Tea Market in Iran

Tea - Iran

Tea Market in Iran

HEADLINES

Current value and total volume sales increase by 12% and 6% from 2008 to reach IRR3,064 billion and 34,110 tonnes respectively in 2009

The popularity of unpackaged tea and increased volume of illicit trade hinders sales of packaged tea

Green tea records fastest growth of 23% in current value terms in 2009

Value growth high compared to volume growth due to the high rate of inflation and impressive price increase

Golestan Co maintains leadership with a 30% value share in 2009

Just 2% constant value growth is predicted for forecast period

TRENDS

The per capita consumption of tea in Iran is around 1.35kg and this means around 100,000 tonnes of tea is consumed annually. Given that only 15,000 tonnes is domestically produced, the country has to import at least 85,000 tonnes of tea through official channels. However, in 2008 only 22,000 tonnes were imported, while a year earlier the figure was 28,000 tonnes. A large chunk of demand for tea in Iran was met by smuggled, illicit products and in fact not all the tea that was officially imported in 2007 and 2008 was consumed and had to be stored in warehouses for use later.

The history of tea culture in Iran started at the end of the 15th century. Before that coffee was the main beverage in Iran. However, most of the coffee producing countries were located far from Iran, making shipping very difficult. With a major tea producing country, China, located on a nearby trading path, "The Silk Road", and the ease of shipping, tea has become more popular in Iran.

Packaged tea is still a new concept and is estimated to account for only 18% of overall volume sales. Most of the lower income part of society still cannot afford to buy packaged tea and meet their needs by buying unpackaged products in bulk.

In 2009 volume growth of 6% was recorded as compared to a 5% CAGR for the review period and shows that the consumption of packaged tea is increasing incrementally. With a rise in disposable income, more consumers are now able to pay for packaged tea and multinational brands have become much more popular.

Green tea recorded the fastest growth rate of 23% in current value terms in 2009. This is mainly due to the low base of the category, strong advertising by suppliers and the fact that the product is perceived as being healthier than other teas.

Independent small grocers and supermarket/hypermarkets remained the most important distribution channels for tea, accounting for 73% and 20% of volume sales respectively in 2009. The traditional distribution network of the Iranian market has lead to a high number of independent small grocers, which are vital for all suppliers in a highly competitive environment.

Tea is served at nearly all significant events in the Iranian consumer’s life. From marriage to mourning, tea is always present. There are special outlets in all the Iranian cities which offer unpackaged tea and hookah to the consumers. Ironically, they are called Ghahve khane which means coffee house in Farsi, further indication that Iranians were coffee consumers in the past. In recent years, some of the modern on-trade outlets like coffee shops and restaurants have started to offer tea bags instead of unpackaged tea as they are perceived to be of better quality.

In 2009, as a result of high inflation (20%), unit price continued its fast increase. The average growth rate was 6% for the whole category but was higher for the products with a lower sales base like green tea and black speciality tea bags.

Nearly all Iranians drink at least one cup of tea each day. However, the consumption of black speciality and green tea is still very limited due to lack of knowledge and awareness among consumers. In general, Iranians mostly use black standard tea as their first priority and then black standard tea bags for special occasions or when they are under time pressure.

COMPETITIVE LANDSCAPE

Golestan Co remained the leader in tea with a 30% value share in 2009. The company offers a wide product portfolio in terms of packaging and flavours. It has benefited from its good brand image and strong distribution network.

Unilever Middle East, official subsidiary of the Unilever group, with its Lipton brand experienced impressive growth of one percentage point in 2009 to account for a 9% value share. Although the company only started its marketing and distribution activities in recent years, it could experience healthy growth by continuing to increase efforts in these areas.

The tea category is divided into two separate domestic and international sectors. In recent years, Iranian consumers have become eager to use foreign brands. There is a general belief that the quality of these brands is better than that of domestic tea. Premium products performed well in 2009, with Unilever’s Lipton, Ahmad’s Ahmad and Golestan’s Twining brands increasing their value shares to 9%, 13% and 5% respectively.

Golestan’s commercial partnership with Associated British Foods Plc (ABF) led to the introduction of the Twinings brand to the market in recent years. This brand could experience very positive growth rates by using the strong distribution facilities of Golestan and is now available on the shelves of most key grocery retailers.

Domestic players and multinational brands use two different approaches to raise awareness and target relevant consumer groups. Domestic players use national TV advertising and billboards and focus on targeting low income consumers with their affordable prices. However, multinationals focus on satellite TV commercials and advertise in local magazines. They also often have strong point of sale presence and offer in-store sampling and promotions. Overall, Golestan Co has the strongest marketing strategy to maintain its loyal customers by offering a wide range of deals and promotions.

PROSPECTS

Conversion from unpackaged tea to high quality branded tea is expected to continue at a faster rate during the forecast period. Illicit trade will remain one of the key barriers to growth and there are no signs of effective action on the part of the government to control the high incidence of smuggling. It is also expected that domestic production of tea will gradually decrease as a result of relatively high prices of production and lower quality.

Loose black standard tea will remain the most important category during the forecast period. However, more modern products like green tea and tea bags will experience higher growth during the forecast period as a result of their lower base.

Unit price for tea is also anticipated to continue to rise but at a slower rate than the review period. This is also due to the considerable inflation rate in Iran as well as to an increase in the price of raw materials and production costs. In spite of that, in the highly competitive environment and with threats from unpackaged tea and illicit trade, pricing strategy will remain one of the most important issues for key suppliers. Even very small changes in price will have a strong impact on value share.

The Iranian market is inundated with unsuccessful launches. Any new product needs strong marketing activities and a good distribution network to survive in the highly competitive environment. It is expected that key suppliers like Golestan Co will try to expand their product portfolio to cover new types of tea and appeal to different tastes in order to meet the ever increasing demands of the market.

Green tea is expected to experience positive growth rates during the forecast period. Iranian consumers have become aware of its health benefits and with higher levels of income, a boost in sales can be predicted. However, marketing and promotional activities carried out by the key suppliers will play a very important role in determining how this consumer curiosity is translated into sales.

Fruit/herbal tea and other tea will continue to see marginal sales over the forecast period as consumer awareness is very limited. Any development of such categories in Iran would require massive levels of advertising and promotional support. As with many unfamiliar products, tasting sessions in supermarkets/hypermarkets could help to increase consumer awareness of these products, but they are so alien to Iranian consumers that any major development could only occur over the long term.