Stirring the (tea) pot on beverage sales

The past year has re-confirmed the British as a nation of tea – and coffee, and chocolate – drinkers, as we stayed at home and put the kettle on

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Our last feature devoted specifically to hot beverages ran at the end of January last year, and clearly we are now in a very different world.

In this weirdest economy ever, some sectors have been devastated while others have skyrocketed. Among the lucky ones has been the convenience sector, and within the convenience sector, hot beverages have also proven a big winner during the plague year. People stayed at home through compulsion, or to work, and they looked for comfort in tasty hot (and chilled) beverages, looked to replicate the luxury of main street coffee-bars, or simply diverted their spending from service outlets to retail.

That was all good news for convenience, where according to Kantar the Hot Beverages is worth £320m in convenience and is growing at 7.8 per cent year on year, twice as fast as the total market. “There has been an additional £23m spent on the category this year,” confirms Kenton Burchell, Trading Director at Bestway Wholesale. “This growth has come through more shoppers spending more, at higher prices, year on year, as shoppers trade up.” (IRI & Kantar, 52 w/e 18th July 2020).

Helen Boulter, Multi Sector Sales Controller at Taylors of Harrogate, agrees that, “Overall, it has meant good times for the suppliers of hot beverages and those that sell them from the shelf or machine in-store.”

Chilled, comfort and caffeine-free

Emerging from the festive season, it is useful to look back on what our most recent indulgences were, and Kerry Taste & Nutrition has done just that. Karl Buiks, Vice President for Foodservice, Marketing & Strategic Planning,  says that over the past few months three trends emerged that could give some insight of what to expect in the near to mid-term future:

  • Premium Indulgence – Hero beverages, often bakery-inspired, elevate indulgent beverages to premium status with richer taste profiles and more complex flavour pairings. In the UK, the three most popular flavours were gingerbread, salted caramel and marshmallow.
  • Sweet Nostalgia – In this time of uncertainty, beverages inspired by traditional flavours bring familiarity and comfort to consumers. Gingerbread proved to be the leading festive flavour category across the UK, and eggnog and marshmallow made their top five debut in 2020, highlighting how important nostalgia is as a trend.
  • Vegan Influencer – Vegan and dairy-free indulgence continues its popularity with many outlets offering plant-based milks and vegan alternatives to favourite beverages.

That was Christmas, but with a nation lockdown, nervous and looking for comfort, the taste-buds are one thing that can be relied on to give satisfaction in uncertain times.

Michelle Frost, general manager at Mars Chocolate Drinks & Treats, is one who knows this category very well indeed.“The hot milky drinks (HMD) category, which includes hot chocolate, now accounts for £195m of sales (+5.1 per cent YoY) with hot chocolate representing 66 per cent of sales and an annual sales value of £129 million,” she says.

In the last (festive) quarter this growth was even more pronounced, with HMD the fastest growing segment of the Hot Beverage Category +25.0 per cent (versus coffee at +17.0 per cent and Tea at +3.9 per cent).

“Within the category almost £1 in every £10 spent is on HMD, demonstrating the importance of HMD to the wider hot beverages category. Within Hot Milky Drinks, brands continue to dominate, accounting for a huge 83 per cent (or £162 million) of value sales.”

Frost points out that the Galaxy brand is outperforming the category at a massive +29.2 per cent YoY in value sales (versus cat avof +5.1 per cent) – and is one of fastest growing brands, which she says can be attributed to new shoppers adding £8.8m to HMDin the last year (incremental sales) and also increased volume sales (existing shoppers buying more).

She says that the cross-selling potential means hot chocolate is best displayed with tea and coffee within hot beverages: “Give consumers a choice from a number of the core hot chocolate segments.  For most impact, consider stocking instant hot chocolate, add milk and malted skus.”

Frost also points out that a lot of consumers prefer their hot chocolate in a single-serve portion for on-the-go consumption, so it is wise to stock the 28g sachets of Galaxy and Maltesers Instant Hot Chocolate sticks to capitalise on impulse purchases.

MCD&T’s Frost further points out that with 28 per cent of households  now owning a coffee pod machine, hot chocolate pods are a growing segment within the hot milky drinks category, showing growth at 3.0 per cent YOY and a value of £19.3m – accounting for 15 per cent of the hot chocolate category. “Galaxy Hot Chocolate Pods continue to perform well and already generate a retail sales value in excess of £2.0m,” she says. So think chocolate: think pod!

“Pods have proven really popular with consumers and continue to show growth ahead of the category. This continued innovation within the category is not at the cost of other hot chocolate products, but is attracting new millennial customers to the category.

“We know that consumers are keen to recreate different and delicious hot beverages at home, and pods were the natural format extension for our branded range.”

(The range of Galaxy and Maltesers Hot Chocolate Pods is compatible with Dolce Gusto and is available now at an RRP £3.79.)

Comfort is also found in calming, healthy and ethical considerations when choosing hot beverages, as Bryan Martins, Marketing and Category Director of Clipper Teas, explains: “Health and wellness are front of focus for tea consumers and one area experiencing significant growth is the decaffeinated market. The decaffeinated category has grown by 6 per cent in the past two years alone and within tea it is projected to be worth an additional £3m to the category by 2022” (Kantar, 2020).

In response to this Clipper has been expanding its naturally decaffeinated tea range, introducing Earl Grey and Green to the mix. “Clipper Teas uses a completely natural decaffeination process, filtering the tea with CO2 rather than using harsh chemicals,” says Martins.“The process is approved for organic products as a more natural way to decaffeinate, that doesn’t leave behind any harmful residues.”

Taylors of Harrogate’s Multi Sector Sales Controller, Helen Boulter, also says that decaf tea-leaves are predicting a bright future for the brew. “Decaf tea is performing well as a category, with value sales up 12.3 per cent,” she says.“Yorkshire Tea Decaf is growing by 15.2 per centthrough new shoppers and existing shoppers spending more.Yorkshire Tea Decaf is a flavour-packed brew which doesn’t lose its character when it loses its caffeine. Convenience stores should embrace the growing popularity of ‘caffeine free’ sectors in tea. Consumers are drinking more tea at home and expanding their repertoire as a result.”

Another category seeing a lot of pandemic action is chilled coffee, canned bevs, iced tea–the popular Ready To Drink (RTD) products. Sales have been rising, perhaps because they bridge the gap between a beverage and a soft drink – a refresher for the mid-afternoon when the standard amount of tea or coffee has already been consumed (we all know that feeling!) and an RTD doesn’t feel as if it’s a guilty, sugary treat.

Bestway’s Burchell points up the continuing growth of the RTD market. Cold Coffee has grown impressively, with the total market +20 per centYoY, now worth £132m. Almost half of that growth – which is to say a pleasingly disproportionate amount of it – is in Convenience, which is growing +9 per cent. (IRI total market 52 w/e 8/8/20).

“At Bestway, we are seeing more Ready To Drink (RTD) as consumers looks for that afternoon ‘pick me up’ whilst working from home,” he confirms.

The beans are jumping

“The total coffee category is still benefitting from out-of-home purchasing being brought into the home through lockdown, and combined with increased footfall to local stores, [and] this is a huge opportunity,” says Boulter.

(A quick shout-out here to Taylors for their new Swedish-style “Fika” coffee that has recently appeared on the shelves of both independent stores and supermarkets – and just a quickly sold out, it seems. Flavourful but smooth enough to be drunk black all morning, at last there is a Scandinavian option for Britain!)

The opportunity lies not only in selling more coffee but selling more premium, as shoppers upgrade at home. Super Premium Instant Coffee is now 58 per cent the size of Regular Instant Coffee in Convenience, says Burchell (citing IRI Total Convenience 52 w/e 08.08.20), while Lesley Parker, Brand Controller for Cafédirect (at distributor RH Amar) reveals that total retail category sales of coffee have soared +10 per centYoY to top £1.2 billion by the end of 2020. “It’s clear that stay-at-home Brits were keen to replicate their usual coffee shop experience at home during the challenges of the last year, with this trend looking set to continue throughout 2021.”

Parker says that Cafédirect has been one of the key beneficiaries of this trend, with retail sales of its range of Single Grind, Freeze Dried and Beans surging by +43 per cent (value) in the last year.

“We very quickly witnessed a significant increase in retail sales from the first lockdown last March, and that upward trajectory has very much increased ever since,” he explains.

“In particular, it’s the premium end of the category that has seen the greatest growth. Sales of Roast & Ground, for example, are up by +19 per cent, whilst Single Grind offerings and Beans are up by +14 per cent and +27 per cent respectively.

He adds that it is the same picture in Instant Coffee, with growth coming from more premium offerings as people trade up across all categories. Sales of Freeze Dried products, which account for more than half (£402 million) of instant coffee’s total sales of £757 million, are up by +6 per cent year on year, whilst sales of the category’s more entry level granule-based products are down by -3 per cent to account for £143 million.

“It’s clear, therefore, that the direction of travel continues to be towards the more premium end of the category, and it’s important that wholesalers and retailers of all shapes and sizes bear these trends in mind when deciding what to stock,” says Parker.

In response to this evolving market, Cafédirect is giving its Single Origins range of coffees a new look for 2021, as well as introducing a new Colombia Reserva (RRP: £3.99, 227gm) to the range in March. It will join the Machu Picchu full strength and decaffeinated, Mexico-inspired Mayan Gold, and Kilimanjaro.

Cafédirect will also be introducing a number of promotions in 2021 to support its three-strong range of Roast & Ground Blends – Smooth, Lively & Intense (all RRP: £3.75, 227gmand is boosting its instant coffee a redesign and adding a new Machu Picchu Decaf (RRP: 3.99, 227gm) this coming spring.

Tea: best drink of the year

Bestway’s Burchell says the Tea sector is worth £97m in Convenience, is in +3.6 per cent year-on-year growth, and makes up 30 per cent of the hot beverages category. He also confirms that the increase has been delivered both through more shoppers and shoppers trading up into premium sectors and brands.

And what happened to coffee way back when, is finally happening to tea: tea pods.

“There has been a growth of pods with over 4 million households buying pods,” Burchell says.“The growth in the total tea category is coming from Black Decaf Tea (5.4 per cent YOY), Fruit & Herbal (3.5 per cent YOY) and Speciality (0.8 per cent YOY).” And this, just as coffee bags start to appear on shelves.

Yet tradition is not dead, and Clipper Tea’s Bryan Martins says that everyday tea remains popular (+ 3.2 per cent growth), adding that Clipper is the fastest growing black tea brand in the category, with incremental growth being driven by “younger consumers with a conscience”.

“What was forecast to be a big year of growth for infusions and a year of decline for green tea has flipped,” he says,“showcasing steady growth for infusions and good recovery for green tea in the category. Clipper has the best-selling Green Tea SKU in the market which has seen impressive growth of 31.1 per cent and is appealing to a health-conscious customer.”

Ethical tea is clearly in fashion, and Martins says that Fairtrade tea is up +14 per cent, while Organic sales have boomed by +43 per cent). “The pandemic has given consumers downtime to reconnect with nature and consider their consumption habits,” he believes.“Desire for quality ingredients, fair pay for suppliers and sustainable packaging are prominent factors for customers.”

Britain still remains a nation of traditional tea-drinkers, though, and  Helen Boulter says that standard black tea continues to perform well with both value and volume in growth. “Yorkshire Tea is driving the majority of this growth,” she says.“Yorkshire Tea is the number-one tea brand by value in grocery retail, and we think it’s because of our desire to always do things properly and never compromise on quality.”

She explains that with everyone spending more time at home and drinking more tea, “our consumers have been expanding their repertoire beyond a traditional brew into the likes of Yorkshire Gold, our finest blend, and Yorkshire Tea Decaf, which is a special blend of teas which don’t lose their character when they lose their caffeine.With increased footfall to local stores, shop owners should consider expanding their tea range to meet this new demand.”

And with tea clearly the tonic 2021, Cafédirect is giving its Everyday Tea offering a new look which is hitting shelves early in 2021, joining Cafédirect’s London Tea.

Merchandising to the last drop

Just because hot beverages are such an everyday item does not mean that they cannot be merchandised maximally, and the experts are on hand to deliver their best tips.

“Focus on the ‘Must Stock’ lines which shoppers expect to see in a convenience store, especially as more people are working from home,” says Kenton Burchell.“By stocking these lines, you will be meeting the shoppers’ needs and will drive repeat visits, along with an offer that drives value.”

He recommends the specific products that work best include Tea (PG Tips, Tetley, Yorkshire and Typhoo), Speciality Tea (Twinings Pure Green Tea and Pure Peppermint Tea), Instant Coffee (Nescafe, Kenco etc.), Premium Coffee (Azera, best-one French Blend Arabica, best-one rich roast Arabica etc.), Roast and Ground Coffee (Lavazza etc.), Speciality Coffee (Nescafe Gold Cappuccino, for example) and Hot chocolate and Malted Drinks (Cadburys, Bourneville, Ovaltine, best-one hot chocolate etc).

“Stores should stock a combination of price-mark packs to give shoppers confidence they are not over-paying. Also, bestselling pack sizes and a good breadth of range without being too niche and ending up with slow sellers,” he says, adding, “Make hot beverages easy to find in store. A prominent position next to associated products including sugar and biscuits is ideal and will encourage cross-shopping.”

And speaking of cross-shopping, Paul Baker, St Pierre Groupe founder, makes the salient point that you shouldn’t stop at beverages: instead, also sell the consumers something delicious to go with their drink.

“Stocking complementary categories alongside hot beverage fixtures offers retailers the chance to increase consumer spend in-store by encouraging impulse purchases. Popular products that work well together with hot drinks include morning goods and bakery items,”he says, adding that merchandising as part of a hot beverage-to-go fixture also provides a great opportunity for retailers to up-sell.

“St Pierre’s individually-wrapped selection has been designed to tap into the trend for coffee shop experiences in the home, which has become more popular in the last year. The range is perfectly positioned to be enjoyed alongside a hot drink and includes Pain au Chocolat, Brioche Waffles, Butter and Chocolate Filled Croissants, Caramel Waffles and Millionaires Waffle. It also provides attractive margins for retailers, meaning it can work effectively as part of a deal.”

Helen Boulter agrees that retailers can sustain the increased footfall they have seen in 2020 by ensuring customer demand is met, not only by making customers’ favourite products all available (in the right layout), but also by communicating value effectively.

“As we enter into a recession, shoppers will be increasingly conscious of value,” she explains.“As a result of this, we expect to see demand for PMPs grow, especially on essential and everyday categories such as standard black tea and decaf.”

She says that PMPs can encourage purchase by helping to communicate value and overcome the perception that convenience stores are more expensive than supermarkets (refer to our PMP feature in the previous issue for some great experts’ advice on this topic).

Companies are planning to spend big on promotions, so be alert for the products consumers will have been reminded of by fresh advertising

Cafédirect, for example, is now back on air (February) with the first of two planned TV advertising bursts behind range hero, Machu Picchu, airing initially on Channel 4 from 8 February until 14 March (and then again in September), as well as on VoD and digital. Lesley Parkersays the initial burst is set to be seen by an estimated 43 per cent of the UK’s ABC1 adults three times each.

He reveals that Cafédirect will be promoting its brands and products throughout 2021, including a half-price deal across the Blends range on popular shopping app Shopmium this spring.

MCD&T redesigned its Maltesers Hot Chocolate products last August, and they are now available in 180g jar, 140g pouch, 25g single serve stick and hot chocolate podsMichelle Frost’s advice is that within convenience, the Galaxy Instant Hot Chocolate (200g), and the 180g Maltesers Instant Hot Chocolate and PMP jars are must-stock skus.

“Hot chocolate is best displayed with tea and coffee (within hot beverages).For most impact, consider stocking instant hot chocolate, add milk and malted skus.”

Complementing this, Paul Baker reminds us that as space can sometimes be a concern for independent retailers, St Pierre offers a choice of small footprint, eye-catching FSDUs, which match the vibrant orange branding. The FSDUs help to provide standout in-store and encourage increased basket spend – put the hot chocolate and coffee next to that and watch sales soar.

Stir gently

In conclusion, Kenton Burchell says to ask your customers what else they would like to see in the category from their local store. With working from home there has been an increase in the sales of coffee machines. There are machines for beans and machines for pods –though he says to consider trialling these latest trends in your store before committing fully. “Signpost Ready To Drink chilled coffees so they do not get overlooked.”

Cafédirect’s Lesley Parker, adds: “It’s clear that it will still be some time before life returns to normal, and it remains to be seen what the new normal post-Covid will look like. What’s certain, though, is that the hot beverage – and in particular coffee – consumption habits that we have built up as a nation over many years, have now clearly moved into the home.”