Hot Drinks - Canada- Market Report
EXECUTIVE SUMMARY
Growth in Hot Drinks Remains Positive
Although
quite mature and developed in Canada, hot drinks retained solid positive growth
in 2010 in both the off-trade and the on-trade. Premiumisation remains the key
driver of value growth in both coffee and tea, including growth in organic
coffee, as consumers are increasingly aware of organic brands and also often
link them to fair trade practices. However, an increase in the world prices of
coffee beans also contributed to stronger value growth, as prices in the
off-trade went up to compensate for increased production costs. In tea, where fair
trade is less prevalent, a shift from basic standard black tea bags to finer
speciality teas and green tea continued to shape the retail environment.
Green Tea and Higher Quality Fine Teas in Demand
Over
the review period, demand for green tea experienced a rapid growth, as
Canadians became more aware of its health properties. This trend continued in
2010. However, there is also strong interest in premium fine teas, which are
mostly offered in specialist tea shops. Operators in the emerging tea shops category,
using savvy marketing and branding, have turned tea into a fashionable hot
beverage. As a result, unpackaged tea is growing rapidly.
Competition from Smaller Players Brings More Dynamism to the Market
With
the focus on premiumisation and ethical trade, more consumers are turning
towards companies which adhere to these principles. In the case of coffee,
smaller importers and marketers, such as the Kicking Horse, have been able to
leverage these characteristics faster than mainstream brands. As a result, they
are gaining customers at the expense of larger players.
Grocery Retailers Carry the Bulk of Hot Drinks in the Country
Grocery
retailers accounted for the bulk of hot drinks distribution in 2010. However,
since the recession, there has been an ongoing shift from standard supermarkets
to discounters, as consumers remain cautious about their spending and are
seeking their favourite brands and products at retailers that promote every-day
low prices. Traditional supermarkets are, however, fighting back to regain
sales and profits, not least through their premium-tier private labels offering
speciality and organic products.
Market Maturity and Demographic Changes Will Affect Performance Over the Forecast Period
Hot
drinks is already a mature market in Canada. However, interest in products like
green tea, fuelled by health properties, speciality teas and higher quality
coffee, including organic coffee, will sustain value sales in the coming years,
especially with the economic recovery boosting consumer confidence.
Importantly, price increases for coffee beans will translate into price
increases in the off-trade, adding to growth in value. On the downside,
however, consumers seeking premium tea are also more likely to frequent
speciality tea shops selling bulk loose tea by weight, creating competition for
pre-packaged tea. Additionally, the ageing of the population in Canada could
also affect demand for coffee unfavourably, as some people cut back on coffee
as they age because they become more sensitive to its acidity. However, this
might translate into higher demand for tea, and/or lead to a shift towards
decaffeinated coffee.
KEY TRENDS AND DEVELOPMENTS
Shift from Black Tea to Green and Other Tea Due to Perceived Health Benefits
Growth
in tea has been sustained by official recognition and increased public
awareness of tea as a healthy beverage. In 2007, Health Canada recognised green
tea as a Natural Health Product, permitting three health claims to be made for
green tea, including its being a source of antioxidants and having a role in
maintaining cardiovascular health. According to the Tea Association of Canada,
consumers increasingly regard hot tea as the “third healthy beverage” after tap
water and diet carbonated drinks. Canadian consumers associate health
properties more with green tea than with black tea. Among the commonly cited
advantages of green tea over black tea are the higher concentration of
polyphenols and lower level of caffeine.
Current Impact
In
2010, green tea remained the fastest growing category, with off-trade volume
increasing by 5%, while black tea saw only a marginal increase. This pattern
fits with the trend observed over the review period, with green tea driving
sales growth, while black tea sales declined. The CAGRs over the review period
clearly illustrate the disparities between the two categories: between 2005 and
2010, black tea experienced an annual average decline of 1% in off-trade volume
terms, while green tea grew at a CAGR of 9%. As a result, green tea’s share of
the category has increased significantly, from 3% of off-trade volume sales in
2005 to 5% in 2010.
In
response to this trend, manufacturers are focusing more on their non-black tea.
Brands such as Tetley and Lipton, which lead black tea sales, are both
undertaking more product development in green, white and herbal teas, through
rapid line extensions and heavier marketing. One of the most visible aspects
separating the black tea from the non-black tea products sold by these brands
is the packaging. While Tetley black tea and Lipton Yellow Label have retained
their classic packaging, their lines of green and herbal teas have modern,
bright and colourful labels, which catch the buyer’s attention more easily. In
2010, Tetley introduced two new green teas, Blueberry and Mango Passion Fruit
Acai, and a raspberry flavoured white tea. Its line of herbal teas is being
promoted with a campaign inspired by colour therapy. Each flavour is attributed
a specific theme and a matching colour, which are associated with a specific
tea. For instance, the peppermint herbal tea is named Revive and is retailed in
bright green packaging. In the case of Lipton, its green tea products now
include a Green Tea Superfruit line, with the green tea also being enriched
with so-called “superfruits” such as goji berries and mangosteen.
Manufacturers
are exploiting the interest in green tea by introducing crossovers between
fruit and green teas. This enhances the perceived benefits of the tea, and also
eases the transition for consumers who are new to green tea. Green tea on its
own has a particular, strong taste, which can take some time to adjust to. By
mixing it with a softer flavour, such as raspberry, newer consumers remain
within their comfort zone in terms of taste, while discovering the properties of
green tea. Manufacturers are using more exotic fruits to differentiate their
products from those of competitors and position their products as unique.
The
popularity of green tea is now extending beyond the hot tea category. Other
beverages, including RTD tea and carbonated drinks, such as ginger ale, are now
using green tea extracts and flavours to leverage the claimed health benefits
associated with green tea.
Outlook
The
search for healthier beverages and the focus on the health properties of teas
are likely to continue in the coming years, leveraging the already officially
permitted and approved claims associated with consumption of green tea. Sales
will also benefit from the ageing of the population in Canada, and the greater
focus on preventative care through a better daily diet. Additionally, the high
rate of immigration will also draw attention to green tea for daily
consumption, as it is among the staple beverages of China and parts of
Southeast Asia – the principal sources of immigration to Canada.
Future Impact
Over
the forecast period, green tea will continue to outpace black tea in terms of
growth. Green tea is expected to remain very dynamic in terms of product
development and marketing. The perception of green tea as a healthier product
and its recognition as a Natural Health Product will continue to encourage
consumer interest and purchases. As a result, off-trade volume sales of green
tea are expected to see a CAGR of 4% between 2010 and 2015, while black tea has
a projected CAGR of just 1% over the same period.
While
demand for green tea will rise faster than demand for black tea, the category
forecasts do not reflect the full extent of this growing gap. The unpackaged
tea business is expected to grow faster than packaged teas, due to premiumisation.
Stores specialising in unpackaged premium tea carry a larger selection of green
teas and market them as “fresher” and more “authentic” than packaged green tea.
Hence, a large component of future green tea growth could be in unpackaged tea,
thereby cannibalising sales of packaged green tea.
The
faster progress of green tea and other tea, at the expense of black tea, will
modify the category breakdown. Over the forecast period, the off-trade volume
share of green tea is expected to rise from 5% in 2010 to 6% in 2015.
The
popularity of green tea could shift competition. Currently, the leading tea
brands Tetley and Lipton also dominate sales of green tea. In recent years,
they have focused on expanding their lines and made considerable marketing efforts
to support their brands. However, over the forecast period, their share could
be eroded by fast growing smaller brands. An example of a brand gaining strong
visibility in grocery channels is Stash Tea. Stash Tea has been present in
speciality stores for several years, but it is now getting more shelf space in
grocery stores. Stash is more expensive than Lipton or Tetley; however, with
the premiumisation apparent in tea, consumers are likely to be prepared to
trade up. Moreover, despite its higher price point, Stash is a closer
substitute for premium unpackaged tea, and therefore, some consumers will see
it as a value proposition.
Unpackaged Tea Is Flourishing as Tea Gets an Image Makeover
Packaged
tea in Canada is a mature category. Over the review period, total volume sales
grew only slightly. However, certain type of teas are growing in popularity in
Canada. Beyond the antioxidant argument, consumers are starting to discover tea
for its complexity and different taste profiles, and tea consumption is
currently very fashionable. Interest is focused largely on specialist tea
shops, whose premium unpackaged teas are differentiated from the traditional
grocery store offerings in terms of range, flavours and quality.
Reflecting
the growing interest in tea, the Tea Association of Canada has introduced Tea
Sommelier courses, which are currently offered by two universities, in Toronto
and Vancouver. The programme covers several aspects, including the different
origins of tea, its regional and cultural evolution, food pairing and tea
service, amongst others. The choice of the name “sommelier” and the structure
of the content strongly alludes to wine, and suggests efforts to elevate tea to
a more refined and multifaceted beverage.
Current Impact
The
demand for more sophisticated tea is a boon for specialist tea shops and
salons, but it hampers to some extent the progress of regular packaged tea,
with growth rates for the category remaining mostly static. In actual volume
terms, however, unpackaged tea is a niche segment which represents only a small
percentage of total sales of tea, hence the regular packaged tea category is
not greatly threatened, nor is it experiencing substantial losses to unpackaged
tea. However, packaged tea manufacturers are failing to capture sales in one of
the fastest growing areas in tea, which would revive their sales in what is a
mature product category.
In
recent years, tea shops have become very trendy, and stores such as Tao Tea
Leaf in Toronto and Téh-Bar in Montreal are popping up at a rapid pace in major
cities across Canada. An example of a fast-growing chain is Davids Tea store,
which opened one shop in Montreal in 2008, and had over 50 outlets across
Canada as of December 2010.
The
success of specialist shops reflects the elements consumers are interested in
with regards to tea. Unpackaged tea is first and foremost viewed as “fresher”
than packaged tea, and the sourcing of the tea is clearly disclosed. Reflecting
a pattern observed with fair trade coffee, consumers are showing a drive for
more “authentic” and premium products. Moreover, unpackaged tea is more
innovative in terms of flavour and ingredients. Fruits, nuts, flowers and
spices are regularly combined to complement or contrast with specific tea
varieties, and new or seasonal pairings are regularly introduced. For instance,
Davids Tea introduced a winter collection, which includes Chocolate Chili Chai,
a mixture of black tea with chocolate and two forms of chillies. As well as
offering a wide selection, speciality stores benefit from expert service, which
enhances the consumer experience. Consumers are invited to sample the various
brews, and the personnel are qualified to educate and assist buyers, especially
those who are new to tea.
In
response to rising demand for unpackaged speciality tea, manufacturers of
packaged tea are adopting different strategies to maintain sales volumes. The
company which has made the boldest move is the Paris-based Kusmi Tea. Renowned
for its line of gourmet Russian-style packaged tea, distributed through select
specialist retailers in Quebec, Kusmi Tea entered in direct competition with
stores in the unpackaged tea business by opening a boutique in Montreal in
September 2009. The opening is particularly notable as it is the first Kusmi
Tea boutique in North America, and the first greenfield venture for the company
outside of France. The boutique sells packaged tea, and also has a “tea bar”
area for on-trade consumption. In-store tastings are offered, and a 2-hour
“degustation workshop” is organised monthly.
This
development by Kusmi Tea makes sense because it is a gourmet brand, whose
quality and image can rival that of specialist tea stores. However, this
strategy is not applicable to mass-market grocery store brands. Given their
large-scale operations, they do not have the flexibility to switch their
sourcing at short notice, and their logistics might not allow for highly
seasonal offerings. Moreover, it might not be commercially viable to launch
highly specialised, niche products which will not have mass appeal. The
packaged brand which comes closest to replicating tea store specialties is
Lipton, with its pyramid tea. The pyramid shaped teabag offers a larger surface
area in contact with water to allow for better infusion, and, in contrast with most
other tea bags – including the Lipton line – the pyramids use real fruit
pieces. For instance, the Blueberry & Pomegranate White tea contains pieces
of real blueberries. However, the line still relies heavily on the use of
flavours and extracts.
Outlook
Over
the forecast period, interest in unpackaged tea is likely to continue to grow,
at the expense of packaged tea. Consumers are becoming more educated about the
different aspects and varieties of tea, and over the next few years, more
innovative and experimental blends are expected to be introduced. Additionally,
with the expected expansion of tea shops, especially those located in mall,
such as Téh-Bar, hot tea on-the-go is likely to become a more common sight.
The
Tea Sommelier initiative from the Tea Association of Canada is expected to
strengthen the interest in gourmet tea, and is likely to increase its
popularity in the hospitality industry. If the programme is successful, it
could be offered in more colleges and vocational schools across Canada. It will
thus contribute to wider knowledge of, and demand for unpackaged tea.
Current
teashops will face greater pressure to define their brand images clearly in
order to differentiate themselves from competing shops and mainstream retail
products.
Future Impact
Interest
in premium unpackaged tea is set to grow, creating business opportunities for
small importers of premium tea. Additionally, growth in unpackaged tea could
translate into a business opportunity for coffee chains and coffee shops, as
well as for partnerships with local tea importers and marketers to distribute
their unpackaged tea. This is already the case with some cafés, such as Café
Expressions in Montréal, which offers both coffee and an extensive selection of
unpackaged tea.
Manufacturers
of packaged tea are likely to benefit from interest in speciality tea by
benchmarking their products against the most popular flavours from tea stores.
Packaged tea presents the major advantage of being both lower priced and more
widely distributed. By expanding their portfolios of green, white and herbal
teas, large-scale brands, such as Lipton and Tetley, can offer a value
proposition to consumers who want to integrate non-black tea as part of their
regular consumption, but are not willing to splurge on the pricier tea
products. Hence, packaged tea manufacturers are in a position to reap the
benefits from the education carried out by tea stores. On the downside, a rise
in the demand for their non-black tea products could further cannibalise sales
of their black teas.
Green Mountain Coffee Roasters Inc Acquires Van Houtte
Mergers
and acquisitions activity picked up in 2010, against a backdrop of a recovering
economy and cheap debt. According to Crosbie: Mergers & Acquisitions in
Canada, the third quarter of 2010 showed the strongest performance in three
years, with a 40% jump in value of mergers and acquisitions from the second
quarter.
In
the coffee category, large-scale mergers and acquisitions were scarce over the
review period. A notable change of ownership was JM Smuckers acquisition of
Folgers Coffee from Procter & Gamble in 2008. Folgers being a successful
but mature mainstream brand, the transaction did not lead to substantial
changes in the category.
More
recent activity is pointing to a consolidation of the speciality segment. In
December 2010, Green Mountain Coffee Roasters Inc completed the acquisition of
Van Houtte (LJVH Holdings Inc) from the private equity group Littlejohn &
Co. The transaction was valued at C$915 million, equivalent to 9.9 times Van
Houtte’s EBITDA. The acquisition occurred one year after Green Mountain bought
another Canadian coffee brand and wholesale business – Timothy’s World Coffee.
Current Impact
The
acquisition of Van Houtte has enabled Green Mountain Coffee Roasters to consolidate
its foray into the Canadian gourmet coffee segment, a year after it acquired
the wholesale business of Toronto-based Timothy’s World Coffee (2009). The
acquisitions are a strategic fit for Green Mountain, as both Van Houtte and
Timothy’s complement Green Mountain’s line of business of supplying speciality
coffee to both the on-trade and the off-trade, as well as institutions.
Moreover, they give Green Mountain immediate access to the Canadian market.
Van
Houtte is a Montreal-based gourmet coffee chain which retails the brands Van
Houtte, Brûlerie St-Denis and Brûlerie Mont-Royal. It has built its reputation
on roasting its own coffee in small batches and serving European style coffee.
Van Houtte operates a network of cafés/bistros, serving on-trade coffee, but is
also present in the off-trade in grocery stores, where it operates a
direct-to-store distribution model. As of 2010, Van Houtte held a 6% share of
off-trade volume in coffee. Therefore, Green Mountain will now become the third
largest player in off-trade coffee sales and will have access to the grocery
network distribution secured by Van Houtte. Timothy’s Coffee is similar to Van
Houtte in several aspects, including its local roots and offer of premium
coffee. However, the acquisition does not cover the off-trade business of
Timothy’s Coffee. Instead, it gives access for Green Mountain to local roasters
and manufacturing plants, such that Green Mountain can now manufacture locally.
This particular acquisition will boost Green Mountain’s business with
institutions, as opposed to individual consumers.
Another
notable point in the choice of the two targets is the fact that both Van Houtte
and Timothy’s Coffee manufacture coffee pods for Keurig K-Cup, itself acquired
by Green Mountain in 2006. From this angle, the two acquisitions represent
vertical integration, as Green Mountain is now in control of the brewing system
and its compatible products. Hence, it has better control over the growing
single-serve coffee segment. The acquisitions allow Green Mountain to build up
the Keurig brand and make it more competitive with the single-serve leader
Tassimo.
At
the category level, the acquisitions represent the first steps of consolidation
in the highly fragmented speciality segment. Most speciality coffee retailers
are small, independent players, and many serve only a regional market, as is
the case with Café Rico in Montreal and Coffee Tree Roastery in Toronto. By
acquiring two of the larger companies, Green Mountain has put greater
competitive pressure on the remaining speciality coffee importers.
Outlook
Thanks
to its acquisitions, Green Mountain is in a position to exploit opportunities
in the Canadian coffee category, both off-trade and on-trade. Over the forecast
period, premiumisation is expected to be the main driver of coffee sales.
Furthermore, demand for single-serve coffee, and therefore coffee pods, is set
to grow rapidly. Both Van Houtte and Timothy’s fit within this profile, without
a major overlap in image or regional presence. Hence, Green Mountain has a
solid platform from which to expand. Moreover, while a legal dispute looms
between Starbucks and Kraft over their off-trade distribution agreement, Green
Mountain can gain a competitive edge over its competitors.
The
strengthening of Green Mountain, both through grocery stores and through coffee
shop outlets, will put greater pressure on smaller coffee importers and
roasters, as well as large coffee brands. This could lead to further
consolidation as smaller individual importers join forces to remain
competitive.
Future Impact
Green
Mountain’s acquisitions are likely to lead to the further expansion of Van
Houtte, especially in Central and Western Canada. They could also lead to wider
distribution for Van Houtte in the US, due to Green Mountain’s strong presence
in that market. Volume sales of the Van Houtte brand are consequently expected
to rise. The Keurig single cup brewing system is expected to become more
popular.
The
respective competitive advantages of Van Houtte and Timothy’s World Coffee can
be leveraged by Green Mountain to increase its share of the coffee category
over the forecast. With the acquisition of Timothy’s World Coffee, Green
Mountain has access to roasters, which it can use to roast its own brands
locally. At the same time, Van Houtte is particularly strong in Quebec and has
a unique direct-to-store model of distribution. It has partnerships with major
grocery retailers and has its own customised display space, allowing Van Houtte
brands to stand out from the competition. Green Mountain can take advantage of
this network to distribute its own brands in Canada, considering its extensive
portfolio in the US. Hence, the complementary opportunities from the two recent
acquisitions suggest that Green Mountain could start producing and distributing
its own brands, such as Tully’s Coffee and Green Mountain Coffee, in Canada in
the future.
The
access to grocery store retailing, through Van Houtte, will allow Green
Mountain to bring the Keurig Coffee maker to grocery stores, in direct
competition to Tassimo. Currently, Keurig coffee machines are mostly sold in
stores offering home appliances, including The Bay, Future Shop and Home
Outfitters. This limits the exposure of the coffee machines to consumers who
are actively shopping for a new coffee maker. Tassimo, on the other hand, is
sold through certain grocery stores, such as Metro, where the coffee machines
are displayed in the coffee aisle. Should Green Mountain introduce Keurig to
the grocery channel, it will raise the visibility of the brand, potentially
increasing sales and closing the gap on Tassimo. Moreover, Keurig pods will
enjoy wider distribution.
Foodservice Sales of Coffee Recover in the Wake of Improving Economy
On-trade
coffee consumption is part of the lifestyle of many Canadians. Whether workers
picking up a coffee on their way to the office, or students and telecommuters
sitting in coffee shops, demand for on-trade coffee is high compared to other
hot drinks categories. In 2010, on-trade volumes corresponded to slightly more
than half of off-trade consumption.
Speciality
chains impose a fairly high mark-up for on-trade coffee. For instance, a medium
size (12oz) cup of speciality coffee, such as a latté, typically retails at
between C$3 and C$5 in chains such as Starbucks and Second Cup. Since
speciality coffee is more of an indulgence than a necessity, on-trade
consumption is heavily influenced by the economy. Therefore, with the country
in a recession and the economy being sluggish for much of 2009, on-trade
consumption slowed down as consumers cut back on non-essential goods.
Nevertheless, certain chains, such as Tim Hortons, fared better than their
competitors due to their relatively low prices. As the economy recovered in
2010, on-trade sales also picked up.
Current Impact
In
2010, on-trade sales of fresh ground coffee grew by 3% in volume terms,
compared with a 1% rise in 2009. The recovery in sales growth shows a
correlation with improving employment levels. Between December 2009 and
December 2010, unemployment levels in Canada dropped by nearly 2%, according to
Statistics Canada.
The
chains which performed well during the recession are carrying forward their
strong performance, suggesting that they have acquired a stronger consumer
base, potentially at the expense of the more expensive chains. For the first
three quarters of 2010, for instance, Tim Hortons reported a 7% sales increase
compared with the same period of the previous year.
Outlook
The
popularity of on-trade coffee consumption is set to stay. However, demographic
changes, the growth of single-cup brewers and a growing interest in tea could
affect on-trade demand for coffee. Canada has an ageing population, with about
14% of residents being 65 and over. Over the next few years, the baby boom
generation will be retiring, reducing the workforce. This will in turn lead to
a decline in the overall number of consumers buying coffee on their way to
work. Moreover, some people cut back on coffee as they age because they become
more sensitive to its acidity.
Another
factor which could harm sales of on-trade coffee is the growing popularity of
single-cup, or coffee-pod coffee makers. Coffee pods, which claim to produce a
premium, high quality brew, could encourage more at-home consumption. In most
cases, the unit price of a speciality coffee pod is lower than the price of an
on-trade drink. Hence, in the long run, this format could capture some of the
sales of on-trade coffee.
There
is growing interest in premium tea in Canada. Although coffee has historically
been the hot beverage of choice for Canadians, surpassing tea sales by about
four times, the disparity could reduce in the long term. Several specialist tea
shops now offer hot tea on-the-go, and eventually, this could cut into on-trade
sales of coffee.
Future Impact
Over
the forecast period, on-trade sales are expected to grow faster than off-trade
consumption. In volume terms, off-trade sales of fresh ground coffee are
predicted to grow at a CAGR of 2% between 2010 and 2015, while on-trade sales
will show annual average growth of 3%. In terms of competition, Tim Hortons,
which has consolidated its positioning during the recession, is expected to
remain strong in on-trade sales.
In
response to the growing popularity of speciality tea, coffee houses are
expected to diversify their portfolios over the forecast period and offer a
greater selection of tea.
The Fair Trade and Organic Movements Remain Strong in Canada
Sustainable
and environmentally friendly business practices have become a major selling
point in several categories in Canada, ranging from cleaning products to food
items. In the case of the coffee, where the raw material is typically sourced
from developing countries, “fair trade” has become a fundamental aspect of
ethical business practices.
Canadians
are increasingly familiar with, and receptive to purchasing fair trade
products, and demand continued to increase even when the country went through
recession. In a survey carried out in March 2010 by TransFair Canada, 71% of
participants indicated purchasing certified fair trade products at least once
every six months, up from 51% in 2008. Moreover, 26% claimed to purchase
certified products every month, as compared to 18% in 2008.
While
fair trade resonates most strongly in coffee, it is becoming more common to see
the label on tea, especially from specialist tea shops, and on cocoa.
Current Impact
The
fair trade movement has proved beneficial to small coffee importers. Over the
review period, there was a shift from consumers buying coffee in grocery stores
towards purchasing in health food stores and independent coffee houses. The
shift resulted both from a willingness to sustain fair trade practice and from
premiumisation. Since some of the coffee importers roast their coffees locally,
they are perceived to offer greater freshness than grocery store brands.
Grocery
store brands are keeping up the pace with fair trade offerings, Van Houtte,
Melitta and even the private label brand President’s Choice, which are premium
brands, now have lines of certified fair trade coffee alongside their regular
offerings. In the case of President’s Choice, the brand also retails a line of
organic coffee. However, mid-priced, large-volume brands such as Maxwell House
and Folger’s coffee do not offer a fair trade option.
Increasingly,
fair trade is becoming an argument in tea sales as well, although it is less
visible in packaged tea than in unpackaged tea. Within packaged tea, private
labels have been quicker to adopt the certification. While the two leading
mainstream brands, Tetley and Lipton, do not currently offer certified fair
trade tea, President’s Choice markets a fair trade green tea. Smaller premium
brands, such as Four O’Clock, also include fair trade within their portfolio.
In the unpackaged segment, a strong emphasis is being placed on the fair trade
aspect of the various teas. This is being driven by specialist tea shops, which
are experiencing a surge in popularity. Producers of both packaged and
unpackaged tea are increasingly gaining organic certification for their products,
which complements their health aspect. Examples of organic certified tea
include Compliments Orange Pekoe and Four O’Clock Green tea.
Fair
trade in cocoa is prevalent, but so far, it is not very visible in packaged hot
chocolate. However, the premium brand Timothy’s World Coffee offers a fair
trade and organic hot chocolate mix.
Outlook
The
increase in awareness and consumption of fair trade products over the 2008-2010
period revealed by the study by TransFair Canada suggests a positive outlook
for certified fair trade products. However, while interest is growing, future
consumption of certified fair trade products depends on economic recovery.
Indeed, one of the major factors holding some consumers back is the price
premium of fair trade products compared with regular products.
In
December 2010, Fairtrade Labelling Organizations International, a German
organisation that sets fair trade prices and standards, announced that as of
January 2011, the minimum unit price of cocoa would be raised. Just like
commodities, fair trade prices fluctuate, influenced by a set of economic
variables including the level of demand and supply, and production factors such
as harvest output and quality. They are reviewed and adjusted periodically to
match market conditions. As a result, the price of fair trade coffee or tea
over the forecast period is hard to predict. However, should prices rise, small
importers and manufacturers are likely to pass on the increased costs to
consumers.
Future Impact
Fair
trade is expected to become a more important aspect of branding in hot drinks,
and could contribute to changes in the competitive environment. With
premiumisation apparent in both coffee and tea, sales are likely to shift from
regular mainstream brands to certified fair trade brands. The presence of
private labels in this niche will help to reduce the price premium for such
products. In coffee, large volume brands, such as Maxwell House and Folgers,
could lose sales to brands advertising their fair trade credentials. A similar
movement could be seen in tea, especially as speciality shops promote the fair
trade aspect of their products. Within store brands, consumers might shift away
from high volume brands, such as Lipton and Tetley, in favour of brands which
are fair trade certified. Although Lipton and Tetley do not sell certified fair
trade tea, they do participate in global sustainability programmes at the
corporate level. Should packaged tea sales shift to certified fair trade
brands, Lipton and Tetley are likely to make more of an effort to educate
consumers about such programmes.
