Nestea and Lipton Go After AriZona

Nestea's new 695ml cans to compete head-to-head with AriZona.  Courtesy of facebook.com
Nestea’s new 695ml cans to compete head-to-head with AriZona. Courtesy of facebook.com

Each summer I pay a little more attention to monitor the Ready-to-Drink (RTD) tea segment.  Some of my beverage industry contacts say that AriZona’s dominance in the RTD tea segment have inspired other beverage companies to launch similar $0.99 tall cans to steal some of AriZona’s sales.  Most recently, I’ve noticed both Nestea and Lipton stock some competitive offerings.  Both have come out with tall cans of tea, with similar $0.99 price points labeled on the cans themselves.  Given that AriZona has made $0.99 teas their claim to fame and have been selling them for many years already, how successful will Nestea and Lipton be at stealing some sales?  More importantly, is selling tea at $0.99 profitable for Nestea and Lipton, or is there another reason for them to enter this segment?

Unlike AriZona, Nestea and Lipton have strong backers.  Nestea’s partnership with Coca-Cola provides them a robust distribution network.  Lipton also has a strong market coverage through their agreement with PepsiCo.  Both competitive brands would be able to leverage the sales and merchandising support of Coca-Cola and Pepsi to ensure retailer shelves are always stocked.  Beyond retail coverage, both Nestea and Lipton would get premium in-store placement locations.  Coca-Cola and Pepsi both own front-end cooler space as well as multiple locations within a grocery store, giving them the opportunity to stock products to their liking within these areas.  So unlike previous challengers, AriZona will face their strongest competition yet in Nestea and Lipton.  These two competitors have the necessary support and expertise to erode AriZona’s leadership in this segment.

Nestea's new 695ml cans to compete head-to-head with AriZona.
Nestea’s new 695ml cans to compete head-to-head with AriZona.

Given these dynamics, it certainly appears that Nestea and Lipton stand as formidable opponents to AriZona and steal their sales.  However, both Nestea and Lipton are known best for their offerings in a different tea format: bottled tea.  By rolling out these $0.99 aluminum cans, don’t they risk cannibalizing their own sales from a more profitable tea format?  Wouldn’t this make the decision to launch 695ml tea cans with $0.99 printed on it hurt their total tea business?  Given the risk associated with devaluing sales potential, why come out with tall cans at all?  In the end, they are just as likely to steal sales from AriZona as they are on stealing their own sales.

Simply put, it may be better to get less dollars from the consumer, than get none at all.  If their market research indicates that the same consumers buy both bottled tea and canned tea, both Nestea and Lipton have much to lose by not having a canned tea offering themselves.  And given the price range of canned and bottled tea, it would appear that canned teas serve as the “value” segment to get people to buy a tea product.  Bottled tea appears to serve more as a “mid-value” or “premium” segment.  Should Nestea & Lipton leave AriZona to own the value tea, it will be much harder to steal that tea customer away at a later point when they are interested in moving up the value chain to premium tea.

As long as you can get them to buy (or try) your drink once, you’ll stand a chance to get them to come by as a repeat customer.  Even if the immediate value is $0.99, there could be opportunities to get these thirsty consumers to buy the more expensive bottled tea at a later time.

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

Arizona and Tazo tea

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?

Honest and Lipton tea

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.TheNationalHonestyIndex.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.