Hot Beverages: Are your sales losing steam?

Hot beverage sales are on the up for Susan Connolly, business development manager for her family’s four Spar stores in Wiltshire (two in Tidworth, one in Ludgershall and one in Pewsey). “I’ve just looked at the sales figures and across the whole hot beverages category sales are up 10%, which is good, but within that tea sales are down by about 15%, while coffee is up 9%.”

Susan has also seen an upturn in hot chocolate sales. “People buy the hot chocolate and serve it with whipped cream and marshmallows as a family treat, but sales are seasonal.”

As for which brands sell, just like other categories within a typical c-store, hot beverages seem driven by promotions.
“There are no loyal PG Tips drinkers any more,” says Susan. “People just buy whatever is on offer and we’ve always got one brand or another on promotion.”

David Smith from Smiths Corner Stores in Louth, Lincolnshire, agrees with Susan about the lack of brand loyalty. “My customers are not particularly loyal, although you’ll always get the customer who prefers pyramid tea bags to round ones,” he says.

David is not a big fan of pricemarked packs. “I avoid them if possible because I believe it’s the retailer not the manufacturer who knows their business, but we do carry extra-value packs such as ‘120 bags for the price of 80’ or 50%-extra free because it’s all about perceived value.”

Susan’s stores stock tea bags in boxes of 40s to 160s, but she says the 160s are typically 80+80 free.

“When the bigger packs are on offer they are cheaper than the smaller packs so I can see the smaller pack sizes fizzling out. For instance, we currently have PG Tips 80s on offer at £2, but a smaller box is £2.29 so it’s cheaper to buy the bigger box even if you don’t want that many bags.

“There’s the perceived value for the consumer, but not necessarily for us,” says Susan about promotions in general, but she adds that they can sometimes increase incremental sales. “If a customer has come in for something other than coffee but sees it on offer they might pick it up, so that’s a sale we wouldn’t have got otherwise.”

In her family’s biggest store, coffee gets a whole metre of space comprising six shelves, as does tea, but in the other three stores it’s 1m of six shelves for all hot beverages.

As well as standard tea, they stock Earl Grey, Lady Grey, breakfast, camomile and a couple of fruit teas, most of which are Twinings.

David stocks fruit, camomile and green tea: “We stock them because customers asked for them, but they don’t earn their space,” he says.

Tom Hazelden, Partners for Growth controller and convenience manager at Unilever UK, says tea tastes have evolved in recent years, with many people introducing fruit and herbal, speciality or green tea into their repertoire. “A successful tea fixture should reflect these changes, with the best-selling lines faced proportional to store size and location.”

His colleague, tea category director Faye Newman, adds: “There is a big opportunity for retailers to offer a range tailored to suit their location and shopper profile. In affluent areas, look to offer more choice, with two or three more lines of fruit and herbal or green teas. In less affluent areas, focus more on the core best-selling normal teas.”

Many retailers are already doing this. Susan says: “One of our stores is in a really rural area with a lot of agricultural workers and older customers and we sell PG Tips loose there.”

Calum Duncan of Kincraig Stores in Aviemore describes his typical customer as ‘elderly and rich’, which probably explains why in tea his best-seller is Clipper Everyday Fairtrade, which he sells at £2.79 for 80 bags.

Calum’s discerning customers might like to try Tetley’s latest launch. Aimed at high-end shoppers, the new Blend Collection comprises Tetley Extra Strong for those who like a stronger cuppa; Blend of Both which brings together the goodness of green tea with the taste of black tea, all in one bag; and Tetley Kenyan Gold (previously called Estate Selection).

Andrew Pearl, director of customer and shopper marketing for Tata Global Beverages, says: “The Blend Collection has great potential for sales. Tea is a great value beverage and at about 2p a cup it remains the cheapest beverage aside from tap water, but shoppers can take a real step upin quality and gain a different taste experience by just adding about 2-3p per cup.”

Calum’s customers have a taste for premium coffees, too. “Ground coffee is most popular - Traidcraft and Taylors of Harrogate, both of which sell at a standard price of £3.99,” he says. Other brands on his half-metre hot beverages display include Kenco, Nescafé, Tetley and Twinings - usually in pricemarked packs.

“Yorkshire Tea sells here even though we are in Lincolnshire and not in Yorkshire,” jokes David.

“With coffee we sell mostly instant in jars, but we do sell the Nescafé single-stick packs of cappuccino and latte. Also, if they’re on offer, we’ll carry those single-sachet one-cup jobs. And we stock a Fairtrade and roasted coffee.”

The coffee sachets David is talking about will include Nescafé Original ‘In 1’, which offers white coffee in single-portion sachets, packed five to a box. Nestlé says sales have grown since the product has been available in a £1 pricemarked box. The company says ‘In 1’ not only drives a higher pence per cup for everyday coffee, its sales are incremental to core coffee lines.

Meanwhile, Susan’s biggest seller in coffee is instant granules. “Nescafé is our best-seller. We also stock Alta Rica and Colombia, and Douwe Egberts when it’s on offer.”

Douwe Egberts might not be a huge seller for Susan, but Rob Sergeant, business unit manager impulse at the firm, reports that Douwe Egberts Pure Gold 95g is the fastest-growing SKU in impulse with sales up 64%, making it worth £1.3m (Nielsen).

With coffee shops on every high street and most places in between, much has been made of our coffee culture and consumers’ keenness to replicate coffee-shop style coffees at home. But Susan says her customers tend to buy the more upmarket coffee only on offer.

“Our Pewsey store stocks coffee for cafetieres, and we started selling the pods for Tassimo. The local Co-op had stopped stocking them so we thought we’d give them a try. I didn’t think they’d sell, but they are going really well.”

As for malted drinks, Susan says sales are seasonal and quite slow. Horlicks and Ovaltine tick along, but are generally sold to older people. David still stocks Horlicks, but says he doesn’t sell much of it. “And we have hot chocolate and cocoa powder - they’re not particularly strong sellers; they sell more in winter.”

Calum doesn’t offer any malted drinks, but does have hot chocolate - Aero and Cadbury.

When asked what manufacturers could do to help sales, David points out that manufacturers have done a lot of work on the hot bevs market “but it’s aimed at younger consumers when the majority of people who make hot drinks at home are older and very traditional. They like their instant coffee, while youngsters follow fads more and prefer their coffee to go.”

Age is undoubtedly a concern for the hot beverages category - while older consumers love their regular cuppas, many younger ones have never got into that daily habit. Susan says: “I was reading an article the other day that said coffee and tea are generally in decline as people go for healthier choices such as water; even in tea they are opting for fruit teas.”

Tata’s Pearl says the focus on healthy living continues to be one of the most important factors influencing tea consumption and this is benefiting the healthier segments such as green and redbush. “Value sales of green teas have increased 33.8% in convenience and 6.8% in total impulse, while fruit and herbal have increased 27.9% in convenience and 2.3% in total impulse (Nielsen).”

Pearl adds: “We are working with customers across all channels to review how best to increase tea sales. In simple terms it is about understanding what your customers want and having the right range of teas from the right companies to meet these needs.”

Taylors of Harrogate is another company that is working closely with retailers. Convenience channel controller John Sutcliffe says: “In the past two years we have worked with symbol retailers and wholesalers to look at improving merchandising and how retailers shop in the cash and carry. In 2015 we will continue this and look to do some more expansive research regarding the purchase decision hierarchy in the convenience channel.”

Recent activity includes sampling in cash and carries via the Yorkshire tea van Little Urn. “We handed out free tea to customers as they entered the depot and money-off vouchers at the fixture for Yorkshire Tea,” explains Sutcliffe.

For Susan, in-store tastings work in other categories so that’s perhaps something she could try on hot beverages. “If a supplier wants to organise a tasting in one of our stores I’d be happy to give it a try.”