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ASIC 2014

Instant Tea, Instantly

BY RANDY ALTMAN

Walk into a supermarket in the U.S. and the heaviest tea packages are instants. Supermarket tea sections devote permanent shelf space to the instant category, an indication of stable market success. Millions of consumers loyally drink this type of tea, usually cold. Instant tea covers a wide product range, yet the trade has no uniform terminology for the sub-segments. Instant tea can be called many things (unprintably negative if spoken by connoisseurs), but superior economy-of-scale and high demand are a combination that fuels profit for both wholesale suppliers and retailers.

Most instant tea sells as mixes in cylindrical containers, unlike retail boxes of teabags or loose-leaf, with the marketing focus on convenience. In mixes, the tea is routinely a minor component, with sugar the standard primary ingredient, plus flavorings, coloring agents, anti-caking agents, and so on. The consumer defines the product as tea. The typical consumption experience is a happy imbiber of the cold beverage, “ice tea.”

The term “instant tea” is key to the successful marketing of the product. However, trade executives generally use terms like “soluble” or “powder” when discussing business among themselves. Even the phrase “ice tea” is not uniform across regions. Other areas call the product “iced tea,” and ice is often added to the sweetened and flavored beverage.

From a modern global marketing perspective, instant tea is simple to manipulate into brands, yet tricky to sell across borders. In the U.K. (where the term “ice tea” is often used), instant tea consumers tend to be more discerning, and the relatively expensive freeze-dried type attracts loyal customers. Unilever’s Brooke Bond renews a focus on its freeze-dried instant, PG Tips Pure Tea Granules, recently discontinuing the secondary brand, D Instant Tea. Freeze drying is a costly manufacturing process, retaining more attributes of the leaf in the finished product. This upscale market sub-segment usually packages in glass, highly unusual packaging material for tea that is not Ready-to-Drink.

Regular instant tea mix is often packaged in cardboard-sided cylinders with thin metallic tops and bottoms. Extensive variations exist within the instant category, exemplified by Lipton fielding “Diet Lemon” and “Diet Decaffeinated Lemon.” Both of these Unilever teas are labeled “sugar-free,” containing instead the famously trademarked NutraSweet artificial sweetener. These two lemon instants list only 5 calories per serving and display the world-wide recognized slogan, “The Brisk Tea.” The front label reads in red ink, “Natural Flavor,” with the additional statement on the side, “No Artificial Flavors, Colors, or Preservatives.”

Whatever the name of the instant tea, maximal profit potential is real, because the ingredients are among the lowest-cost consumed substances on the planet. While the tea itself is a low-cost type, the other ingredients are relatively cheap, too, with sugar usually in global glut. In fact, the primary current discussion among instant tea executives is the cost of sugar (often their main component) and the cost of mixing the sugar to the soluble tea.

Perhaps the trickiest dilemma in the instant-tea trade involves mixing the sugar, because of the North American Free Trade Agreement (NAFTA). NAFTA seriously damages the importers of unmixed instant tea into the U.S. No tea executive foresaw this hazard, nor are any to blame. A tiny section of NAFTA’s thousands of regulations hits the use of sugar as an added ingredient. Tea falls under NAFTA prohibition when sugar is added within the borders of the U.S. to create instant tea mix.

James Finlay & Co (U.S.) Inc. leads the battle to bring some intelligence to the regulations, which were never intended to restrict the tea business. Finlay, based in New Jersey, hired a law firm to lobby for removal of trade barriers to mixing instant tea with sugar. Donald Roberts, Finlay president, merits praise for quietly taking on this expensive leadership in promoting free trade for tea into the U.S.

Gary Vorsheim, president of Quality Instant Teas, located near Finlay headquarters, utilizes his quarter-century-plus tea experience to keep track of NAFTA developments. Like most companies, Quality Instant lacks the big budget to hire Washington’s pricey attorney-lobbyists. At the high-volume level, one of the most veteran importing subsidiaries is Tata Tea Inc, of Florida, where V. Venikiteswaran serves as president. The Florida Tata office operates with excellent efficiency. A low-profile source of this corporate skill is office administrator Joyce M. LaBarbera, with the company for 29 years, an impressive longevity found in the U.S. tea business.

Tata of India claims the largest instant tea factory in Asia, at Munnar, in the southern state of Kerala. In north India, Goodricke’s instant tea factory operates with the largest customized modern components, as the accompanying graphics depict. Goodricke, under managing director K. David, is the largest source of medical charity in this factory’s district. Goodricke has a history of donating expensive medical equipment, such as one poor Darjeeling facility’s only X-ray machine.

The traditional leading per-capita tea consuming regions, like Asia, remain less likely to drink instant, so the product is oriented to export globalization. The U.S. alone receives approximately 70% of India’s exported instant, with the remaining 30% going to 22 other nations. The global situation is more complex than this analysis first indicates. Asia is the most populous region on earth, and as more Asians attain an upper-middle-class hectic lifestyle, the need for convenience in beverage preparation increases. Hindustan Lever Limited (HLL) already reaches for greater instant tea market share in India via their 1 kilogram foodservice packs, in the Red Label line under the Brooke Bond brand, owned by Unilever Bestfoods.

HLL packaging aims to upgrade the giant nation’s approach to instant-tea foodservice, helping to compete against coffee and sodas. The HLL kilopacks’ “best before” time-frames range from three to six months. It maintains laudable goals for the quality of instant-tea consumption within a subcontinent with severe infrastructure obstacles.

HLL carries a huge range of goods, remaining a Unilever Bestfoods top profit center. Globally, the only rival of Unilever Bestfoods is Nestlé. The trademarked name “Nestea” represents a powerful brand known to many millions of consumers. In the entire beverage sector, Nestlé is historically the world’s leader at innovating instant products, spanning milk, coffee and tea.

Nestlé markets one of the heaviest U.S. retail tea packages, a 95.4 ounce container of instant. Another tea company, 4C, vouches “more tea taste” for its instant, a nicely subjective claim. For objective quantity at retail, Nestlé remains the heavyweight.

Unilever is the largest, most vertically integrated tea company involved in the global instant category, operating or owning, under different corporate names, expansive lands, factories and complexes. Instant tea is a highly international type, as defined by percent exported and re-exported. Lipton’s basic sugared variety states on the label, “distributed by © Lipton, Englewood Cliffs, NJ 07632 Made in Canada.” No tea grows in either Englewood or Canada. The label is printed correctly.

Why export to Canada, then re-export to the U.S.? NAFTA regulations are the culprit. NAFTA raises the cost to instant tea businesses, forcing much re-export within North America, specifically south to the U.S. NAFTA means extra income to Canadian companies who blend, ship, warehouse, pack and truck. This re-export is a cruel, unpredicted twist to “value added,” forced by NAFTA’s sugar-trade protectionism.

The first listed ingredient of Lipton’s instant product is sugar. The complete label listing states: “sugar, citric acid (provides tartness), instant tea, silicon dioxide (prevents caking), natural lemon flavor, artificial color (red #40).” Millions of consumers want their instant drink sweetened, lemon-flavored, a bit tart and looking somewhat like tea. Joe Simrany, long-time president of the Tea Association and Tea Council of the USA, superbly sums up instant tea’s appeal as a “total product.” The simple purchase of a low-cost canister leads to consumption of a beverage that provides a satisfying, quick, integral experience. This perception of conveniently speedy fulfillment is promoted by millions and millions of advertising dollars.

Lipton’s list of ingredients may seem long, but the product components are standard for the instant tea category. In fact, other companies may add caramel coloring, malts, high fructose corn syrup (HFCS) and so on. Behind all these constituent industries, from sugar companies to trucking enterprises, the tea plantations and exporting nations can also reap benefits. New data from Sri Lankan officials shows a record-breaking 28% increase in instant tea export tonnage over the previous year.

Current developments in the instant trade emphasize advances in convenience. Instant tea is evolving into a temporal realm where “instant” occurs at an even faster rate, following the speed of society. Nestlé introduces a new product called Nestea Iced Tea Liquid Concentrate with the slogan, “great-tasting tea, in seconds.” This new tea type should not be confused with ready-to-drink (RTD) tea, although the concentrate is sold retail and can be carried outside the home or office for consumption anywhere. Previous tea concentrates or extracts were basically for institutional or foodservice use. An advantage of the retail-oriented concentrate is avoidance of the burdensome distribution logistics of RTD tea, the most expensive type to transport, because the water component is bulky and heavy. RTD, which almost always is manufactured from types of instant tea, is sold to consumers with water already in the bottle at consumption strength.

Instant tea is a paradox, a counterpoint to elite premium teas, such as organic. Instant tea generally sells in the U.S. tasting sweet, looking brown and containing caffeine. The product does get millions of consumers to notice the word “tea” who otherwise would never consider the beverage. (Outside the U.S., instant tea mixes often sell as a different color, white rather than brown, the result of added “dairy whitener.”)

The future for instant looks stable. Combining total-product marketing with convenience does fit the youth demographic, feared by the trade as increasingly preferring colas. Instant tea is unusually flexible, easy to flavor or sweeten for specific market segments, using the same tea base. Good minds are planning now. In the U.S., Lipton wisely promoted Christine Durkin to manager of product innovation. The tea trade would do well to create more such posts. For nations-of-origin, the diversification in instant tea represents progress. Sri Lanka now seems generally the quickest to respond to market changes in the West. India’s export trends for instant are ambiguous, but remain outweighing Ceylon. Tea Board of India, under Chairman N. K. Das, is pushing value-added exports. Instant tea is a value-added type of tea, in terms of retail packaging and certain manufacturing infrastructure. India’s new Special Economic Zone system is building efficient, high-tech, low-labor-cost ports, needed to compete in export globalization as China enters the WTO and Vietnam’s harvest redoubles as planned. In yet another paradox, the category “instant” conveys Western values that producer nations’ politicians decry when seeking nationalistic, ideological voter support. These same producer-nation leaders sing a separate song when on tour in the West, seeking infrastructure development, foreign exchange stability, foreign investment and overseas markets. Asian leaders hold meetings on export globalization more often outside Asia than within.

Instant tea’s experience with NAFTA proves the need for a forum of coordinated international leadership in the tea trade. Along with NAFTA, the WTO and the EU present challenges to tea-industry practices under the “new global order.” Instant tea, ironically, shows we must work faster to influence international trade regimes. The goal is proactive influence, but no forum exists to protect the global tea trade. Instant tea is a sign of the times. A seemingly simple tea, instantly becoming more complex.

Randy Altman has advised the United Nations and other transnational organizations, and has held directorships and officerships at various non-profit corporations. He also holds several adjunct academic appointments.


Tea & Coffee - January/February 2002
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