Hot beverages: higher prices put tea back in the black

Tea has returned to value growth for the first time in this report since 2011, having put an extra £2.7m through the tills. But let’s not pop our corks yet. The 0.5% growth is mostly price driven. Brits are still buying less tea at the supers. Volumes are down 2.4%.

“For tea, price inflation has become a hot topic, especially within standard black tea,” says Nielsen analytics client team leader Rachel McGuire. “We’re seeing a de-escalation in promotions teamed with base price increases, causing volume decline.”

Inflation, prompted by commodity cost rises and exchange rate movements, has arguably benefited some, coming as consumers were already reappraising the value of a cuppa (thanks partly to Starbucks and Costa’s growing focus on tea and the health & wellness trend) and trying new, pricier brews.

The supers have been only too happy to oblige, stocking more premium branded teas to drive value back into the fixture and drum home a point of difference from the discounters. Meanwhile, they’ve axed standard branded SKUs, replacing them with own label. “The majority of retailers have given more space to their own label,” says Nielsen’s McGuire. “They have made own label more visible on shelf, with some retailers placing them in prime, eye level positions.”

Indeed, own-label tea is up 4.6% on volumes up 2.3%. And, of the brands, it’s generally more premium brews that are hottest. Yorkshire has delivered the greatest absolute growth in tea, putting an extra £4.7m (5.8%) through the tills, thanks to continued marketing investment and a premium price that provides a valuable counterpoint to own label.

Next it’s Pukka, up by more than a fifth in value and volume terms, growing by £3m. The brand says it’s benefiting from the movement away from standard black tea. “Tesco’s recent major range event saw the fruit & herbal category and Pukka in particular emerge as the major winner, more than doubling our shelf space,” Pukka’s head of tea marketing Sarah Cook told us in September. “This is great for Pukka and the whole category.”

Cook is referring to Tesco’s August range review, which hit standard black tea brands PG Tips and Typhoo particularly hard (PG’s green, fruit and herbal infusions also got the boot) with the brands down by £4.7m and £3m respectively. No wonder PG owner Unilever has launched a new, posher brand.

Ethically sourced speciality tea brand Pure Leaf, the market’s biggest (and our Top Launch this year), is a range of single-origin teas blended with ingredients including vanilla and marigold petals. If the range has a premium ring to it, wait until you see the price tag: a pack of 16 bags has an rsp of £3.99 (or 24p a cup). That’s over 10 times more per cup than the nation’s bestseller PG Tips, which fetches about 2p per cup.

“We wanted to create a premium tea product, which is why Pure Leaf has been blended using some of the finest ingredients including long leaf teas, herbs, and fruit pieces to create teas with a distinct character, delicate flavour and aroma,” says Pure Leaf senior brand manager Laura Salmon.

All this is benefiting the wider category, says Tetley director of customer & shopper marketing Peter Dries. “The number of people buying tea has increased as has the frequency of purchase. Typically the segments of tea that have grown over the last year come at a higher pence per cup, so it’s good for retailers and the value of the category as a whole.”

Indeed, Tetley is up £2.9m (value and volumes are up 3.3%), having stolen space from rivals in the range rationalisations at Tesco and others (Twinings has also suffered big space losses). “Across the market the performance of tea has been affected by the continuing dominance of everyday black tea and the decline in sales here,” says Dries.

He adds that Tetley is reducing its reliance on standard tea with innovations such as Tetley Super Green Sunshine tea enriched with vitamin D and the four-strong ‘added value’ Tetley Indulgence black tea range. “If revenues from tea are to improve, the over-reliance on black tea needs to be addressed, says Dries. “It’s about achieving the right balance between retaining focus on the big sellers in core black while offering the right mix of products from other sectors to capitalise on the growth opportunities.”

The need to balance demand for more premium offerings and core bestsellers is present in coffee, too. Like tea, instant coffee was also in hot water a year ago with sales down £17.6m. The return of inflation has driven overall sales up £15.9m (2.3%), yet strong NPD and a growing focus on premium wholebean instant lines such as Nescafé Azera, Kenco Millicano and 2016 launch Lavazza Prontissimo have managed to keep volumes more or less afloat (they’ve dipped just 0.3%).

“Coffee growth is coming from new buyers entering the market and existing buyers purchasing more,” says Nielsen’s McGuire. “Most recently Nescafé Azera’s coffees on the go have hit the nail on the head with the ultimate convenience that is cheaper and in the majority of cases more efficient than out of home.”

Nestlé says the 2016 launch of Nescafé Azera’s Coffee To Go coffee cups has been a “phenomenal success”, delivering £5.4m in sales in its first 12 months with 64% of consumers buying into the brand instead of going to a coffee shop. Overall the Nescafé brand, the sector’s biggest, is up 1.6% to £377.2m, although volumes have sunk 2.8%.

But the category’s star performer is roast & ground coffee, where value sales are up 5.5% to £364.2m as the nation’s love affair with coffee continues. “Coffee as a category has really opened up to new formats like pods in recent years,” says McGuire. “Coffee SKU count has increased, up 8.6% versus last year, and this SKU count has been noticeable within pods where the 23% growth over-indexes versus that of the total category.”

Tassimo is leading the march with value sales up 6.4% to £90.1m. The brand is one of only 65 to come with Amazon’s new Dash button technology, allowing consumers to reorder coffee pods at a touch of a button through their wi-fi, and one of only two coffee brands enrolled in the scheme. The other brand embracing the Dash button is the second biggest roast and ground coffee brand, Nestlé’s Dolce Gusto, value sales of which are up 2% to £68.4m. The brand now offers 40 different coffee shop-inspired drinks, including 2017 launch the Preludio pod, aimed at the breakfast market with a larger size cup.

As in dairy drinks (see p121), Starbucks is also a brand to watch, more than doubling sales and climbing from 11 to eight in our ranking with value sales up 102.3% to £5.1m following the launch of its own range of espresso capsules in 2016. With sales down 2.5% to £43.3m, Taylors of Harrogate is still at number three in our ranking. The brand says it has embarked on what it calls a “ground up overhaul” of its single-origin coffee range following “ever-increasing challenges from retailers focusing on their own-label offerings”. NPD includes three new Nespresso-compatible coffee capsules including a Hot Lava Java flavour, which has won listings in Asda, Morrisons and Sainsbury’s.

“Taylors, like other major brands, faces ever-increasing challenges from retailers focusing on their own-label offerings,” says Ben Newbury, senior brand manager at Taylors of Harrogate. “We know that to thrive we need to stand out and communicate the value of our products boldly and clearly.”

This is particularly important in coffee, which has seen double-digit growth for own label in the past year. The overall coffee SKU count has increased across the retailers (tea, hot chocolate and malted drinks’ count of SKUs has fallen) as they’ve dedicated more space to new formats, particularly pods.

Whether branded or own label, the multiples will need to ensure the products they stock in the hot beverages fixture stand out, given the growing influence of the discounters in this sector. Aldi is enjoying particular success following the January launch of its Nespresso-compatible coffee pods in three variants: Alcafé Espresso, Alcafé Lungo and Alcafé Ristretto.

“Bargain stores and discounters are continuing to attract new shoppers,” says McGuire “For grocery multiples, price is the only driver of growth while for the discounters it is growing through penetration, which would be a direct result of their strong store opening strategy. However, the discounters’ level of exclusive shoppers is actually quite low.”

This suggests that for all the plaudits Aldi and Lidl are winning for their products (for example, Aldi’s Ristretto pod picked up a Which? Best Buy award in May), the quality of their hot beverage lines isn’t high enough to stop consumers from shopping around. But with inflation expected to continue to bite, the price of the discounters’ products may become even more of a draw. At just 18p per pod, Aldi’s offering is considerably less than Nespresso at 31p per pod. It’s also less than other own-label offerings from M&S (30p per pod) and Sainsbury’s (25p per pod).

Clearly, hot beverage prices in the mults can only be allowed to grow for so long.

TOP LAUNCH

Pure Leaf by Unilever

With total tea sales up for the first time in five years and tea taking its cues from coffee, Unilever is stirring things up with new premium speciality tea brand Pure Leaf. The ethically sourced single-origin black and green long leaf tea hit the shelves in March and comes bagged and loose in transparent packaging to showcase its quality. Blends include black tea with vanilla and marigold petals and ‘gunpowder’ green tea and chai with flavours characteristic of their origin.