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Into the 90's with tea.

Into the 90's with tea

In a recent Advertising Age article, Bob Lauterborn, a professor of journalism at the University of North Carolina, writes that the four P's of marketing that we all grew up with--product, price, place and promotion--are no longer applicable as we enter the 90's and beyond.

In past times, it was usually enough for a company to develop a product, price it profitably, place it on the retail shelf, and promote it to eager consumers. As Lauterborn states, "that was then, this is now". While the 4 P's served admirably for the past several decades, his 4 C's may be a formula for success in the future.

Instead of product, study consumer wants and needs. You can't sell whatever you can make anymore, as attested to by the 12,000 new grocery items introduced each year, 80% of which fail. You can only sell what someone wants to buy. Identifying niches and segments will become ever more important.

Instead of price, understand the consumers cost to satisfy that want or need. Dollars are only part of the equation. When contemplating a tea purchase, the consumer will consider the cost of satisfying their thirst. Not only will they compare the value of one tea brand versus another, but they will also compute the cost of convenience, the cost of conscience to drink a carbonated beverage, for instance, with its "unhealthy" caffeine and sugar versus that soft drinks, young, fun image.

Instead of place, think convenience to buy. The neighborhood supermarket is no longer the only place people can purchase their groceries. Knowing how the consumer prefers to buy is important.

Rather than promotion, the 90's feature communication. Mass marketing is no longer possible as consumers don't listen or can't be found.

With this new marketing agenda, let's look at tea in the 90's, starting with some underlying consumer trends affecting our business.

Sales in retail food outlets posted a 5% gain over 1989. This is in line with the trend of previous years. Although food commodity sales continued to rise, the percentage it represents of disposable income remained flat year to year.

Dollars spent on food eaten out of the home grew 4% from 1989. This trend has slowed and the food at home segment percentage change outpaced food away from home for the first time in several years.

In the short term, with the current talk of recession and inflation, this slowing trend may even decelerate, as one of the first "luxuries" consumers cut back on during tight times is eating out. This may be of particular concern to those of you selling to the foodservice industry.

The American consumer's search for convenience is expressed in the growing percentage of households owning a microwave oven. During 1989, 87% of homes had this appliance; a four point rise from the previous year.

In the Nielsen Marketing Research sample of the 21,000 U.S. supermarkets doing $4 million dollars of business annually, retail sales of tea were reported down 1% to 112 million pounds. This is an improvement over earlier trends and, as such, does constitute some good news.

Dollar volume continued to expand despite the lower levels of consumer takeaway, with retail dollars up 2% from a year ago.

Annual household consumption of tea continued to slip, currently at 1.6 pounds per household. Dollar consumption has remained flat, most likely due to price hikes and the growing importance of the higher priced specialty, herbal and decaf teas.

Bottled water again led the beverage industry in terms of tonnage growth. Tea, with its 1% decline, did post a better performance than frozen juices and drinks.

Not only does Nielsen Marketing Research record sales through grocery stores, we also have the capability to collect consumer purchase behavior via a panel of 15,000 households equipped with an in-home hand-held scanner. These panelists scan all their purchases, and this data is forwarded to Nielsen for compilation.

As measured by Nielsen, 60% of U.S. households made at least one tea purchase during the first six months of 1990. Almost every home in the country purchased a carbonated soft drink, while 71% made a coffee purchase during this timeframe.

Fewer households purchased either tea or coffee compared to the comparable year ago period. Penetration makes up one of the two components of volume, the other being buying rate. What makes this decline in penetration worrisome is that it is usually harder, and more expensive, to regain lost buyers than it is to expand the buying rate of current users.

Tea prices showed their largest jump in the past several years. We can probably expect to see this trend continue given the rising transportation costs due to the current oil situation.

I mentioned earlier that cost to satisfy will replace price as a marketing tenet of the 90's. Despite the bump in tea prices, compared to the food at home and consumer price benchmarks, tea remains a bargain. Communicating to the ultimate consumer tea's superiod cost to satisfy will be an element in tea's future success.

As total tea pound volume fell 1%, the herbal segment has gained momentum, recording a 6% advance. At the same time, iced tea mixes continued to expand, up 3%. Tea bag losses have slowed, as has the erosion of loose tea. Instant tea maintained its weak trend, falling 8%.

As a percentage of total tea pound sales, the herbal and iced tea mixes expanded their importance coincident with their volume growth. Herbal infusions now account for 4.6% of all tea tonnage. Tea bags have maintained their position at just under 61% of the category.

Within the bagged market opportunities exist to improve sales and profits. Where tonnage was flat and dollars grew at a modest 4% for the bagged category overall, the herbal, specialty and decaf items had sales trends well ahead of the prior year. Cultivating the growth in these segments and identifying new niches will provide continued opportunities.

Regional differences are apparent in the current trends. In the northern and southern areas of the country, the tea industry is relatively healthy. The general decline in the category during the past year traced to the less developed central and western markets. Decisions to be made involve determining whether resources should be placed against maintaining the tea franchise in the core north and south or rebuilding the business in the less important central and western regions in an effort to stem the losses.

In the west, an 8% drop in tea bag volume offset strong growth for the iced tea mixes, and particularly the herbal infusions. The central region saw softness across all segments. Iced tea mixes performed similarly in the north and south, while tea bags and herbals went in opposite directions in these two areas.

Herbal items now account for 14.3% of all tea consumption in the west and recently surpassed instant tea in importance within this region. Tea bags represent almost three-quarters of the pound volume in the south. This was the only area of the country where tea bags broadened their share.

One of the 4 C's I discussed earlier was convenience to buy. The traditional channels of distribution are evolving. The corner grocery store is only one of the many options available to today's consumer when they have to purchase tea. Some 8.3% of tea volume moved through non-food outlets during the first half of 1990, up 0.4 point from 1989.

The outlet types that make up the 8.3% of non-food tea sales consist of discount/department stores, warehouse stores, drug stores, and other non-food stores. Discount/department, warehouse and drug outlets all became more important to total tea sales compared to 1989. Recognizing where the tea buyer shops is another factor in understanding the business.

These 1990 trends appear a little more promising than in prior years. For the tea industry to compete, consumer wants and needs, cost to satisfy, convenience to buy, and most of all communication will be the formula for success in the coming decade.

Stephen Ruggiero Nielsen Marketing Research Port Washington, New York
COPYRIGHT 1991 Lockwood Trade Journal Co., Inc.
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:forecast for tea sales in the 1990s
Author:Ruggiero, Stephen
Publication:Tea & Coffee Trade Journal
Article Type:transcript
Date:Jan 1, 1991
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