Honest Tea Modifies Packaging To Benefit Consumers

Honest Tea typically produces their beverages in plastic bottles that have a dome-shape at the bottom of it, but this dome-shaped bottom has caused some consumers that Honest Tea is tricking them in relation to the actual amount of liquid inside each bottle.  While the bottom says 16.9oz (473ml) liquid is inside each bottom, some are wondering if there’s actually less.  As a result, they’ve issued a statement on their website to clarify this:

We recently switched to a thinner bottle, one which is 22% lighter. This saves us money and saves the world resources. The only problem is that the thinner bottle had the risk of getting dented. In fact, this was a real problem that forced us to redesign the bottle. To help keep its shape, the inside must be under pressure. When the bottle is filled with hot tea, the liquid expands and the plug on the bottom pops out. (If you squeeze real hard, you can make this happen.) Then as the tea cools, the plug pops back in and creates the pressure on the inside that prevents the bottles from being damaged. The thinner plastic means we needed more pressure and hence the bigger plug. There really is 16.9 oz. inside and we aren’t trying to pull a fast one. But we can see how you could get confused or could think that we are trying to be deceptive. We clearly need to do a better job explaining why the bottle has this design. In the next label run we plan to say something to explain this to our customers. We hope that makes you feel that you can still trust us and will stick with us.

Honest Tea has since switched to new, flatter bottom bottles to make it less confusing for their consumers.  This packaging adjustment is great timing as their parent company, Coca-Cola Refreshments, is exploring growth opportunities to increase Honest Tea’s visibility and awareness. Nestea will be distributed by Nestle Waters (Nestea’s original parent) starting sometime in 2013.  This means that the tea category is poised to be shaken up slightly with more competition as Nestle Waters will undoubtedly be promoting Nestea vigorously to gain sales (bevwire article link here).

For Honest Tea, paying attention to what their users are saying is just the entrance fee into the growing tea category.  The packaging change-up shows their current users that the company has heard what they are saying, but it does not bring in any new users.  What Honest Tea does in addition to this adjustment is what may help them gain more space in the category.  As they look for growth opportunities and try to gain more space at the retailers, their conversations and results with the retailer’s buyer are paramount.  They must show the retailer that they have a better product, a more profitable product, or both (which would be the best scenario).  In which case, showing them consumer demand is up for tea products and how Honest Tea best satisfies the most is what determines whether they will win or lose.

 For Honest Tea to have success, switching to flatter bottoms is just the first of many steps.  Most retailers may already have their 2012 summer shelf and cooler spacing planned, but if a product not in the planning set shows potential, it can merit a replacement of a slow selling product.  If Honest Tea can convince that they deserve more shelf space at retailers this summer, that would go a long way to helping them out gain space when Nestea comes of a competitor’s delivery truck.

The Fate of Nestea and FUZE in the Tea Category

Most readers that also follow the beverage industry or the BevWire twitter feed know that Coca-Cola and Nestle Waters have altered their distribution agreement, with Nestea to be distributed by Nestle Waters after the end of 2012 (source article here).  The article goes on to state that Coca-Cola will focus on increasing the visibility for their own line of teas, such as FUZE, Honest Tea, Gold Peak, and Peace Tea.  How will this play out for the two beverage giants, Coca-Cola and Nestle?

Nestle Waters – a spinoff from the Nestle S.A. – originally bottled and distributed water exclusively, but has recently began to extend their offerings with a tea acquisition.  Bringing Nestea back into the fold for them now gives them a much stronger and balance tea portfolio.  Nestea will serve the value and price-conscious end of the tea spectrum, while Sweet Leaf Tea and Tradewinds cater to consumers at the organic and premium end of the spectrum.  Nestea itself is also popular and likely ranks as one of the larger tea brands in North America (other major players in a oligopolis category being Lipton, AriZona, Snapple).  Nestea may very perform better under new ownership, since its exclusive business operations are waters and teas. It may likely benefit with higher marketing budgets as they now become a key brand among some lesser known brands, and competes with fewer brands for funding.  Business customers like Wal-Mart, CVS, and other supermarkets are not likely to be too affected since they already stock Nestle Waters products, so Nestea will now be brought to them by the same trucks that the Nestle Waters products come off of.  Consumers may not even notice any difference, because the product is essentially the same as taste and packaging stay the same.

How about for Coca-Cola, how does this distribution partnership affect them?  With Nestea no longer coming off their delivery trucks, the company’s focus is to grow FUZE first and foremost.  Honest Tea, Gold Peak, and Peace Tea will also benefit from increased attention.  However, although FUZE stands to have the most opportunity to make a name for itself in the tea category, the brand is somewhat struggling currently.  FUZE is currently known for its juice offerings (except for Subway where it is already available as a fountain tea beverage) but struggling to fully differentiate itself among other competitors.  With the exception of FUZE’s Slenderize juice line (low-calorie benefit), FUZE’s other offerings are not easily connecting with consumers as a vitamin-enhanced juice.  Consumers currently see the FUZE line as just another emerging juice product that blends together unique fruits (peaches with mangos, bananas with coconuts, etc).

Coca-Cola’s first order of business is to ensure that consumers understand the value proposition and benefits of the FUZE.  And because the company now understands that FUZE will represent both juices and teas, their positioning and c0mmunication will be markedly different from what it was before – simply raising the profile will not be enough.  The key message can no longer be about vitamin-enhanced juices, but either vitamin-enhanced juices and teas  or simply vitamin-enhanced products.  In that vein, it will be interesting to see what type of advertising message FUZE will come up with.

Another key area of concern may be the pricing strategy for FUZE.  Nestea exists as a value player in tea, while FUZE is a premium-priced juice offering.  If FUZE were to replace Nestea as Coca-Cola’s value tea offering, FUZE will have to adjust its pricing strategy to enter as a value competitor.  Is that in itself a good strategy?  As a company, do you want to trade down from a premium offering (higher margin product) to sell incremental bottles but make significantly lower margins?

Although Nestea will not be officially transitioned to Nestle Waters until 2013, there is a lot of preparation for both companies to do.  Coca-Cola will have to maintain its efforts on Nestea in North America, but be mindful that by 2013 Nestea will be a product that competes against their own tea offerings.  They also cannot legitimately stop their efforts on promoting Nestea since Coca-Cola still holds distribution rights for Nestea elsewhere in the world (Europe, Asia, etc).  At the same time, Coca-Cola must be working hard to raise FUZE’s profile as well as their other offerings to cover for the loss of Nestea.  On Nestle’s part, they must prepare for taking on a large tea brand and look for opportunities to increase Nestea’s market position.

There’s no word on whether how much of this will affect Canada, but since Canada’s market is closely affiliated to the American market, there is likely to be some impact.  Keep an eye out for these changes when Nestea changes hands.

RTD Tea Category Growing – Driven By Convenience and Natural Food Stores

Packaged Facts published a research paper in early October stating that Ready-To-Drink (abbreviated RTD,  sometimes referred to refrigerated tea or bottled tea) is showing growth and resilience despite an economic downtown in the United States (link to the abstract here, but unless you want to buy the report you won’t know the full details of the research).  I’ve also wrote about the tea category’s growth in convenience stores earlier in the year (link here).

While the focus is entirely on the United States, there are some similarities between the two markets of U.S. and Canada, so the category’s growth is relevant to consumers here.  Packaged Fact’s research abstract points to the growth being driven by convenience stores and natural  food stores, although grocery stores remain the top channel that shoppers choose to purchase tea from.  In Canada, I would suggest that specific tea shops and also coffee shops (think Starbucks, Tim Horton’s, Second Cup, and Blenz, etc) also contributed to the tea’s growth.

Consumers already have a belief that tea is a healthier option relative to coffee, and many are sacrificing coffee beverages for tea or other caffeinated beverages.  Therefore the coffee shop’s survival depends on their ability to expand their beverage offerings beyond what they are experts at.  Walk into a Starbucks and you will see Tazo tea, Naked Juice, and Ethos water,  while Tim Horton’s will have a refrigerated section that includes Lipton bottled tea.  While these coffee shops’ main purpose is to serve coffee, having tea and other category options allows them to keep the customer happy and retain them, rather than losing them to a competitor.  After all, would you still go into a coffee shop with a friend if neither of you wanted coffee and they only served coffee, why not go into a tea shop?

Focusing back on the growth of RTD tea, the report mentions that natural food stores drove double digit growth.  This point is intriguing because natural food stores are seen as niche and somewhat unconventional in their grocery offerings.  However, the growth of tea products in this channel may indicate that consumers are receptive to healthier alternatives, and bottled tea products that are stocked in these natural food stores may soon see wider distribution because of this healthy trend.  Another insight may be beverage manufacturers anticipating this trend and have looked to get their tea products listed and distributed in natural food stores to reach a wider audience.

In any case, it looks as if the tea category’s growth has very strong potential in the upcoming years.  As a healthy alternative to carbonated beverages and coffee, tea may be growing at these beverage category’s expense.  And it may provide competition in more than the traditional setting of your grocery store’s beverage aisle, as coffee shops and natural food stores are increasingly stocking tea options.

Taking this one step further, how can beverage manufacturers like Coca-Cola and Pepsi protect their carbonated offerings?  Since the beverage conglomerates also have tea offerings in their beverage portfolios (Coca-Cola with Nestea and Honest Tea, Pepsi with Lipton and SoBe), a solution may be a two step process.  First, gain distribution within these natural food stores (and other alternative channels like tea shops and pharmacies) for their respective tea beverages.  Next, understanding that there may be space and refrigeration limitations within the store, provide a health-branded cooler (of course, also include the manufacturer’s logo somewhere) to resolve these limitations, and bring in quick-moving and higher margin carbonated soft drinks.  These carbonated products can offset the cooler’s cost and provide these alternative channel retailers with a wider beverage selection to grow their customer base.

So the next time you step into a natural food store, keep a look out for the tea offerings they have available.  Are the tea offerings all-natural and names that you have rarely heard of?  If so, look out for these beverages in your traditional grocery store aisle in the near future, as they may be gaining wider acceptance in the market.  Or are they the Honest Teas and Liptons that you are familiar with?  If so, then the beverage manufacturer has successfully entered the alternative channel to expand their tea’s growth.

Honest Tea’s Social Experiment – Are Americans Honest?

Over the last few weeks, U.S. cities have been running a live social experiment on the subject of honesty.  Honest Tea (and for this social experiment the word play of “Honesty”) has set up unmanned “tea booths” across cities including Boston, Chicago, Miami, Washington D.C., Philadelphia, Dallas, New York, and Los Angeles where consumers can pick up a bottle of Honest Tea by donating $1 into a plastic box.  There is supposedly a camera watching the unmanned tea booth, but no one would be there to stop the consumer from stealing a bottle if they decided to not pay (or slip in an IOU note, monopoly money, or put in $1 and take 3 bottles, etc).  So far the results (posted on the microsite www.HonestCities.com) indicate that Boston citizens (99%) are the most honest while New York citizens (87%) are least honest.  The site also provide a camera link for each city the experiment is run, so you can watch to see if people are putting in a dollar when they grab a bottle.

The marketing campaign appears to be successful so far, with strong social integration and media impressions.    Social aspects include the ability to tune in on-line to the city of your choice, choosing the foundation that all the donations will go to, and the usual twitter/facebook/google+/e-mail/etc.

The campaign is sure to generate a lot of goodwill for Honest Tea, but will it bring in sales for the beverage, especially after the campaign and tea season (summer) ends?  So far, the translation to their bottom line is positive – almost all cities are seeing sales growth, ranging from strong double digit sales growth to modest single digits in others.  Depending on how long the campaign is run for, I might be able to watch this live in Boston or San Francisco when I make a visit later in the month.

Whether Honest Tea will carve out a stronghold in the category against larger manufacturers like Lipton, Nestea, or AriZona is a question for another day.  Though for a smaller player in the category, this is something that will certainly catch attention, generate buzz, and show that you understand how to reach your target market.

Packaging: Glass or Plastic?

There’s always been the debate about beverages moving away from glass bottles and replacing it with plastic bottles.  It happened to Minute Maid juices, it happened to Sobe, and for a short time it happened to Nestea (during the Vancouver 2010 Olympics all the Nesteas came in plastic bottles within Olympics venues).  Consumers have been divided on this issue because glass bottles preserve the taste better, but plastic bottles are much better for the manufacturer and retailer.  Plastic bottles are cheaper to produce, lighter to transport from the bottling plant to the retailer’s shelf and cooler, and also less likely to break.  Not to mention, profits are also higher with plastic bottles.  So in the end, who wins?

More often than not, it would seem that the manufacturers wins.  When Minute Maid juices changed their packaging, consumers either had to embrace the change, or switch to Tropicana, Dole, Sunkist, or private label juices.  Although some consumers switched to another juice product, all the offerings used plastic bottles.  So in the end, the packaging change still saw consumers embrace this change.

However, as sustainability and recycling has become forefront issues, consumers are seeing the benefits of plastic bottles.  In an article by Beverage World’s Andrew Kaplan, eco-sensitive packaging can be found in almost all beverage categories (link here).  Dr. Benjamin Punchard, Euromonitor International’s head of global packaging research says, “From what we see, the main response to environmental need is still lightweighting.  This is not a new development as producers have long understood the cost savings that lightweighting can deliver, but there is now increased imperative to take lightweighting the extra mile. The knowledge that this can be communicated to the client as an environmental benefit has seen lightweighting move from a covert action to an overt advertising opportunity.”  Lightweighting refers to is the transition from glass to plastic bottles.

What  Dr. Punchard reports about packaging change being an overt advertising opportunity is very true.  Take Coca-Cola for example, where they publicly advertise about the plant bottle used for Coca-Cola Classic, Diet Coke, Coke Zero, Sprite, and Odwalla.  Since consumers are more environmentally conscious, publicizing their eco-friendly packaging serves as a fantastic selling point to recruit and maintain customers.  One has to wonder what the effect this newer sustainable packaging has had on their sales.

It’s not certain whether remaining glass bottle beverages will be making the change to plastic, as each format has it’s own unique benefits.  With the exception of premium waters (San Pellingrino, VOSS, Perrier) and specific beverage lines (Nestea, New Leaf tea, Jones Soda, and Orangina), almost all single serve bottled beverages within a grocery store’s cooler have changed to plastic bottles.  Though taste preferences are strong factors in determining what you drink, if a beverage changed to a plastic bottle, would this alone make you want to purchase the product more than before?  Manufacturers and retailers are betting yes on this.

AriZona Arnold Palmer Now in Canada

BevWire just found AriZona Arnold Palmer in a convenience store earlier this week, and was pleasantly surprised it was a glass bottle.  Naturally I had to buy it – this drink is normally found in an aluminum can, and has always been in the United States save for a few small corner stores bringing it across the border themselves.  Apparently it has made its entry into the Canadian market now.  AriZona has launched two new tea beverages, one is the Arnold Palmer half tea half lemonade beverage and the other is a Raspberry Tea.

Not fully confident that the Raspberry Tea will do well, since every company already has a raspberry tea offering.  It almost seems like a copycat innovation for them, relying on AriZona brand name to sell the tea rather than the tea being good itself.  Not that the AriZona Arnold Palmer Tea is any different for relying on the brand name, but there has been such a cult following for this flavor making it likely to succeed more so than the Raspberry Tea.  And there aren’t too many half tea half lemonade offerings out there, making this a unique combination without much competition.  Nestea and Lipton are the main competitors in this ready-to-drink tea.  Nestea offers their beverages in both plastic and glass bottles, as well as aluminum cans.  However, their glass bottle flavors haven’t done too well (remember the Nestea Vitao series, which has all but disappeared from stores by now).  So that makes Nestea not a close competitor for AriZona.  Lipton on the other side has glass bottles but nothing remotely close to the Arnold Palmer flavor.  Furthermore, most of their innovations are in the plastic bottles (Lipton Sparkling, diet flavors, and carbonated flavored teas) so they are not too strong of a competitor for AriZona either.

That said, who knows if Nestea or Lipton will come out with a Arnold Palmer copycat (like how everyone has a Raspberry tea flavor).  In the meantime, consumers that were introduced to the Arnold Palmer tea before but could not get it in Canada can now rest easy – it will likely be found at gas stations and supermarkets as well as the local corner store.