Marketing Strategy of Tea Industry in Indonesia

Marketing Strategy of Tea Industry in Indonesia

Tea - Indonesia

HEADLINES

Tea sales record 7% off-trade volume growth in 2010 to reach 87,000 tonnes

Green tea and slimming tea increases in relevance in line with growing health and wellness trend

Slimming teas registers robust 14% retail volume growth in 2010 to lead growth

The average unit price of tea remains relatively stable in 2010 due to the popularity of economy and standard brands purchased by foodservice retailers

Gunung Slamat sustains its lead in tea with a 27% off-trade value share in 2010

Tea is expected to register a CAGR of 4% in off-trade volume terms over the forecast period

TRENDS

Growing urban lifestyles which demand products that provide convenience are in opposition to tea, a sector that is perceived to be time-consuming and a hassle to prepare. Leading manufacturers, such as Unilever, campaigned to include the tea drinking ritual as a way to communicate and avoid miscommunication between husband and wife with heavy investment in marketing and promotions dubbed “Sariwangi Mari Bicara” (“Sariwangi Let’s Talk”) campaign. The growing health and wellness trend also stimulated consumer interest towards health-enhancing products such as green tea, slimming tea and herbal tea.

Tea registered a 7% retail volume growth in 2010, which represents a one percentage point increase compared to the 2009 growth rate. This is attributed to a good response to manufacturers’ campaigns and the growing health awareness regarding the functional benefits of drinking various tea products. Despite the growing demand for convenience and increased availability of RTD tea, improved purchasing power translates into consumers seeking more sophisticated lifestyles, such as including the art of appreciating drinking boiled tea at home for health and family reasons.

Slimming tea registered 14% off-trade volume growth in 2010 making it the most robust category. Its success is attributed to a good consumer response towards manufacturers’ attempts to communicate the benefits of slimming tea through seminars, workshops, exhibitions and other promotional campaigns, including cooperation with fitness and health centres. The trend towards urban lifestyles, which is also leading to many problems including obesity, as well as increasing attention to the physical appearance, promoted a warm consumer response towards slimming tea.

The average unit price of tea remained relatively stable in 2010 within a competitive environment. Off-trade volume sales of tea continue to be boosted by foodservice outlets. These players provide boiled tea on their premises and prefer to provide tea as it has a relatively low unit price which keeps operating costs down. Many players in tea continue to rely on price as a differentiator rather than branding activities with the exception of Sariwangi, which witnessed a significant outlay in marketing and promotions.

Tea bags black standard and tea bags black speciality outperformed both loose black standard tea and loose black speciality tea in 2010 highlighting a rise in consumer preference for convenience. Improved spending power also spurred the popularity of tea bags over leaf variants in the review period. Manufacturer campaigns and product innovation were also stronger in the tea bag format, driven by Sariwangi from Unilever and Sosro by Gunung Slamat, as well as other brands.

Off-trade volume sales of tea accounted for 91% of total volume sales in 2010. On-trade availability of boiled tea continued to stem from off-trade retail sales in the review period instead of direct sales from manufacturers. On-trade establishments generally prefer tea with acceptable taste quality and reasonable price to keep operating costs to a minimum, especially with a high number of warung which operates on minimum profit margins serving middle- to lower-income consumers.

Rapid expansion of modern retailers increased the significance of supermarkets/hypermarkets and convenience stores in the review period. Despite that, independent small grocers continued to lead with a 56% share of off-trade volume sales in 2010. This was due to the low presence of modern retailers in rural areas of Indonesia and the continued preference towards traditional retailers by lower income demographics.

Vending machines remained negligible in Indonesia with high availability of warung and other foodservice outlets providing boiled tea and the high penetration of RTD tea in all parts of the country. Labour costs continue to be low in Indonesia, negating the need for vending machines. The tropical weather also shaped consumer preference for cold beverages such as RTD tea over hot beverages.

Black jasmine tea continued to dominate accounting for an 84% share of retail volume sales in 2010. The contribution of green tea increased in the review period in line with the growing health and wellness trend. Most green tea products are sweetened or honey flavoured as consumers are accustomed to sweetened tea and less inclined to drink unsweetened beverages in general. Fruit tea slightly increased in relevance in the review period although its presence continued to be low with very little product availability. The Sosro Heritage line-up was launched in November 2009 including green tea, black tea and jasmine tea variants in an attempt to compete with Sariwangi in the premium tea segment. Sosro benefits from its strong brand in RTD tea.

Unpackaged tea is available in Indonesia although distribution is limited to areas with a high concentration of tea plantations such as the less urban areas of Java Island. Sales of unpackaged tea were challenged by the campaign of manufacturers of branded products as they sought to increase volume sales by approaching consumers via below-the-line advertising in tea-appreciating parts of rural Java. Tea pods remained negligible in the review period, in line with the low presence of coffee pods.

COMPETITIVE LANDSCAPE

Gunung Slamat continued to lead tea with a 27% off-trade value share in 2010. The company is a subsidiary of Sinar Sosro which was the leading player in soft drinks in off-trade value terms in 2010 due to its strong presence in RTD tea with Teh Sosro. The company markets Cap Botol Biru, Cap Botol Hijau, Poci, Sosro and Kepala Djenggot brands of tea in both tea bags and loose formats. Despite having a strong lead in RTD tea, the company faces a strong challenge from Unilever within tea thanks to its heavy investments in its Sariwangi brand. Gunung Slamat is less inclined to match the outlay in above-the-line advertising and prefers to concentrate on below-the-line promotional activities instead.

Unilever registered the highest retail value share gain in 2010 due to its heavy investment in advertising, a key driver in the consumption of tea in general in the review period. Specifically, the company’s “Sariwangi Mari Bicara” (“Sariwangi Let’s Talk”) campaign focused on talking things over with a cup of tea to prevent miscommunication between husband and wife to foster good relationships within the family. Sariwangi also held the annual Sariwangi Mobil Mudik event to provide cars for lucky families to go back to their hometowns during the festive season of Idul Fitri. The company also benefits from a strong distribution network due to its presence in other categories of consumer goods.

Domestic players dominated in tea over the review period with the exception of Unilever, which ranked third in off-trade value terms in 2010. Gunung Slamat, a subsidiary of Sinar Sosro, and Duta Serpack Inti, which is a subsidiary of Tang Mas, ranked first and second respectively within tea in off-trade value terms in 2010. Furthermore, both companies also competed aggressively within RTD tea in the review period.

A key new launch within tea was the Sosro Heritage line-up which features black tea, jasmine tea and green tea variants in 12 different batik-style packaging designs. The unique differentiation lies within the packaging design itself which when placed in front of a web camera using software downloaded from www.qualitealife.com depicts 3D images of the rich cultural heritage of landmarks in Indonesia such as mosques, temples, lakes, mountains and other tourist attractions. Gunung Slamat attempted to compete with Sariwangi in premium tea with Sosro Heritage, which is a relaunch of Sosro Premium brought about because the local Food and Drug Administration (BPOM) forbade the use of superlatives in brands such as the word “Premium”. Mustika Ratu also launched Lokol tea - a tea that reduces cholesterol levels – in order to extend its presence within health enhancing tea products in addition to its slimming tea and detoxification tea variants.

Other packaging innovations include Sari Murni, the brand extension of Sariwangi which is available in round shaped tea bags instead of the traditional square shape, stimulating interest with its unique design. In addition to the unique design, Sariwangi and Sari Murni also highlight red as the ideal colour of good quality tea to create a differentiation.

Key advertising campaigns are those of Sariwangi with its “Sariwangi Mari Bicara” (“Sariwangi Let’s Talk campaign”) and Sariwangi Mobil Mudik promotional event. The Sariwangi Mobil Mudik campaign provides a car for families to take them back to their hometowns during the festive “Hari Raya Lebaran” season (Muslim Idul Fitri holiday). The company is also able to obtain consumer insight with this promotion as it involves families sending data about themselves to the company by post. Sariwangi Mari Bicara encourages families to talk out their problems over a cup of tea to prevent domestic miscommunication between couples. This really stimulated tea consumption with its heavy coverage via television advertising in the review period, especially given the lack of activities by other players within tea. Sariwangi Mari Bicara also developed a website in response to the growing use of the internet among Indonesian households, offering tips on effective communication strategies.

Standard and economy brands of tea compete similarly within both modern and traditional retailer formats. Sariwangi from Unilever benefits from personnel charged with advising retailers on product placement in their outlets to improve visibility and demand. Economy brands generally have higher availability in traditional retailer formats. Private label tea continued to be negligible in the review period with strong availability of economy brands of tea in supermarkets/hypermarkets. Premium tea’s availability is limited to upscale supermarkets and several leading hypermarkets due to its positioning and niche consumer base.

PROSPECTS

Manufacturers of tea generally showed little appetite for investment in advertising during the review period with the exception of Unilever for its Sariwangi brand, which set the tone in stimulating demand. Growing demand for convenience also promoted the popularity of RTD tea over tea to some extent. Despite that, higher disposable income levels encouraged consumers to adopt a more sophisticated lifestyle, which includes appreciating tea at home. The café culture also widened the consumer base for high quality tea and spread knowledge about the many variants of tea. The health and wellness trend is expected to drive growth of health enhancing tea products such as green tea, slimming tea and herbal tea. Tea is perceived as healthy and beneficial, unlike the negative perception of coffee, which is perceived as unhealthy.

Tea is expected to register a CAGR of 4% in off-trade volume terms over the forecast period, a deceleration compared to review period off-trade volume CAGR of 8%. This will be attributed to low manufacturer investment in advertising and product innovation for tea. Growing urbanisation and demand for convenience also work against tea, especially with high availability of RTD tea. Nevertheless, growing health awareness promoted the consumption of tea as a replacement for coffee, which also contains less caffeine.

A possible forecast threat to tea includes the availability of free hot tea in on-trade establishments and consumer preference for other soft drinks and hot drinks for consumption at home. However, to some extent, on-trade availability of tea also stems from off-trade sales of tea. Urban lifestyles which are boosting the demand for convenience are also expected to affect tea and promote switches to RTD tea.

Slimming tea is set to lead with expectations of a 7% CAGR in off-trade volume terms over the forecast period. The growing urbanisation, which is leading to obesity problems, will ensure a warm consumer response to manufacturers’ promotional and education campaigns about the benefits and herbal aspects of slimming tea. Leading players, such as Mustika Ratu and Martina Berto in slimming tea will generally leverage on reputations already gained in cosmetics. Meanwhile, Nutrifood has a strong presence within other slimming products which will help promote consumer trust towards its slimming tea variant. The growing health and wellness trend will also promote the popularity of slimming tea over other slimming products of chemical or artificial origin.

The unit price of tea is expected to climb moderately over the forecast period with greater availability of premium products in response to higher levels of consumer spending power. The increasing popularity of green tea which carries slightly higher prices is also expected to affect the average unit price of tea. Tea bags that are consumed by end users are expected to experience a sharper increase in unit price compared to the loose format which is popular among foodservice operators.

Sosro Heritage is expected to perform fairly well over the forecast period owing to the brand’s strength in RTD tea. Despite that, the company’s reluctance to spend in above-the-line marketing and promotion may cause penetration to be slow since product awareness will not develop. The product will also compete head-to-head with Sariwangi, which receives plenty of publicity with above-and-below-the-line branding activities that might be a challenge since Indonesian consumers are still very much easily influenced by strategic marketing efforts. Lokol tea, with features that help to reduce cholesterol levels by Mustika Ratu, is expected to perform well in line with the growing health and wellness trend. However, its consumer base is expected to be niche due to its fairly high unit price. The company will continue to run promotional and exhibition programmes to spread product knowledge to its intended audience.

In terms of promoting tea consumption, Unilever has few allies within tea. The company is expected to spearhead the stimulation of consumer demand for tea with its communication strategies, which is expected to benefit all brands of tea. Nevertheless, slimming tea manufacturers are also very lively in terms of consumer education regarding the health benefits and herbal aspect which will only help tea consumption.

Fruit flavoured tea remained low in terms of contribution towards total volume sales in the review period, but the adventurous nature of local consumers is expected to benefit the product in line with good consumer response towards fruit flavoured RTD tea. Herbal tea with health benefits is expected to perform well as Indonesian consumers will turn to traditional methods to cure and prevent diseases in line with growing health awareness and knowledge.