Tuesday, May 31, 2016

What's Going On In The Australian Retail Tea Market? Part 1: The Reason For Tea's Tepid Growth

What's Going On In The Australian Retail Tea Market? Part 1: The Reason For Tea's Tepid Growth Australian tea market, green tea, herbal tea, black tea, Twinings, Lipton, market share, scan data, demographics, aging population

The Australian tea market may be dying a slow death.  According to scan data quoted in the Retail World Annual Report, the Australian tea market is worth A$314.5m, a figure that declined by 1.1% in 2015. 

That’s quite bad, but the market for black tea (all those Earl Greys and English Breakfasts etc) is declining far faster.  Retail Worldfigures in January 2016 showed black tea down 7.7%!   Black tea is doomed!

Green teas and “herbal and fruit infusion teas” are doing quite well, but it doesn’t seem to be enough.

And the reason is obvious: tea’s demographics have a very senior skew.

Now when a category like tea has such a senior skew there can be two reasons. 

The first is that it’s a food or a drink that people seem to naturally appreciate more as they get older, maybe for health reasons or because they have now retired and have more time to sit back and an enjoy the product.  Products such as these have a fairly bright future; as the Australian Baby Boomer generation retires, the number of potential consumers is only likely to grow.

The second is that it’s a generational thing.  The generation grew up with the product, consumed it all their lives, but their kids and grandkids have never really embraced it themselves.  So when their generation dies... there is no one to replace them.

Tea is probably benefiting from the first effect, but more importantly, it is suffering from the second.

Let me hit you with some facts and stats.

Here’s some stats from the ABS’s Australian Health Survey, showing what proportion of Australians enjoy a cup of tea on an average day; that figure being 37.6%.

Breaking the figures down by age group though and it’s suddenly obvious that not all age groups enjoy tea equally. 

Here’s a graph!

By way of comparison, let’s look at tea’s far more popular compatriot: coffee.  

Consumption of coffee starts far earlier, with over 60% of Australians hooked on coffee by the time they are in their 30s. 

The two beverages aren’t perfect substitutes of course.  You think of coffee and you think of getting an instant caffeine injection so that you can cope with your day.  You think of tea and you think of relaxing in the garden. 

However, the reason for elderly Australians preferring tea far more than other generations is most likely historical.  Which is why the tea industry should get worried.

Elderly Australians – known by demography nerds as the “Silent Generation”, the kind of generation you would expect to unwind with a lovely cup of tea – grew up in the Menzies era, when Australia was still a nation of genteel tea-drinkers.  Before instant coffee appeared in the 1950s, as well as the Italians who introduced the nation to “proper coffee.”  

And whilst the rest of the nation gradually switched to coffee, the “Silent Generation” never quite let go of their love for jiggling a tea bag.  

And whilst tea found a following in subsequent generations, it was never quite the same.  Which suggests that once the “Silent Generation” becomes forever silent they will leave an unfillable hole in the middle of the Australian tea market.

All is not entirely hopeless however.  I don’t want to finish this post on a downer.  As The Guardian reportedthis week, a burgeoning “craft tea” movement is emerging.  In other words, the hipsters have discovered tea. 

Will “craft tea” movement will manage to rescue the overall Australian tea market by bringing in new consumers? Sadly the answer is, probably not.  Craft beer for example, despite all of the hype it has received, has not increased the overall per capita consumption of beer, which in fact continues to decline.  What’s more, craft beer still only makes up a few percentage points of the total Australian beer market; not nearly enough to single handedly save the entire industry. It seems unlikely that “craft tea” would do the same.

Much depends on whether Woolworths and Coles follow the “craft tea” trend, and how much shelf space will be allocated to it. 

In my next post I’ll have a look at who it is that is winning the tea market wars.  Based on my commentary above you should not be surprised that it is not Lipton.
In my next post I’ll have a look at who it is that is winning the tea market wars.  In the meantime, here's a little preview.