Opportunity Is Brewing

With more consumers enjoying their coffee and tea at home, the time is right for retailers to enhance offerings in this segment.

During the recent recession, most U.S. consumers refused to give up their daily cup of coffee or tea. Instead, many of these budget-conscious folks opted to skip (or cut back on) pricey coffee shop and café concoctions — and fill their cups at home. That reality was a boon to the retail grocery sector, which saw coffee sales rise.

Although dollar and unit sales growth in the total coffee category have slowed somewhat since within food, drug and mass merchandise outlets (see the table on p. 52), the "2010 National Coffee Drinking Trends Study" from the New York-based National Coffee Association reports that coffee preparation at home continues to rise. In fact, 86 percent of surveyed past-day coffee drinkers reported that they made their coffee at home.

And if recent sales data are any indication, at-home tea consumption really is taking off. Data from The Nielsen Co., New York, show 4.9 percent and 5.0 percent increases in dollar and unit sales, respectively, for the total tea category during the 52 weeks ending Aug. 7 (food, drug and mass merchandise outlets, including Walmart). The store brand side fared even better, posting 12.6 percent and 12.2 percent respective dollar and unit sales gains.

Do the bean better

On the coffee side, store brands actually saw dollar and unit share slip in the past year. But retailers still will find growth opportunities here.

Joe Prewett, vice president of marketing for Portland, Ore.-based Coffee Bean International (CBI), says while a key blend or a new flavor can add incremental growth, neither represents a "game-changer" in the category. But one concept CBI highly recommends is the addition of a seasonal coffee program.

"This can be incorporated into your planogram, or it can be placed on a display rack in the coffee aisle," he says.

Prewett notes that coffee is a natural fit for seasonal product promotions, pointing to opportunities in holiday blends and flavors, chocolate pairings, summer blends and more. CBI leverages its small-batch roasting capabilities to manage these programs dynamically throughout the calendar year, he adds.

Brian Reilly, manager of channel marketing — U.S. Retail for Mother Parkers Tea & Coffee Inc., Fort Worth, Texas, notes that breakfast blends and half-caffeine offerings also are experiencing growth.

"Consumers are looking for better-quality offerings," he says. "Therefore, retailers should include premium blends in their assortments. Consumers are becoming savvier about coffee blends and are looking for specific flavor profiles associated with countries of origin, as well as roast profiles such as mild or dark."

Sustainability-minded certifications are gaining notoriety, too, but Prewett says they do not necessarily provide the differentiation needed for retailers' own brands.

"A more exciting innovation is direct trade," he contends, "such as our recently launched Project Direct program. As consumers take on greater interest in understanding their food sources, direct trade serves as a way to connect them to coffee origins."

With direct trade, a direct correlation can be made between price and coffee quality, Prewett explains — such coffees are priced according to cup quality instead of prices set by the volatile commodities exchange.

"Direct trade is the best pricing arrangement for the farmers and the consumers," he adds.

Packaging deserves a second look as well. Reilly says new and alternative can formats (including composite materials that rely on recycled components) and easy-open-lids that retain product quality and freshness resonate well with shoppers. He also believes that idea sharing between retailers and private label suppliers is critical — in packaging and concept development.

"Packaging continues to evolve, and it's important that both retailers and manufacturers are collaborating to drive relevant product attributes," he says. "Also, private brands have an advantage by being able to provide products or blends that are more regional in nature — for example, Michigan Cherry or Texas Pecan."

Finally, Prewett believes many retailers with a low store brand penetration really need to address the "dead wood" in the coffee aisle. By offering too many brands, they can hurt category performance and end up selling stale coffee to shoppers.

"By dead wood, I mean the fourth-, fifth-, sometimes twelfth-tier brands still claiming sight facings on the shelf," he says. "Go to a market-leading retailer and you'll rarely see dead wood. You'll see 25 percent-plus of all shelf space in the bagged section being dedicated to the store brands."

Tinker with tea

Health and wellness are top-of-mind with today's consumers, and that's great news for the tea segment. As Bob Hackel, senior vice president of sales for Moorestown, N.J.-based Harris Tea Co., puts it, "there's widespread perception out there that tea is a healthy beverage."

He says retailers will want to look to three main growth areas for their store brand programs: the herbal, specialty and green tea subsegments.

"They're the higher-margin items and the items that have shown growth according to all the data," he explains. "In private label, they are the areas in which we've seen tremendous growth.

Reilly homes in on specialty tea, in particular.

"Specialty tea is experiencing the fastest growth in the branded and private label segments; therefore, retailers should have a variety of blends in their specialty tea offerings," he says. "Black tea blends continue to be best-sellers, while green and herbal blends are growing as well."

But resist the temptation to overdo it in the specialty tea arena, Hackel stresses — not just with too many store brand offerings, but with too many national brand items, too.

Hackel adds that retailers currently relying on direct store delivery (DSD) for the tea segment might want to make a change.

"They are not necessarily controlling all of that shelf space because the distributor brings in whatever teas, whatever lines he has," he comments. "They really would be better served to limit those DSDs and bring into the warehouse a full store brand specialty tea program."

As for green tea, it continues to get a boost from credible third-party endorsers such as Dr. Oz and Dr. Weil of TV fame, notes Joe Simrany, president of the Tea Association of the USA Inc., New York.

"Their endorsement, as well as positive media coverage from hundreds of other national and local media and Internet sites, is driven by a never-ending series of scientific and media research studies touting the health benefits of this and all kinds of tea," he says.

A few health-minded extras never hurt, either. David Eben, owner of Paramus, N.J.-based Carrington Tea Co., says in addition to organic options, enhanced teas — with added vitamins, supplements or probiotics — also represent an opportunity hot-bed. And creative packaging such as triangular tea bags or round tea bags in cans or tins is a plus, too.

Ready-to-drink refrigerated teas and single-origin teas also are gaining in popularity, Simrany says, as are teas with eco-minded certifications.

"A growing number of consumers are concerned with environmental issues," he adds, "and the tea industry has responded by forming alliances with several causes such as the Rain Forest Alliance, UTZ [and] the Ethical Tea Partnership."

Art of persuasion

Once they decide which coffee and tea opportunities to pursue, retailers face yet another challenge: how to present and promote the products to realize maximum sales volume. On the merchandising front, Prewett points to a fresh approach from Minneapolis-based Target Corp. as a good strategy.

"They went from categorizing their Archer Farms display by coffee type — such as single origin, blend, organic — to [categorizing] by roast level — mild, medium and bold," he says. "This shift is a direct reflection of how consumers shop for coffee, and mirrors what we see in the wine aisle."

Although Prewett says it is still too early in the game to report on the results of Target's new merchandising strategy, he believes this type of consumer-centric approach could improve the shopability of retailers' private brands.

On the tea side, Hackel says he's seen the most success in terms of building trial with off-shelf displays, either free-standing or on end-caps. Strategic cross-merchandising works well, too.

"Fresh brewed iced tea is still a huge percentage of the market," he adds, "so we have had success with off-shelf displays of regular tea bags or family-sized tea bags in barbecue season, next to the charcoal and in the barbecue set."

Because a certain segment of the population drinks tea only during times of illness, Hackel also sees an opportunity to cross-promote tea with store brand HBC items during cold and flu season.

And Simrany notes that the Specialty Tea Institute, a division of the Tea Association of the USA, developed an affordable education program (which includes merchandising tips and more) for retailers.

Don't discount the power of packaging as a merchandising tool, either, Hackel stresses. For example, antioxidant claims (in FDA-approved language) resonate well with today's health-conscious consumers.

Retailers also need to give store brand coffee and tea products their fare share of promotion, Reilly says. He notes that the best time to promote coffee is when a blend or packaging has been updated or enhanced.

"A good product launch should not be a 'ho hum' event," he adds. "Get employees excited. One of our retailers used their largest store event to promote their new packaging and blends."

Do consider the addition of a seasonal coffee program.

Don't let "dead wood" take up valuable space in your coffee aisle.

Do look to specialty, herbal and green tea offerings for growth.

Don't discount the power of packaging as a merchandising tool, particularly when it comes to health-related claims for tea.