Retail Innovation

By Dan BoltonSTiR Tea & Coffee InternationalApril 7, 2016

Packaging must evolve to enhance the overall consumer experience.

New TruthsConvenience is now essential for beverage retail success on-trade and off.

Tea is the most versatile, fastest growing beverage category in the world... So why are projections of fast growth by large retail chains not being met?

Distribution today is less about logistics and more about value.

Creating a retail destination is now more important than location alone.

Classic Formula for Tea Retail Success

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LocationDecisions about location are basic to the success or failure of every retail operation. ServiceCustomer service differentiates retailers from competitors and is completely in their control. SelectionProduct mix and merchandising is an art; too little limits sales — too much idles inventory.No retailer succeeds due to a single factor; instead they compete by combining several strategies that take into consideration many elements such as price and packaging to achieve a concept that will scale. Ultimately service and pricing can be matched and quality and selection can be equaled — but geographic location is difficult to assail.*

“Location-Location-Location” is a mantra that prevails but retail innovations that emphasize convenience are now the decisive factor. Creating “destinations” is the

ideal.Source: Location and Competitive Strategy in Retail: The Case of GameStop in Michigan. Karl P. Schrantz. Western Michigan University (2013) *Scarborough and Zimmerer (2003) Runciman (1998) Jain and Mahajan (1979) Levy and Weitz (2004) litz and Rajaguru (2008)

New Formula for Tea Retail Success

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ConvenienceEmerging as the key to success or failure for every retail concept, on-trade and off.Packaging/MerchandisingA critical competitive advantage in messaging, engagement, efficiency and the environment.DistributionCould become decisive as tea goes global and brands like India’s Teabox reinvent tea retail.What if the foot traffic that underpins the billions invested in retail beverage real estate quits walking past your store? The trend first became evident over the holiday season during the recession in North America. It has accelerated despite the recovery.

In response food and beverage retailers are turning to mobile ordering and payment systems and marketing customized digital offerings with coupons and incentives. My Starbucks now has 11.1 million users. McDonald’s enrolled 7.5

million in less than a year.Source: Location and Competitive Strategy in Retail: The Case of GameStop in Michigan. Karl P. Schrantz. Western Michigan University (2013) *Scarborough and Zimmerer (2003) Runciman (1998) Jain and Mahajan (1979) Levy and Weitz (2004) litz and Rajaguru (2008)

The Arabian Tea House Café is not merely a location, it is a destination carefully styled to authentically recreate the Emirati way of life.

Destination

Situated in Bur Dubai in a traditional wind tower house it seeks to preserve the peninsula’s heritage of hospitality. The Arabian is an oasis of quiet and calm offering 100 teas and tisanes that appeal to tourists and residents alike. Service

Selection

Brass scales and hardwood counters reflect traditions of elegance and beauty in a nostalgic celebration of tea clippers. TWG’s

Service

Selection

Destination

55 tea salons & boutiques are located in 16 countries and feature 1,000 hand-blended and single-estate teas. The Singapore-based company was founded in 2008.

Tea frappes, Kashimiri Green Apple refreshers and iced teas make this a place where you can start an all new ‘adda’ with friends and family.

Selection

Location

Founded in 2103 and expanding quickly to seven locations Cha Cha Chai offers open-air and cool interiors to 35,000 customers per month. The company sells an average 9,500 cups of tea a month along with sandwiches, coffee, lattes and desserts. The chain is owned by Danube Buildmart.

Service

Photo credit Dr. Mounib Al

Rifai

Fortnum & Mason was founded in London 1707 in the earliest days of tea drinking in the West. The brand has since begun to expand its tea

Service

Selection

Destination

rooms globally beginning with a spectacular 9,400 sq. ft. Dubai store that overlooks the Burj Khalifa. It is one of only four F&M tea rooms established in the past 309 years.

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WhatWentWrong?

Starbucks closed its Teavana Tea Fine Tea + Tea Bar locations early this year not because the firm was losing money, instead the publically traded company simply wasn’t making enough. The brand

Service

Selection

Destination

grew 17% in the past fiscal year earning nearly $1 billion and contributing 1% growth at 14,000 US Starbucks stores.

In March Palais Des Thés quietly shuttered its two New York City locations. The company operates 31 stores in six countries and intends to open 10 new locations for

Service

SelectionLocation

a total of 37 in France where the business model has proved profitable. “Specialty retail stores are having a harder time adapting to the U.S. market because consumers tend to want every quality product in one place, rather than spending time going from store to store for what they want.”

Why So Few Chain Tea Shops?

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Selection and service and even Oprah Winfrey’s unprecedented product endorsement for Oprah’s Chai wasn’t enough to offset the cost of operations for the simplest of reasons: Tea Retail and Tea Foodservice are almost universally at odds.Charles Cain a former executive charged with developing the Teavana Fine Tea + Tea Bar concept put it this way: “There is no example in the history of small footprint retail of a successful chain of stores deriving half of their revenue from retail sales and half from foodservice. It’s never been done. Starbucks tried and ended up 95%+ foodservice. Teavana tried and ended up 95%+ retail.”

Which Tea Retail Format is Truly Scalable?

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“The jury is still out on the right tea bar or tea room concept,” explains Jurgen Link, a pioneer who founded Special Teas, Inc. in 1996. His company was later acquired by Teavana. “The whole bar/tearoom channel is still in flux because no one has yet discovered a concept that is truly scalable — nobody, anywhere. That does not mean it is not possible,” he said, adding that “Once the concept is discovered there will be another big surge in growth.”Why then are Western tea retailers targeting the Middle

East and Asia? What can they bring to these rich and well established tea lands?

The Answer: Coffee

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China supports 60,000 spacious tea houses. India has a similar number of chai outlets. Taiwan-based Ten Ren has 2,000 outlets.

But if you add all the West’s chain tea shops together revenue falls short of the smallest international coffee chains. However, combine coffee and tea in a single shop you strike gold.

Starbucks operates 2,000 coffee shops in 100 Chinese cities, and will build 500 new shops per year there. In September it will introduce its Teavana brand at 6,250 Asian Pacifica locations. Why? Coffee shop value quadrupled in 15 years to reach $45 billion annually — a big number but the global retail market for tea is estimated at $100 million per year — more than double coffee.

Specialty Tea Retailers Will Also Thrive

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Tea chains will also thrive. DAVIDsTEA earns $650,000 to $850,000 per store. T2, owned by Unilever, is doing well. Teavana is a $1+ billion brand, but no matter how much money is behind these retail ventures it will take these brands and business models years to reach true efficiency and profitability.

The U.S. needs a whole lot more distribution and many, many more outlets, more points of sale and a lot more education. Starbucks, now in 70 countries, built a net 1,800 coffee shops last year (22 last week). U.S. and U.K. and Canadian tea chains opened two dozen. Tea retail is changing but it has not changed enough.

Convenience

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As Starbucks announced it would close all but one of its six full-service Teavana Tea Bars Teavana opened two new self-service concept locations. Results look promising.

Self serve

Iced tea dispensers encourage sampling and boost sales of tea for take-away.Matcha tasting bar.

Convenience

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Customers have 12 chai add-ons that can be combined to make 12,000 different drinks from kadak or irani or adrak chai. Chaayos reinvigorates the heritage of chai “addas.”

Quick Serve

Founded in 201216 outlets - delivers

Packaging InnovationsThe greatest innovation in modern packaging is its evolution from a simple vessel to insure freshness into a versatile tool to enhance the overall consumer experience.Each aspect of the package from the label, ink, films, and the structure must be carefully chosen to reflect and communicate the message of the company’s brand.

While green attributes and sustainability claims lead customers to favorably view packaging, it is their basic functionality that determines whether new films and shapes survive in the market. Sustainable options — including the recyclability of film and ink on the label dominate discussions.

A package needs to do much more than preserve the integrity of the product; it needs to leap off of the shelf into the hands of the consumer.

Convenience: The Economics of Speed

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Convenience saves space, lowers costs and drives traffic.

That approach seems so antiquated.Today they enroll for free. Customers using the new reloadable VISA prepaid loyalty cards earn “stars” for buying items not only at Starbucks but elsewhere including the roasted coffee they purchase at grocery stores — then tap their phones to pay.Customers at the gold level receive a free reward after 125 stars ($62.50) earning two stars for every dollar spent. Enrollment is up 23% to 11.1 million. Members loaded $1.9 billion last quarter. Last year 1-in-6 American adults received a gift card over the holidays.

Starbucks generates more dollars per square foot of retail space than at anytime in its history but it’s not because customers are lined up all the way to the door. The big leap in revenue (traffic and ticket) is because lines are shorter. Same store sales jumped because customers now use their smartphone to pre-order before dashing into the store to pick up their customized brew. Starbucks initially charged a $25 membership fee and awarded members a 10% discount.

Distribution: Teabox

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Teabox shipped to 93 countries enough premium specialty teas from Darjeeling, Assam, Nilgiri, and Nepal to make 30 million cups. The company earns 95% of its revenue outside India. The Siliguri-based Teabox has grown 2.5x since it was founded in 2012 by developing a very efficient cold supply chain that can deliver tea quickly anywhere in the world. It is structured like a technology company, not a traditional tea supplier.

Distribution is more about value than volume.

Founder Kaushal Dugar

Teabox is the first premium branded Indian tea to operate on a global scale offering curated boxes of tea for $20 per month.

“We are excited to continue our association with Teabox in building the first vertically integrated consumer brand to come from India,” said Prashanth Prakash from Accel Partners.

Distribution: Realigning Trade

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Kenya, for example, dominates the 80 million kilo Egyptian tea market with an 88% share in large part because of proximity and the fact that buyers pay no duty on tea produced by members of COMESA (Common Market for Eastern and Southern Africa).Egypt recently proposed a joint venture with India to establish an Egyptian national brand much like Turkey’s Caykur. The tea would be marketed and throughout the region, increasing India’s 3% market share which has slipped from 15 million kilos to 6 million kilos during the past 15 years.

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Efforts are underway to realign trade by placing stronger emphasis on business relationships and less on rigid trade barriers.

Distribution: Deals to Create Value

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Even more promising is the recent joint venture formed between UAE-based Rise General Trading and Tenfu, the largest Chinese company listed on the Hong Kong stock exchange. Tenfu targets mid- to high-end tea consumers with a selection of 2,000 teas. The company has its eye on China’s rapidly expanding FMCG segment.Tea Trading International as the JV will be known will launch several premium tea brands for global distribution. DMCC volume topped 41 million kilos in 2015, up 208% since

2012.

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Dan BoltonEdits STiR coffee and teaClick to download a copy

Produces the weekly World Tea NewsClick to subscribe

Founded Tea Journey MagazineClick to download a copy

Dan has worked as an editor, publisher and newspaper reporter the past 40 years. He is the former editor and publisher of Tea Magazine and former editor-in-chief of Specialty Coffee Retailer in San Francisco. He is also a leading retail beverage and content marketing consultant who speaks frequently at conferences around the globe.

dan@stir-tea-coffee.com+1 (204) 788-1359

skype: dwjbolton

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