quality loose tea.........................................................74
A different approach to fine tea.....................................................................................................76
An adapted strategy focusing on female consumers aged 30-40, highlighting the fashion and
well-being aspects..........................................................................................................................76
Conclusion to the international development of Kusmi.......................................................77
6. Special T ..................................................................................................... 77
6.1 Market context ...................................................................................................................77

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6.2 The Special T value proposition.........................................................................................78
The product..........................................................................................................................78
Individually portioned aluminum capsules....................................................................................78
Patented Special T machine but might license their production to manufacturers in the future...78
The Special T universe.........................................................................................................79
The pluses of Special T ........................................................................................................80
6.3 Comparison with Nespresso...............................................................................................81
Brief reminder of the pluses of Nespresso:..........................................................................81
Why Special T could do better in its promises to the customer? .........................................81
In term of Design...........................................................................................................................81
In term of perceived functionality .................................................................................................84
6.4 The challenges around the product.....................................................................................85
The environmental impact ...................................................................................................85
The multiplication of the machines......................................................................................85
6.5 How to reach the success of Nespresso?............................................................................86
Strategy enhancement..........................................................................................................86
The coffee bean and tea leaf example..................................................................................86
7. Le Palais des Thés, the passion of the “oenology of tea” ............................... 87
7.1 The Brand history...............................................................................................................87
7.2 Le Palais des Thés’ universe ..............................................................................................88
A selective distribution model, a wide range of “tea selections”........................................88
An unperceived differentiation through the value proposition............................................88
An unusual selection process: the expression of a passion .................................................88
An unconventional supply chain model ...............................................................................89
A Strong corporate culture ..................................................................................................89
7.4 The high luxury potential in contrast with the brand identity:...........................................90
The elements of luxury positioning ......................................................................................90
Anti-law number 6: The brand dominates the client .....................................................................90
A tea school ..............................................................................................................................90
A blog .......................................................................................................................................90
A book.......................................................................................................................................90
Anti-law number 17: Cultivate closeness to the arts for the initiates............................................91
The first fruits of the creation of a club through the theophile card: ..................................91
The magazine “Bruits de Palais”...................................................................................................91
SWOT of a luxury strategy (based on the characteristics of a luxury strategy as developed
on the luxury strategy) .........................................................................................................91
“A luxury brand is a brand first and luxury second”*
: The challenge of Le Palais des
Thés......................................................................................................................................92
PART 2 in a nutshell................................................................................................................93
III RECENT EVOLUTIONS AND GENERAL CONCLUSION ..................... 94
The culture of luxury tea..........................................................................................................94
Mariage freres’ succes..............................................................................................................95
The image of tea:......................................................................................................................96
And the sustainable Development?..........................................................................................97
Some examples of TEA BRANDS IN THE USA: A very innovative market ........................97
Rishi: “Gifts for any tea lover” .....................................................................................................97
Teavana “Opening the doors to Health, Wisdom and Happiness”...............................................98
Adagio Teas...................................................................................................................................99
Harney & Sons “Fine Teas” “Master tea blenders” ....................................................................100
Tea Forte Pyramidal shaped teas.................................................................................................101
Bibliography................................................................................................. 102
ANNEXES.................................................................................................... 105

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Special Thanks
I would like to give my special thanks to the people who contributed to this
report and for the time they dedicated to answering my questions:
Jean Noel Kapferer, professor at HEC Paris and Europe’s leading authority on brands
Vincent Bastien, professo rat HEC Paris and co author of The Luxury Strategy: Break
the Rules of Marketing to Build Luxury Brands.
Mohammed Al Baroudi, president SITI
Sylvain Orebi founder and CEO of Kusmi tea and Lov Organic tea
Francois Xavier Delmas, founder and CEO of Le Palais des thes
Bessiere Cyrille , manager of Le Palais des thes USA
Sophie Villemain, brand manager Lipton, Unilever
Stephen A Graph, Marketing Director Special T, Nestle
NOTES
I based a major part of my analysis on the book co-authored by J.N Kapferer and Vincent
Bastien, the Luxury Strategy. This study has used many references and theories from this
work.
At times, I give my personal opinion on how some brands enhance their strategies through the
use of Marketing. In these cases I have assumed that Marketing serves the purpose of
communicating something intangible by tangible means. In other words, the message and the
product quality, should be consistent. No Marketing message should be a lie.

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INTRODUCTION
To whom is this report addressed to?
Welcome! Whether you are a tea lover who knows the difference between a Yunnan
and a Fujian tea or perhaps you just enjoy a hot cup of tea once in a while. If you
would like to know more about tea, here you will find interesting insights about the
French premium and luxury tea business.
My name is Charihane Benstaali, Master Student at HEC Paris Business School. I
decided to spend a few months working on the question of luxury teas. I spent a lot of
time in the tea section of Carrefour, Auchan, Monoprix, Fauchon, specialty tea stores
in Paris, and online.
Why did I choose this subject?
I was wandering around the tea section of a luxury food store in Paris, Hediarda and
came across a tea that cost one hundred Euros for 100g. I asked for the more
expensive tea in-store and the saleswoman showed me a Darjeeing tea selling for 500
Euros. Naturally, I wondered how such a commodity could cost this much? How can
some teas cost a few cents whereas others can reach “luxury prices”. How do you
assess the quality of a tea? How is it made? How is it sold? What are the different
kinds of tea?
There are very few brands that are qualified as luxury tea brands by consumers. The
idea of a luxury tea is unintuitive since it is not typically considered a luxury industry.
It would then, be more accurate to define brands as premium rather than luxury. I will
try to clarify this distinction through brand analysis. It will be seen, that many brands
draw elements from luxury brand strategy to enhance the public perception of their
brand. Finally, this report will attempt an understanding of consumers’ perceptions
and valuations of tea quality: whether it is the store, the packaging, the fact that it sold
loose or in bags, flavored or pure, or how it is priced.
I went on a journey into the tea world. I discovered the history of tea, the different tea
categories, the brands that are selling teas and their business model. It is a Marketing
tour in a world where something is sold as a fine product when in fact, the quality is
difficult to assess.
0.50 CENTS
500 EUROS

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HOW IS THIS STUDY ORGANIZED?
In order to answer the question of the characteristics of a luxury tea in France I
divided my report into three main parts:
FIRST: Define the Market
In order to understand why a luxury strategy can apply to the tea market, it seemed
important to me to get a clear cut definition of the scope of my study. I tried first to
identify “the dream” potential of this product. As it is the companies that make the
sector and not vice-versa, I identified the key characteristics of the players in the
luxury and premium tea market as well as the structure of the supply and demand.
SECOND: Identify the market leaders and their strategies
In this section, I will introduce the players that will be analyzed in this study. It will
provide a clearer view of the brands’ existing position and thus detect how they
managed to use a luxury strategy in a sector that is made commonplace by the mass
market brands. It will be interesting to study the recent trading-up strategy operated
by mass market brands using luxury codes and the effect on the traditional luxury
brands' strategies.
THIRD: Draw the main conclusions
Drawing from the knowledge from this study, I will debate on the main conclusions
of this analysis.
Bonne Lecture!

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KEYS ELEMENTS
• Tea production will rise in 2012, thanks to growing demand, as tea consumption
is deeply rooted in society’s habit, and as consumers are looking for higher
quality products. This growth however, will be hampered by reduced
household budget for leisure activities.
• Demand is increasing as a result of product innovation and a widening product
range in existing brands, as well as new brands. This played a major roll when
attracting younger consumers to the market as opposed to the traditional 5o year
old core target.
• The French leader in the tea market is Lipton, a pure player with more than 40%
of market share in volume of tea in supermarkets.*
• A general effort of the market is put on environmental and societal
responsibility. All Lipton Yellow Label tea is produced under the rainforest
alliance certificate.
• The premium tea market is clearly dual. It is shared between pure players such
as Mariage Freres or Kusmi and diversified companies mainly the premium
food retail stores such as Hediard and Fauchon.
• The supply chain of the premium tea market is done either through importers
(Tea houses at Hamburg) or directly by the exporting countries. A few
companies choose to supply a part of their products directly to the tea
producers. The smallest players in the market are supplied by the market leaders
(Damman, Mariage Freres etc…)
• Thanks to innovation and technology, there are more and more ways to
consume tea: new pots for loose tea, new tea bags, and machines. In order to
find new growth engines, the food industry companies such as Kraft, Nestle are
exploring the diversification of the tea market, by enhancing the existing tea
selections of their machines or launching new concepts of premium tea
machines (Special T).
*
Source AC Nielsen

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I. MARKET FUNDAMENTALS
1. How was tea born?
That’s the first step to understanding the tea industry today. We have to go back in
time, and learn about the history and legends that are associated with this product. It’s
the best way to understand the image associated with tea today and what all marketers
call “the dream” around it. It will be explored in this section, why it is considered a
fine product reserved to an elite.
1.1 What are the legends surrounding the tea’s birth? : The tea
dream potential
There are a few legends that explain the origin of teas, with some differences between
the Chinese, Indian and Japanese versions.
Chinese legend
In the Chinese Legend, nearly five thousand year ago, the Chinese
Emperor Shen Nung was boiling a pot of water to purify it for
drinking and some leaves fell from a tree into the water and
produced a wonderful beverage nowadays known as tea.
Indian Legend
The Indian legend is completely different, it is Prince Dharma who
was preaching the teachings of Buddha in China and vowed never
to sleep during the nine years of his journey. He discovered, on the
third year of his journey, the properties of tea leaves. He was
chewing the leaves and realized that they made him more alert and
gave him the strength to stay awake for the next six years of his
journey. Interesting how the properties that nowadays are
attributed more to coffee are deeply rooted in the tea history.
Japanese Legend
In Japan the story goes a little differently too: Bodhidharma
furious with his inability to stay awake, ripped off his eyelids.
Once fallen to the ground, this eyelids became tea plants. He told
the people around him about his discovery and tea began to be
cultivated in all the places through which he traveled.

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Legends aside, it seems that the bush was originally from China,
probably from the region around the border between north
Vietnam and Yunnan province, and that the drinking of this
beverage was first developed by the Chinese.
1.2 Legend aside, how was tea born?
Tea was already a common drink more than two thousand years ago. China is
considered to have the earliest records of tea consumption.
Born In China
Tea was born in China and before it became a common
drink, it was popular as a medicine! It sold as a
medicine before being consumed purely for pleasure as
it is today.
There were a lot of teahouses and for the first time tea
was a source of artistic inspiration. Lu Yu (723-804
AD), the sage of tea, drafted the first treatise on tea,
Traditions of Tea 茶经 "One finds, he writes, in the
serving of tea the same harmony and order that govern
all things."
Tea then was made of compressed bricks mixed with boiling water
with additional salt, spices, rancid butter…. Tea is still taken this
way in Tibet today.
You can buy this old form of compressed tea in tea specialty stores.
During the Song Dynasty (960-1279 AD) China began to produce increasingly
refined teas and thus became a central country in the world of tea. Alongside this
refined consumption of tea, consumption became more widespread through the first
unpackaged, loose teas.
During the Ming Dynasty (1368-1644 AD) an imperial
law prohibited the manufacture of compressed tea and
tea began to be taken in its present form - a brew in a
pot. Tea was being democratized and it gradually
reached all social classes, enjoying even greater
economic success with the start of the export trade.

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Imported to Japan
Tea appeared later in Japan, in the 7th century AD. However, it wasn't until 6
centuries ago that tea was grown all over the archipelago. Sen No Rikyu (1522-1591
AD) was the first grand tea master: with him tea became a religion, an art and a
philosophy. It resulted in the creation of the Japanese Tea Ceremony ("Cha-no-yu"
or "the hot water for tea"), best described by an Irish-Greek journalist-historian: "The
Tea ceremony requires years of training and practice to graduate in art...yet the
whole of this art, as to its detail, signifies no more than the making and serving of a
cup of tea. The supremely important matter is that the act be performed in the most
perfect, most polite, most graceful, most charming manner possible”.
Imported to Europe and to the USA
Tea was imported to Europe during the Portuguese
expansion trips in the late 16th
century. In 1657,
Thomas Garraway, the landlord of a coffee house in
London, introduced tea on his premises and placed
an advert in the local paper, which read: "This
excellent beverage, recommended by all Chinese
doctors, and which the Chinese call 'Tcha', other
nations 'Tay' or 'Tee', is on sale at Sultaness
Mead close to the Royal Exchange in London."
As the consumption of tea increased dramatically in
Dutch society, doctors and university authorities
argued back and forth as to the negative and/or
positive benefits of tea. It was said to cause men to
lose height and good humor, while women lost their
beauty.
Prior to the 19th
century, the Chinese were the sole suppliers for European countries,
not being able to answer to the increasing demand, tea plantations were started by the
English in India, in Ceylon. Other Asian countries have become important producers,
as well as ex-British colonies in Africa and, more recently, in Reunion Island and
Argentina.
Important dates in the history of rising tea consumption
1662 Charles II took Catherine Braganza of Portugal as his wife. They both drank tea,
creating a fashion for it. Its popularity among the aristocracy caused alcoholic
beverages to fall from favor.
1835 The East India Company established experimental tea plantations in Assam,
India.
1838 A small amount of Indian tea sent to England was eagerly consumed due to its
novelty.
1856 Tea was planted in many areas of Darjeeling.
1857 Tea plantations were started in Ceylon, though their tea would not be exported
until the 1870’s.

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1869 A deadly fungus wiped out the coffee crop in Ceylon, shifting preference from
coffee to tea
1870 Twinings of England began to blend tea for consistency
1904 Richard Blechynden created iced tea for the St Louis World Fair.
1908 Thomas Sullivan invented tea bags in New York, sending tea to clients in silk
bags which they began to mistakenly steep without opening.
Tea today
5 000 years old, the infusion of the tea leaf is the oldest drink
and most popular drink right after water: Globally humans
drinks more or less 15 000 cups per second. The universality
of tea is the result of a fusion between the East and the West
many centuries ago. Tea is not to be reduced to a processed
beverage; it requires a ceremony and a preparation that holds
a lot of meaning through both history and culture. This
explains why the producing countries of tea (India, Sri
Lanka…) are not the early adopters of the teabag and it is still difficult to reach these
markets. On the contrary, in France where tea remains an exotic delicacy, the posh
image of an upper class product remain. The French have started to appreciate the
drink, even though consumption is limited to 200g per person per year. Tea is zen,
healthy, it is exotic and trendy, relaxing and there are so many choices that it can suit
all tastes.
 Tea was at first highly taxed and meant for an “elite”. Today this luxury
image is still there, Tea is a refined and expensive product.
 Often sold as medicine in the past, it has kept to this day its image as a
product with numerous health benefits.
We can conclude that in France there is a luxury niche for the tea market.
The history of the product, its origin bears a high “dream” potential:
exoticism and travel, well-being, social aspects, scarcity, preparation rituals.
2. How is tea made?
2.1 What is the tea producing process? Why tea cannot be a flawless
product?
The tea producing process varies for each tea category and it is the same process that
will determine this tea category.
Tea categories
White teas, Chinese specialty from the Fujian region.
These are teas that have remained in their natural state.

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1-Wither the leaves for more than 2 days
2- Dry them for 30 mins
3-Roast them = heat them at 100°C in pans by steam cooking a few minutes. This step
kills the enzymes that cause fermentation
4- Roll the leaves, which give them this appearance:

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5- Firing Process: dry the leaves with hot air until the moisture level is below 6%.
The tea production process will vary in some of the steps to give the different kind of
teas. White teas are non-fermented. Here is an the example of a fermented tea.
Wu Long (Oolong) teas, specialty of the Fujian province in China and of Taiwan.
These Wu Long teas are fermented teas
1 Wither the leaves a few hours, and then put them in the shade to cool. The
fermentation process begins.
2 Sweating - This is the most important stage in the preparation of semi-fermented
teas. The leaves are placed in a room that is kept at a constant temperature of between
22°C and 25°C with a humidity level of roughly 85%, in which they are continually
stirred with ever-increasing force. This allows the aroma to be released and facilitates
the evaporation of water.
3-Roasting the leaves to stop the fermentation process once the desired degree of
fermentation has been reached
4-Roll the leaves
Black, Smoked and dark teas
The differences between teas comes from the differences in each stage of the tea
production process. Black teas are fermented teas where the withering process lasts
until leaves lose 50% of their moisture. Smoked teas result from the grilling of leaves
on a hot iron sheet, then arranged on bamboo racks, above a spruce root fire. Dark
teas are produced with a steaming process that provokes a non-enzymatic
fermentation, different from the black teas.

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Figure 1 Processing for Green, White, Oolong, Black, and Post-fermentation teas (source:
Wikipedia)
The transformation process, is quite industrialized nowadays. However, a large part of
tea manufacture is manual. For some small plantations, the overall process remains
unindustrialized.
This represents an opportunity to develop luxury strategies as tea is often a
traditionally made exotic commodity. It thus abides by the anti law of marketing
number 2 (cf Luxury Strategy): the product has enough flaws as it is hand-crafted.
Being handmade, each tea will bear uniqueness and a personality different from the
other. Other elements such as harvest years, will also contribute to the tea's
individuality.
 Many elements such as the weather, the time of picking, the season, will
impact the product and will make it impossible, as it is for wine, to ensure a
flawless product.
Unless it is blended as the Yellow Label from Lipton which is a mix of over 30
different tea dusts (the lowest grading), it is difficult to ensure the same quality for
each product. The branding can be highly valued in this sector: in other terms, there
is a huge opportunity for creating strong brands.
We can draw a comparison here with Australia’s most famous
wine: Penfolds grange which is unlike most expensive wines from
single vineyards in France, is made from grapes harvested over a
wide area. This means that the precise composition of the wine will

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change from year to year and it is the branding and expertise of the wine making
which purchasers value, rather than the qualities of the specific places where the
grapes are grown or the particular vines. However, unlike for the wine market, we
will see that France managed to create tea “brands” that are exported and valued
abroad. These brands dared to value the branding more than the specific places
where the tea is grown.
2.2 How is tea classified?
The five main tea grades
As there is a recognized classification for wine, there is one for tea as well. There are
grades for classifying tea mainly depending on the size of the leaf:
Dust –D
This is the lowest grade in the classification of black tea. It actually consists of small
pieces of tea leaves and tea dust. It is a low grade.
BOP – Broken Orange Pekoe
This consists of small tea leaves or pieces of large leaves. It is considered a medium
grading for the classification of tea leaves.
OP - Orange Pekoe
This consists of large, whole tea leaves picked without the flower bud of the tea plant.

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FOP – Flowery Orange Pekoe
These are the whole tea leaves together with the flowering tea plant.
In addition to the five main categories of tea there are two further important qualities
or traits. The first of these is Golden, where gold hues occur in the tea leaves
evidencing their quality. The second is Tippy, which signifies an abundance of young
tea buds. The following classifications relate to tea choice consisting of whole leaves
and complemented by one of the above traits:
GFOP Golden Flowery Orange Pekoe
These are whole, young tea leaves whose tips are golden and are complemented by
the flowers of the tea plant.
TGFOP Tippy Golden Flowery Orange Pekoe
This consists of the tea bud and two uppermost leaves of the tea plant complemented
by the flowers of the tea plant. This is the highest category in the grading of tea.
However, in this highest grading of tea leaves there are also two further quality
refinements distinguishing the best of the best:
FTGFOP Fine Tippy Golden Flowery Orange Pekoe
for choice of tea leaves
SFTGFOP Super Fine Tippy Golden Flowery Orange Pekoe
which is the highest existing grade for tea leaves.
2.3 What are the types of choice of tea from around the world?
There is another form of tea classification other than the size of the leaf. As there are
regions for wine across France, there are regions for tea across the world, some of
which, being commonly known as better than others or as the “royal lands” of tea.
Tea trees are known to grow better high up in the mountains.
Darjeeling Tea
Darjeeling tea is considered to be a tea type of the highest quality, the tastiest and the
most expensive. The origin of this tea is the Darjeeling region, which is located in
North -Western Bengal in India. The tea bushes grow on the high and steep slopes of
the Himalaya Mountains and benefit from the warm mountain sunshine during the
day, and from low temperatures during the night as well as an abundance of rain.
Darjeeling tea has a fine flowery aroma, a light body and a taste reminiscent of
Muscatel. Sipping the tea causes a slight tingling feeling on the tongue and this is
proof of its quality. Darjeeling Tea has been called the "champagne of tea" because of
its rare quality, its prestige and its exclusivity.
Assam Tea
The Assam regions sprawls along the two sides of the mighty Brahmaputra River in
North-Eastern India and it is the area where the largest amount of tea is grown in the
world. Assam black tea excels in its color, taste and strong aroma. Assam tea is
especially suited for sipping in the morning with breakfast. It is largely used as a
principal ingredient in blending popular teas such as English Breakfast Tea.

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Nilgiri Tea
Nilgiri is a tea growing area in South - Western India. Nilgiri tea leaves are dark and
from them the golden tea infusions are produced bearing rich, fruity tastes and
aromas. Most of the Nilgiri tea is sold to meet the local Indian consumer demand, but
the choicest selected yields of Nilgiri tea (the whole tea leaves) are traded on the
world exchange for large prices.
Earl Grey Tea
Earl Grey Tea is not a variety of tea but is blended from black teas and seasoned. It is
named after the British diplomat Earl Charles Grey who customarily blended black
tea leaves and seasoned them with the essence of Bergamot (a small acidic orange) in
accordance with an ancient Chinese recipe which came into his hands. In the
eighteenth century A.D. the drinking of black tea was a widespread custom of the
British nobility. Only the rich could drink tea because of its high price and the
nobility would show off their wealth by inviting friends to parties featuring tea
drinking and the eating of light meals. At these parties Earl Grey tea gained a place of
honor. As far as it is known, Earl Grey tea is the first seasoned tea produced in history
and it has enjoyed, to this very day, the status of the most famous seasoned tea in the
world
Smoked tea
In France tea is a foreign delicacy, and its appreciation always appeared to be
difficult. Smoked tea was introduced in Europe after the mistake of a tea planter in
China in the early 19th
Century. The plantation owner, having being told to free up the
drying room, found himself with a considerable quantity of wet leaves. As he didn't
want to lose them, he decided to try to dry them out quickly. He dried the leaves in a
few minutes leaving a particular smoked taste. A foreign trader seduced by its aroma
took it with him to Europe where it was met with great success.
3. Assessing the quality of the tea: what are the characteristics
that will matter while implementing a luxury strategy?
In conclusion, in evaluating the quality of tea, the tea experts will thus give
consideration to:
• the variety of tea
• the tea grading (or size of the leaf)
• the region where the tea was grown
• the stage of picking of the leaves
• the tea manufacturing process
These qualities of assessment mirror that of wine assessment.
Two further tests help in determining the quality and the taste of the tea brew and
these are:
The Scientific Test: A critical assessment of the quality of the tea by chemical and

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physical means such as an analysis of the chemical composition of the tea, use of the
“electronic nose” and other tests.
The Sensory Test: Classification of the quality of the tea by way of the senses – the
taste, smell, the physical feel of the leaves to the touch, and the appearance of the tea
which includes the shape, size and color of the leaves. This sensory test is a subjective
evaluation of the quality of the tea and is the result of the knowledge and experience
of the expert tea tasters.
The sensory test is still the most widely accepted means of evaluating the quality of
tea.
4 French tea market overview
4.1 What are the key characteristics of the French tea market?
 According to the Food and Agriculture Organization of the United Nations, the
average consumption of tea per head is a 0.3kg in 2009, 2010 and 2011. France
tea consumption is still low and shall be increasing in the years to come. The
traditional markets are people aged from 50 and above.
 The mass market tea industry is going through a difficult period with increasing
numbers of store brands and the offensive of Lipton who have put increasing
investment into product innovation and communication. Lipton managed to
maintain its market share by broadening its available selection to appeal to the
younger market. Is this what you mean? I have guessed what you mean by offer
here and in the next paragragh.
 In the luxury and premium tea market it is another story, product choice is
widening with the entry of new brands, and the demand is increasing to a new
emerging younger market (below 40 years old).
 In the French Premium tea market, there are two types of brands. The tea
specialty stores: Mariage freres, Damman Freres, Kusmi, Le Palais des Thés
and, the premium food retail stores: Hediard and Fauchon, the latter being
supplied by tea specialty stores and as consequence profiting from smaller
margins on this product. I will dig deeper into each of these categories later in
this report, but here is a brief overview to start with.
5 French luxury and premium*
tea market overview
5.1 Who are the players?
*
In order to simplify the picture I use the terms premium and luxury to define this market, I
will clear the confusion while studying the brands involved more thoroughly. To get a first clear
picture of the market, we will consider both in the broadest way possible.

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We can divide the market into three players:
-The main player: through the specialty tea stores such as Mariage Freres or
Damman Freres.
-A player in decline: the premium food retail stores that sell tea like Hediard
-A dangerous threat: through the mass market brands such as Lipton, Tetley and
Twinings who offer some premium products and are operating a trading-up strategy
 The core sector through the specialty tea stores is growing both internally
through the apparition of new brands: Kusmi, Luv organic and externally with
the increasing demand for high quality tea that is both a consequence and a
cause of the increasing choice of products.
 The food retail stores make smaller margins and are in decline in comparison to
the specialty tea brands’ growth. It is due to their supply structure, as they buy
their teas from specialty tea stores and they have low competitiveness in term of
product innovation, product differentiation and brand identity.
 Last but not least, it is important to include the mass market brands in this study
as these brands are expanding in the premium tea segment through a recent
trading up strategy. The best example is through Lipton that launched its first
concept “tea stores” in French supermarkets.

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Figure 2 “La boutique à thé” : Lipton concept tea store at Auchan Soisy-sous-Montmorency,
2011
Figure 3 Enhanced packaging by Lipton for “La boutique à thé”
6 Understanding the structure of supply and demand
6.1 Who are the suppliers?
Tea producing countries across the world: tea, an exotic delicacy for French
consumers
Source: ratetea.net

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China and India together represent half of the global tea production
Source: Graph made based on the figures found in Cyclope 2010 Uganda not
Ouganda
Supply Structure in the Premium and Luxury Tea Businesses in France
This graph represents the numerous intermediaries that exist between the tea planter
and the tea retail store. It starts in the producing countries, where most of the
plantations sell their merchandise for exportations at tea trade ports or tea auctions. In
Europe, the tea houses in Germany buy the tea from these exporters and sell it to the

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main specialty tea stores: Damman Freres, Mariage Freres, Kusmi etc. Some of these
specialty tea stores act as importers, for example Damman Freres sells a large part of
its products to other specialty tea and retail stores - up until recently it was supplying
Fauchon.
Example of a supply structure of a specialty tea brand
The key players in the premium tea business often have diversified sourcing and buy
parts of their products directly in the producing country. It is, for example the strategy
of Le Palais des Thés, who wish to have a larger control on the quality and conditions
of tea products sold. By and large, most of the brands are supplied by tea houses in
Germany and direct sourcing is still very scarce. However, this distinction is rarely
communicated to the customer in stores, as most brands selling origin teas claim to
have a direct supply chain structure. The supply chain is a key element for the
brands that have the highest luxury image.
For a product such as tea, spices, or any luxury “natural” product, the first step to a
Luxury strategy is the control of the supply chain. The way the product was chosen
and imported matters because it is a part of the consumer dream. It has to have been
selected carefully by tea experts, traditionally transformed and processed. That is why
if you ask a salesman at Mariage Freres why their tea is the best they will tell you: “It
was selected among the best species in the world and cultivated in the best conditions
to deliver the best aroma and flavor”. Even though for Luxury brands, the production
and supply chain is often very industrialized and will know many intermediaries and
actors. In the case of Mariage Freres, it is very important to keep suppliers that are
trustworthy and keep an eye on the many intermediaries who intervene in tea
selection, which is the basis of their Luxury products. One can associate this with the
anti-law of marketing number 18 (cf Luxury strategy): “do not relocate your
production” in other words, you must not “lose contact with the raw material and the
means of production to be able to clarify it as a luxury product.”

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6.2 Who are the consumers?
Who are the consumers of fine tea across the world?
If one looks at the flow of tea trade around the world it is clear that most producing
countries of fine teas export their rare teas to Western countries and are not
consumers of it. Only China and Japan absorb a good part of their upscale tea. For
India and Sri Lanka for example, the tea consumed is often low quality dust and the
highest grades are exclusively reserved to export. This can be explained by the price
versus the purchase power of such a refined product but the main explanation remains
cultural. In these countries, the preparation of tea is more important than the tea itself.
It is usually prepared with milk and sugar and is consumed in a transformed state or
used as an ingredient for a recipe rather than a drink in itself.
Figure 4: Preparation ritual of chai tea (source: travelpod.com)
Who are the consumers of French fine tea*
?
The traditional French premium tea market targets the
upper socio-professional categories. They are usually
wealthy customers, most likely to be in their fifties and
highly brand sensitive.
However, recent developments in the market are
creating changes. Customers are increasingly younger,
in partcular women who are driven by the explosion of choice and the expansion of
flavored teas, especially sweet flavors such as chocolate, vanilla, and caramel
appealing to the new, younger target.
*
Under the term “French fine tea” I include the premium and luxury brands in
the broadest sense.

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Internationally, Japan represents one of the main markets of French luxury tea brands
after Europe. It has been noticed in the tea business that Japanese people prefer to buy
their own tea through French brands at a higher price.
According to Frank Desains, one of the five Deputy
Managing Directors of Mariage Frères “they appreciate the
French tea processing, the work on tastes, the creation of new
flavors…” added French value is in the conception of flavors
and in the selection. There is indeed, a French expertise
recognized abroad in the premium tea market even though
France is not a producing country of tea.
Europe remains the main market for French transformed tea as shown in the graph
bellow.
Exports in value of French transformed tea and coffee in 2010: Concentrated in
Europe
Source: Xerfi report 2010 based on Customs reports.

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7 Brief overview of the main premium and luxury tea brands
As it was discussed earlier, the tea market is not a traditional ground for a luxury
strategy, however through the example of Mariage Frères success, Kusmi tea and the
many players in this business it will be seen that a lot of elements of luxury strategy
have been applied. It will be explained in more detail that there are no Luxury brands
in the tea industry that have adopted a complete luxury strategy but rather premium
brands adopting the luxury rules successfully. I demonstrated earlier that tea has all
the necessary characteristics of a luxury strategy: a travel and health dream, its
scarcity, its hand-made as well as its unique dimensions.
I will first draw a brief overview of today’s players in the premium tea market and
how they implement the luxury rules in order to understand what are the
characteristics that differentiate a premium tea from a luxury one?
7.1 Luxury, fashion and premium positioning triangle of the
traditional French tea market
I will start with a simplified picture of the main actors in the market and their position
in the luxury, fashion and premium triangle, a concept taken from Luxury Strategy.
For a long time, tea brands operating in
the luxury market had a very traditional
image. There was not much difference
between Hediard, Fauchon, Mariage
Frères, Le Palais des Thés, in terms of
shopping experience and product offered.
Product range were similar and the
marketing mix (product, price,
promotion, place) differed very little. In
the specialty tea stores, there is no clear
distinction between Damman Frères and
Mariage frères in terms of positioning.
They both offer a wide selection of tea
sold in traditional old fashioned stores,
loose as it was in the 18th
century. The retail experience is reminiscent of the early
stages of the tea trade era, when the stores were still supplying the Royal Courts.
Hidden stores in luxury areas, dim lights, sober and refined decoration, black tea
boxes, salesmen in black suit, the image of these brands harbor the traditional luxury
codes. It is austere and sad.
At the same time, all these brands kept a few dimensions of the mass market tea:
 The distribution is opened to French department stores (Galleries Lafayette,
Printemps) and sometimes upscale supermarkets.
 The product range is so wide that some teas are very low quality from an
expert point of view.
 The production and innovation centers are more often than not externalized.
 The prices are set according to a quality and price ratio.

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Figure 5 Screenshot from Mariage Frères online store
Most of the brands are therefore stuck between luxury and premium classification.
7.2 A shift in positioning and a refreshed French tea market.
The birth of new brands such as Kusmi tea (brand renovation to be more accurate)
along with the shift in position of some food retailers, changed the traditional
perception of luxury tea. These brands moved to an unexplored part of the triangle in
the food industry, they became trendy and fashionable. A lot of parallels were drawn
between the luxury fashion industry and the premium food one. They chose a more
fashionable and trendy position, targeting younger customers, and having a more
accessible image. Even though, the facts show that the prices are the same, these
brands managed to build some luxury feelings without keeping the luxury codes of
the tea trade era.
On the Mariage Frères
online store, products
can be classified
according to price

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 This dichotomy between trendy and premium tea brands adopting luxury
codes on one hand and traditional luxury brands on the other made the
distinction between luxury tea and premium tea more blurry.
Kusmi plays with the fashion dimension of the brand and the travel dream (being the
Russian brand of the European Royal Courts) where as Fauchon sells in supermarkets
and communicates prices, thereby mixing luxury and mass market codes. While
Mariage Frères keeps the image of a “comptoir de the” that supposedly, has not
changed since 1954. The difficulty being, the quality and price ratio that seems
inherent to the product that is commonly drunk, that is tea.
7.3 How about the mass market and its premiumization?
It is also an interesting area of study for luxury brands; as the recent changes are
going to affect the perception of luxury tea. In the supermarkets, Lipton has started its
“tea stores” concept, offering a wide range of loose premium tea, with a very
competitive price, compared to premium tea brands. This could be considered a
threat if their premiumization is completely developed in France and if they choose to
offer real added value and not just a better price like they did with the introduction of
new recipes and flavors in the lower tea market. Twinings and Tetley are also famous
for having a more premium image than Lipton but the recent innovations of Lipton
are more interesting in this study as they represent a bigger threat to premium tea
brands, especially because in some supermarkets (Monoprix) you find both products.

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Part 1 in a nutshell
Now we went through a good third of my report, let’s go through a brief overview of
what we already saw together and the main points that are to be kept in mind to go
through the second part of my analysis.
Here is a small sum up of the major points we got to discover together:
In a nutshell, tea origins hold a lot of dream potential
• A lot of legends and myths from the East surround the origin of tea, and
emphasis its mystic healing powers and profound taste.
• Tea was born as a medecine before being a common consumption beverage. Its
health properties were much debated upon in Europe and are still nowadays not
completely unravelled. However, its health benefits in term of digestion are
widely accepted.
• Born in China, its cultivation expanded later in Eastern Asia, and Eauropen
colonies to fit the Europen needs. It thus holds in Europe the meaning of an
exotic delicacy.
• Tea was at first highly taxed and meant for an “elite”. Today, the social
meaning of tea consumption faded away with mass market tea but the luxury
potential remains. Tea can be a refined and expensive product.
The categorization of tea is very complexe, making a product for connoisseur
• The production process and place of production is at the origin of the different
tea categories.
• Often industrialized throught the CTC process (CTC= Crush, Tear, Curl), it still
requires a lot of manpower, especially for picking. The traditional production is
still widely spread across the world and some tea brands found there a ground
for luxury strategies.
• As for wine there is an admitted classification tables for teas according to the
size of the leaf and weather or not it includes the flower bud. The bigger the size
the better.
• Tea quality will be determined by many elements such as weather, origin,
transformation process, conservation, making it impossible to keep a flaweless
taste across time, and giving tea harvests the same scarcity dimension as it
exists in wine.
• The complexity of categories, make it a product that needs “guidance” from the
brand

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The market is divided between luxury and premium tea speciality stores,
premium food stores and premium products from the mass market.
A centralized supply chain in Europe for fine tea
• There are many intermediaries between the plantations and the consumption,
whereas the marketing speech in store claim a complete control over the supply
chain.
• All imports of tea in Europe are centralized in Germany and sold by importers
(tea houses) to French tea brands.
The consumers of fine teas are getting younger
• The traditional consumer of tea is above 45 years old
• The market opened to younger customer (bellow fourty): a recent trend initiated
by the changes occurred in the mass market through the introduction of
appealing design (pyramidal tea) and the hyper choice
• The Renewal of tea brands such as Mariage freres, Kusmi, Lov Organic put tea
back in fashion.

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II THE MARKET LEADERS
In this section I will go thoroughly through all the main players of the industry and
analyze their strategies. I will thus extract the luxury components of these strategies
and determine the characteristics of luxury tea expressed in the brand. I will show that
the tea market in general, is evolving fast in France and that many breakthrough
innovations and shifts in strategies have influenced the definition of premium tea and
the perception of luxury tea from a customer’s point of view. It will seen that most
brands adopt mixed strategies (cf. The Luxury Strategy), between premium and
luxury.
1 Luxury tea and packaging: Loose tea or in bags? The
importance of packaging in the definition of a luxury tea
The most noticeable difference between the high luxury tea store tea and the lowest
priced tea at Carrefour is the bag. It is the first price and quality differentiation
between a luxury and non-luxury tea. Loose tea appear to be the first step to higher
quality in the customer mind. This is why tea bags at Mariage Frères and Hediard are
a bit more like the bags business for LV, it brings cash but does not contribute to the
luxury brand image as the fashion sector does or the high tea selections do for
Mariage.
The Lipton brand is a good area of study to understand the importance of packaging
in the tea industry.
A 200g of Earl Grey loose tea box from Lipton will cost 6 Euros whereas the same
product in bags will cost up to 70% less.
As the black coffee at the coffee counter made coffee a daily and cheap habit, the tea
bag made the tea a popular mass product. Today, 80% of the tea consumed in France
is consumed in bags. The introduction of the bag in 1908 made tea consumption
cheap, easy and quick but, the taste and quality of loose tea remains superior and a
gap will rise between the mass market tea (mainly in bags) and the luxury loose tea.
1.1 The Lipton product range example
You must have noticed while walking down the tea aisle of Carrefour the different

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2.40 Euros
adviced price by Unilever
boxes of Lipton tea that are offered, along with the difference in prices.
The difference in prices however does not come from a difference in the price of
production; it is a perceived difference of quality from the customer who is ready to
pay a premium for the tea. It is then, interesting to study the attributes of tea in the
supermarket tea industry and how the quality is assessed by the customer. Lipton is
the number one tea brand in the world.
Lipton, the business model
Before going through the analysis, I will start with a brief overview of the Lipton tea
industry and its business model.
A global success
Lipton is the second most drunk beverage after Coca Cola in the world, holding 2.8%
of the world market of drinks against Coca Cola with 5,5%. The figures speak for
themselves; Lipton is a winning business model.
A few figures (2008)
130 countries
52 Billions of bags sold a year
33% increase in sales in 5 years
40% of the tea market
24 Millions Euros of sales
Market shares of tea brands in supermarkets (in volume) : a highly concentrated
market
1.30 Euros
price advised by Unilever

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Source : Xerfi report on the French tea market based on distributors panels from June 2010-
September 2010
A business model of vertical integration
Kericho (Kenya): The “flagship” plantation of Lipton
Lipton is the only brand on the shelves to control the whole production process of
their tea, from the picking of the leaves to the shelf stocking. Lipton has suppliers in
over 35 countries across the world and owns plantations in the main tea producing
countries: Kenya, Oriental Africa and Tanzania. These are considered small States in
the State, huge lands of tens of thousands of hectares, with villages of tea pickers,
private schools, etc. They prompt their tea producers to get certified ensuring their
commitment.
Whereas, its competitors Twinings or Tetley are supplied by wholesalers.
In France, the products are manufactured in Fralib factory1
based in Gemenos. It has a
turnover of 27.1 million Euros in 2009 (Xerfi 2010) and 180 employees. Fralib
factory exports a part of its production to European countries, it exported 1.4 billion
bags in 2009 (Xerfi 2010). The tea trade business of Unilever World is managed by
Unliever France which had a turnover of 2.2 billion Euros in 2009.
1
Fralib factory should be closed down in 2011 and the production of Lipton delocalized to
Eastern Europe due to a steadily decreasing turnover of Fralib sourcing unit since 2004. It went from
63.9 ME in 2004 to 27.1 ME in 2009 (Source: Commercial Courts).

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Lipton enjoys an exceptional position because they can:
• Secure their supplies
• Reduce the fluctuation of tea prices
• Create large economies of scale
Lipton also manages the shelf stocking, ensuring better visibility compared to its
competitors in the supermarkets.
Highlights on
Thanks to this vertically integrated model, Lipton has certified as early as 2007 its
own plantations and its suppliers by the NGO Rainforest. It ensures its external
suppliers’ commitment along with the trust of its customers through its involvement
in sustainable development. The ambitious goal of Lipton is to cover 100% of its
supply chain before 2015!
A global and unified strategy
Lipton uses a similar way to Nivea in order to set up in a new country. They always
enter a new country with the launch of their star product: for Lipton, the Yellow Label
and for Nivea the round blue box and then develop a wider range of products adapted
to the local market and local taste: Chai tea in India, sweet milked tea in China, Earl
Grey in Great Britain. One can find the pyramid shaped bags everywhere in the
world. I will discuss later that these teas have one of the highest margins of the Lipton
product range. The R&D is centralized and all teas are tasted in the same laboratories.
A broadened product range with the introduction of pyramidal tea bags
The tea department in the supermarkets has gained 50cm in length among which 45
cm were for the Own Brand Labeling (+2%). The introduction of the pyramidal
teabag was a huge marketing success for Lipton. It managed to attract a new and
younger market ranging from 30 to 50 years old than the traditional core market
(customers in their fifties).
Huge investments in communication
In 2009, 60% of the Lipton products were advertised,especially the pyramidal bags
that attract a younger market. The advertising is based on three major points : the
health, the well being and the pleasure.
In France, the budget increased by 52% in 5 years and represents 4 times the budget
of its competitor Twinings and 7 times the budget of Tetley.

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The Agency DDB signed in 2009 for an impressive TV ad where a swarm of women
dive into a swimming pool of fruit.
In the supermarket, Lipton takes charge of the shelf stocking to ensure that the
competitors do not appear in the middle of the shelf. Lipton also organized many tea
tasting operations on site and beautiful, wood set boxes were constructed for the
occasion.
The Lipton repackaging strategy
I have covered the analysis of the changes undergone by the brand with the
introduction of the pyramidal bag. Can the increase in price be explained by an
increase in costs of production? The price is reaching 2.4 Euros on average for a
pyramidal tea box against 1.3 Euros for the Yellow Label. On average, the prices of
all the repackaged goods increase by 15%. This increase in price may come from an
increase in the costs of the goods; a higher quality of tea; or a controlled decision to
price the product higher based on hedonistic evaluation of the product and higher
quality perception from the customer.
But, before reaching any conclusion, I will first go back in time and explain the
evolution of the tea bag and box packaging for Lipton tea.
The pyramidal tea
In 2000, the first pyramidal tea bags are introduced in Japan. These bags reach the
French borders in 2003. Thanks to its unique shape, the bag can contain longer and
larger tea leaves, without crushing them, along with larger fruit chunks, which permits
a better infusion of the tea. The objective of Lipton is to offer the experience of an

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infused loose tea along with the convenience of an individual tea bag.
I will now explain the properties of the tea bag Pyramid® (Lipton has registered the
name and the production process of its bags) claimed by Lipton : «
• Gives ample room for hot water to infuse the tea, for better extraction of its
rich color and flavor
• Offers the full flavor of loose tea paired with the convenience of a bag
• Because the bag is bonded with heat, it leaves nothing to stand in the way of
tea taste. »
The box packaging
Not only has the shape of the bag changed but the folded container box has undergone
many changes in order to modernize the image of tea and reach a younger market.
The new packaging was done by the agency CB’a design whose mission was to:
« Develop the product around the « Natural Vitality » angle. They were to develop a
strong visual identity that would enable:
• Universal management of the product range
• Identify the codes for each branch of the product.
• Express the natural, indulgence and accessibility aspects.
This chart should bring additional answers to the premium
issues.
Clearly, the objective of Unilever – Lipton was to seek a
more premium product, not in terms of quality of tea
offered but in terms of perceived hedonism through the
packaging, the convenience and the advertising.
Thus, for the pyramidal travel products, the idea was to
suggest a ritual of tea consumption, as if the consumer was
in the country represented on the package. On each box

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there are three main elements: the pyramidal bag on the left bottom side, now a sign
of the higher quality teas of the Lipton brand, the shape of a woman in traditional
attire and an architectural black and white design representing the country referred to
by the box. There are also exotic titles such as « Bangalore Palace » « Asian Temple »
or « Oriental Bazaar » as well as bright, shiny colors. Everything appeals to the senses
in this new packaging and invites the consumer to travel.
Lipton has also launched a collection named
« Collection Exclusive » which, clearly uses the
codes used by the luxury industry. They play with
mat and shiny gold colors, black background,
refined design, a few descriptions, if any on the
front, and subtle images.
These teas are sold at an average price 2.50 € and
are among the most expensive of the product
range.
The hedonism of the packaging is not the only
thing they worked on, it is also a lot more
practical and convenient to use. It opens like a chewing gum box and there is no need
to open a plastic bag to pick a bag, the pyramidal bags are loose inside the box. This
represents an economy of paper for Lipton and a convenience of use for the
consumer.
The whole packaging gives the consumer a higher perception of the quality of the
good. In all, for the consumer the pyramidal tea bag is not just a tea « clearly of
higher quality than the normal Lipton bag ».
This repackaging has been put in place gradually. It started in 2003, when 20 new
product innovations were launched, four times more than the year before. Likewise, in
2008, 13 of the 73 teas and infusion products sold in France were up-dated.
Future and performances of the new packaging
After going through the changes by Unliver on Lipton’s packaging, the question can
be asked: how is the price increase explained? As well as questioning the future of
the traditional paper tea bag, will it eventually disappear or will it last? The answers
are in this section
Pyramidal versus traditional bags

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I will go through the figures regarding the pyramidal bags before questioning the
future of the traditional square shaped bag.
• 10 Pyramid® bags are used per second in Europe
• The Pyramid® bags are sold in more than 30 countries
• 25 % of French tea consumers adopted the Pyramid®2
bags
In regards to sales, this launch enhanced the general tea market, and the flavored tea
market in particular, whose growth doubled from to 10 to 20 %. They gained 2.5
points in this sector and 3 points on the overall black tea market. In less than 5
months, 40% of sales of flavored teas in bags, were made in pyramidal tea.3
It can be concluded that this new bag shape was a success for the brand and although
the tea market has been falling (by -2.6% in 2009 in tea volume) there is potential for
growth in this market, « It is true, sales are falling globally, especially in volumes, but
the loss is small if the OBL raid is taken into account. In 2009 the tea and infusion
supermarket shelves were enlarged by 2%, to be nearly entirely filled with OBL
teas. » Sophie Villemin, manager of the Lipton and Elephant brands declared. «
Despite this, our pyramidal shaped bag increased by 20% in value…it is very
encouraging, because this new bag is a major factor of the market value, but also
because it won over a younger market (between 30 to 50 years old) than the classical
Customer in his/her fifties » Attracting a younger market has been one of the top
priorities of the brand. It is necessary in order to increase the market penetration rate
which stagnates at 70%. This is why the strategy has been so aggressive, with an
overall budget increase by 30% in 2009, Unilever now spends more than
Procter&Gamble in mass market goods.4
Lastly, regarding the future of our traditional paper bags, they do not plan to take it
down from the shelves. It will remain an alternative for consumers. First, because the
product cost is slightly lower and their prices in the supermarket are lower by 7 - 8%.
It also establishes a difference between classical ranges of flavored teas and infusions
with classical and simple flavoring (lemon, caramel, blueberry) and a more
sophisticated one (double flavoring and pyramid bags). It helps build a coherence
between the marketing and the packaging of the products sold, along with the
displayed price.
Where does the price increase come from?
For this part, I based my analysis on an interview of Mister Mohamed Al Baroudi,
PDG of « Société Impériale des Thés et Infusions (SITI) » a company selling
premium and luxury tea bags in Morocco.
SITI produces each year up to 200 Millions handmade bags and more than 100
millions pyramid bags for high luxury tea brands and multinationals.
When I asked him why the pyramid shaped bags were so popular he answered: « The
pyramid tea bag market is booming, because of its trendy design, and its transparent
2
Internal source from Lipton by TNS World panel at the end of 2009
3
Meeting with François-Xavier Apostolo, group manager for Lipton hot tea for Europe for
Stratégies Magazine n°1317
4
From the article « Les boissons chaudes voient les MDD pousser et les marques résister »
published on the lsa website www.lsa-conso.fr

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and original shape…it also the cheaper bag in the premium category. It is binded by
ultrasonic Japanese, sound machines. It gives a highly luxurious perception as much
as the handmade cotton bag does but it is really cheaper. It is a good compromise
between the handmade bag and the paper bag »
The graph bellow gives an idea of the cost structure of a luxury handmade cotton bag.
I concluded that the cost of a pyramidal bag for Lipton should be close to zero and
nearly the same as the cost of production of a paper bag (launching costs aside, of
course). If one considers the Lipton supply chain structure, one can take off the 6
cents of luxury tea, as the tea used in the Lipton bags is the dust tea, with the
economies of scale, it should cost less than a cent per bag. There is no need to sew the
bag by hand since it is binded by a machine, so those costs are irrelevant as well. The
fabric is also less expensive than cotton. The economies of scale do the trick for the
rest, the cost of a bag for Lipton shall be close to one cent!
The increase of the selling price for pyramidal tea does not come from an increase in
production cost but from a valuation a premium product perceived by the consumer.
This “premium quality” comes from the packaging change, which is more premium
than the yellow label packaging, and from the perception of the bag, which seems to
be more luxurious than the paper one.
How did Lipton calculate the premium based on hedonistic values?
In order to calculate how much the consumer was ready to pay for the perceived
added value of this hedonistic packaging, Lipton asked the company Marketing Scan5
to realize a marketing study on site.
This study had many objectives:
• Validate whether the pyramid bags should replace the traditional paper bags.
5
MarketingScan is a company with three main activities: the test market in real conditions (75
% of its turnover in 2003), the measure of advertising and promotional actions (25 %) and, since 2004,
the establishment of a model for the marketing mix.

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• Verify the price increase model to use for this new product: +15 or +25 % ?
• And to verify the efficiency of the marketing actions to conduct and to
optimize the TV communication undergone by the brand.
From April to the end of November 2001, 2
test zones were put in place: a first zone in
Mans where a 15% increase on prices was
made, and a second in Angers where a 25%
price increase was validated. In order to test
the hypothesis described earlier, they decided
to try the new bag on the standard Yellow
Label tea only. The sales were monitored by
zone and compared to the sales of the year
before. The effects of the TV campaign were
tested on two groups, one test group who was
not exposed to the TV ads and one who was.
The conclusions of this Market Study are described below:
• The pyramidal teabag should not be launched as a replacement of the old
paper bag but should be introduced in the product range as a new offer. After 8
months, they noticed a small decrease in sales in volume and value.
• The 15% price increase had the best results in term of recruitment of new
consumers and stabilization of sales.
• The efficiency of TV ads and promotional operations was confirmed by the on
site study.
The Yellow Label was sold 1.5€ for the pyramidal bags instead of 1.30€ for the
traditional paper bags. This price increase based on the valuation of hedonism of the
bag was applied to all the products of Lipton.
Targeting the top and lower end of the market through product differentiation
The Lipton Product range
• The infusions
The infusions « irrésistibles »
20 pyramidal bags for 2.55€
Infusions « saveurs du soir »
25 paper bags for 1.74€

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Exotic infusions
• The Sir Lipton product range
The loose tea
200g of tea for 6€
An exotic tea product range
20 cotton bags for 2.34€ to 2.52€
• The classical teas
Lipton Yellow
Thé du soir (without caffeine)
• The green/ white teas
Green teas
25 paper bags for 1.84€ to 2.10€
Pyramidal bags of green tea
20 pyramidal bags for 2.03€ to 2.35€

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Tchaé green tea
Linéa green teas promoted as healthy, diet teas.
20 sacpyramidal bags for 3.10€
• Flavoured black teas
Classical black teas
25 paper bags for 1.98€ to 2.06€
Pyramidal flavoured teas
20 pyramidal tea bags for 2.07€ to 2.10€
• The upscale tea
The products of the exclusive collection
20 pyramidal bags for 2.43€ to 2.48€

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Analysis
A very competitive first price
The cheaper product offered by Lipton,
the classical Yellow Label is sold on
average 1.29€ for a box of 25 tea bags.
For the same number of bags, the Auchan breakfast tea is sold at 1.15€ without
benefiting from the quality image of the Lipton brand and all the intangibles.
The Lipton strategy seems to have a very competitive first price, and must have
relatively low margins on this product, which targets the customers with small
budgets, and will help gain new customers in order to sell products with higher
margins (pyramidal, flavored teas) but are not more expensive to produce.
A wide range of product
Without even including the brand « Lipton Elephant », One could say that Lipton
owns a very wide product range, based on the various ways of grouping teas:
• The kind of tea (black, green, white, dark teas)
• The flavors (fruits, spices, flowers, milk etc.)
• The packaging (pyramidal bag, cotton bag, paper bag, and loose tea, ready to
drink…)
• The hedonism (exoticism of the packaging, visual)
The diversity of the products corresponds to a desire to better reach the specific needs
of each customer, so that they can pay the premium to have the tea that better suits
them.
On the other hand, this diversity meets the customers need for variety, which is all the
more important since the new position of Lipton is based on hedonism.
Last but not least, the pyramidal bag in particular is a very bold innovation as it gives
a higher quality perception without resulting in higher production costs (apart from
the starting costs from R&D, packaging and marketing)
Important price variations based on this diversity
In the Lipton product range, the prices can vary up to 50%, even though the quality of
the tea is roughly uniform from one product to the other. This segmentation is based
on a very clear packaging differentiation, with an emphasis put on hedonism and
exoticism. Now with the pyramidal tea bag innovation, it has become easier to
differentiate the upscale from the downscale range of Lipton teas.

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Lipton has a lower margin on the Yellow Label but higher margin on higher quality
perceived teas.
The advantage for Lipton to have both upscale and downscale products is that the
brand can thus justify a different pricing for roughly similar products. The upscale
products of the range target customers who are ready to pay a premium for their tea
consumption, whereas the Lipton Yellow is meant for the others. This gives Lipton
the opportunity to reach a higher level of sales than if it had a single product with a
single price (and earn two squares of sales in the graph instead of one).
Conclusion
Lipton did some trading up but did not fall in the trading up trap. The price did
increase for the pyramidal tea based on the incremental advertising expenses but not
only that. If the production price is not any different for the yellow label and the
pyramidal tea, there was an effort done on the product packaging, flavors, product
range. You cannot increase the price based on advertising only. The perception of
quality comes from many aspects. The tea quality alone is far from being the only
component of choice. The packaging hedonism and practicality, the choice of flavors,
the intangible (travel invitation), all these help build a stronger perception of quality
and justify the premium paid for the red berries pyramidal tea compared to the plain
Yellow Label.
One question Lipton has to debate now is until which point can it continue the trading
up? Since the major sales come from the Yellow Label, which has the image of an
affordable quality tea, can it sell premium tea competitive with the premium tea

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brands without risking losing the “affordable” image of Lipton. At the same time, I
think it is important for Lipton to strengthen its quality image since the premium tea
brands such as Kusmi, Fauchon, Le Palais des Thés are selling first price products at
less than 3 Euros for 100g, it is less expensive than some premium products of the
Lipton product range.
Some downsides I would like to point out in the Lipton trading up strategy
 The Loose tea in uncompetitive
In France, at the supermarket, Lipton is very present in the premium loose tea ranges.
However, in some premium supermarket and specialty shops, Lipton is facing tough
competition in this sector, due to Kusmi, Fauchon or Hediard. Contrary to these
brands, Lipton does not offer flavored teas in the loose section, nor does it propose
any added value in the selected tea kinds. The strength of a chain is in its weakest
link, Lipton quality is associated with the Yellow Label and dust tea. It cannot get a
sufficient legitimacy in the lose tea section based on the brand name alone. It has to
create as it did for the pyramidal teas a trading up strategy based on the product: tea
flavors, tea dreams, and packaging. Serving the purpose of drawing a clearer line
between Lipton and Mariage Freres, for example.
However, I would not suggest stopping their production as it also helps enhance the
customer’s brand perception, in order to compete in the downscale range of products
with the supermarket brands.
 The rain forest efforts is not well communicated.
If Lipton is very active on labeling its teas, it does not communicate this. Of course, it
clearly appears on the packaging and the corporate website but in the consumer's
mind, Lipton is not associated as a « green » and « environmentally friendly » brand.
It is a shame, all the more, since it is very active in this field and nowadays consumers
are more and more conscious about the environmental issues raised. The risk is that
other strong brands will actively communicate this, and Lipton will be seen as a
follower in the trend. The innovator is always the first one to communicate on the
innovation not the one who launched it!
1.2 Bags yes but not any bags
As for the conditioning, the tea follows this pyramidal structure. On top of the
pyramid is the preferred conditioning for the highest luxury teas. Convenience is far
from being a priority. A good tea deserves the best ceremony, time and the absence of
a bag will give more space to the leaves for a perfectly mastered infusion.

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After the cotton bag, is the pyramidal bag, as it allows more space for the leaves to
expand in the water and has bigger holes to let the flavor out. However, there is a
downside to it; it is more costly as it is made by hand and requires high manpower,
contrary to the pyramidal bag.
The stapled paper bag is used more for dust tea rather than bigger leaves as it will
break them. The size of the leaves is a first element of tea grading in the luxury tea
market.
Heavy tea drinkers have always known that the perfect cup comes from loose leaves.
Traditional tea bags may offer tidiness and convenience, but the taste is often lacking.
The thickness of the bag means the tea inside must be ground until it is little more
than dust, and when wet, the bag collapses onto itself, preventing the water from
circulating through the leaves for a proper brew. But, as interest in tea-drinking rises,
steeping innovations combining the best of both worlds (the flavor of leaf tea and the
ease of a bag) are coming onto the market, changing the look and taste of a tea break.
The recent trading up strategy of Lipton does not represent a risk for the luxury tea
brands. In fact, for premium brands such as Kusmi and new brands launched in the
business, this represents a challenge and an opportunity. They have to offer a product
clearly different from what Lipton proposes, a nice packaging, a high price and a nice
offer is not enough anymore to define luxury tea. The changes in the market imply
changes in people’s perceptions. The new environmental and social changes in the
Lipton strategy increase customer’s expectations in terms of social and environmental
responsibility.
For most consumers, convenience outweighs the superiority of taste that comes from
the infusion of loose tea. The nylon triangular-shaped tea bag that allows full-leaf teas
to be packaged in a bag for brewing convenience is a good in-between answer to the
dilemma between the convenience of bags and the quality of loose tea infusion. This
shift to the new tea bag is happening, with an increasing number of suppliers now
offering loose leaf teas in this manner. However, the world is still waiting for the
sustainable solution in the form of a biodegradable tea bag.
2 Mariages Freres: The French luxury tea?
2.1 History of the Brand
When the Mariage brothers set up their business in the tea trade in 1854, they targeted
the elite customers of the European Royal Courts and Parisian Salons. In 1984, the
company is bought by a Thai entrepreneur, Kitti Cha Sangmanee. The brand starts an
up-range retail business with its first boutique at rue du Bourg-Tibourg, in Paris.
Many tourists, even from Japan are seduced and find there, a luxury French product.
According to Frank Desains, one of the five Deputy Managing Directors of the brand
“they appreciate the French tea processing, the work on tastes, the creation of new

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48
flavors…” The latter define the Mariage Freres promise.
2.2 The dream starts in the stores
The Mariage Freres stores have a strong personality with the trading post decoration,
the hushed atmosphere, the salespersons in black suits and white shirt, the black and
yellow boxes.
The first historical store opened at Rue du Bourg-
Tibourg, in the famous quartier Marais à Paris is also the
most famous. It is common to see luxurious cars
stationed in front, customers are jet set and Mariage
Freres wants everyone to know that «Madonna, Elton
John, Francis Ford Coppola, Isabelle Adjani, Zinédine
Zidane…” came to buy the fine products.
They pay particular attention to the store windows and decoration. People are
attracted by the atmosphere and the culture of the tea conveyed through it. The tea
objects show the delicacy and give a feeling of serenity and authenticity. You will
find in the store the old historical tea bricks as they were sold in China centuries ago.
The tea ceremony, which was considered a hassle is now a mysterious and holy ritual,
the tea pots are displayed as object of arts.
Mariage Freres also have a tea museum. All these marketing creations contribute to
the legitimacy of the brand as a tea specialty store for connaisseurs in Paris, even
though it is not really the case. They manage to explore the travel dream, and recreate
the atmosphere of tea trading posts when tea was a highly taxed product meant for an
elite. Everything from the brand history (supplier of the European Royal courts and
nobility) to the decorations, the displays, the luxury cars queuing in front of the store,
the location…they all participate to this feeling.
 Mariage Freres is the French luxury tea brand meant for an elite that offers

A good insight on luxury French tea today

A good insight on luxury French tea today

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