Bringing Tea to the US

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Overseas tea producers seeking to enter the US market face long odds. This is how Australia tea supplier Planet Organic played the game and won

By Dan Bolton

COOLUM BEACH, Australia

It takes about 12 months to launch a product in the US with most of that time spent getting the basics right.

Long before their first sale, tea suppliers must first meet food safety and labeling requirements and deal with logistics and supply-chain challenges. They will have constructed detailed spreadsheets to analyze costs to arrive at a practical range of prices. They will have secured financing, devised a marketing strategy, and decided the ideal launch date and public relations events. Suppliers will have secured a broker and distributor and amassed sales data to make a convincing case as to why their brand will displace a tea already producing revenue on some retailer’s shelf.

In short, they will have spent a lot of money and enlisted a lot of help knowing that only a small fraction of products succeed. The fail rate for domestic producers large and small is estimated at 70-90% for food products introduced in the US market.

Inez Blackburn, a professor at the University of Toronto, told Food Processing magazine, “The failure rate for new product introduction in the retail grocery industry is 70-80%. For smaller US food businesses launching new products, the success rate was 11.6%.” No reliable estimates are available specifically for tea suppliers.

“What usually happens is that suppliers look at America as a large market with a lot of affluent customers,” explains Janis H. Grover, principal at Grover Global Food Marketing in New Jersey. “They don’t realize the market here is complex and multi-layered,” explains Grover who has worked with hundreds of brand owners evaluating the likelihood of success as they study the American food market.

What they don’t always understand is that the product must offer a unique selling proposition, she said.

“Buyers will ask ‘what is your product adding to my current selection?’ she said. “Is it a distinctive origin, unique flavoring, trend setting?”

Many products that make that claim are more likely iterations of existing lines. The market responds favorably to innovations, not iterations.

Packaging and logistics are another concern, explains Grover.

 “Are the product benefits and brand essence clearly communicated and packaged correctly, arriving in good condition in the format requested,” she asks.

Finally, is the product competitively priced to be commercially viable?

The task is daunting.

But the rewards are significant for owners generating above-average revenue, consistent profitability, and exceptional margins in retail. For some, marketing a well-established tea or coffee brand beyond their home market is the only way to maintain growth as they exhaust fast-growth options in country.

This is a story of how an Australian tea company, marketing its Planet Organic brand, approached the North American market and landed a sizeable sale to a $30 billion conglomerate that owns several department and home goods stores.

Much has been written about strategic positioning of fast-moving consumer goods (FMCG) and global trends. There are books and manuals aplenty describing tactical maneuvers for entering an overseas market. The scope of this article takes some of that into account (See, Go With the Flow, pg. 54). Here STiR traces a path back in time from the retail shelf to the inception of the plan in a faraway land.

How the quest began

Planet Organic is a 20-year-old firm that employs 60 with offices in Coolum Beach, Queensland, Australia. Brian Condon is the company’s director of marketing. He considers the company fortunate to be shipping its tea and booking re-orders following three years of pursuing placement of the company’s organic tea in the US market.

 “The best advice I received is that it would not be easy,” says Condon. “This all started with a conversation with a buyer from TJX Group, a multinational that owns two small Australian home store chains.” The buyer was interested in adding a tea line and in 2014 Condon was invited to present his selections. Numerous meetings followed but “it all fell through due to her budget having changed,” he said.

The exchange encouraged him to approach other US vendors such as Texas-based Whole Foods Market via email without success. He remained interested in selling tea in the US but was at a loss as to how to make it happen.

Timely export workshop

Last summer Condon received an email inviting him to attend a USA export workshop sponsored by FIAL (Food Innovation Australia, Ltd.) an industry-led, government funded initiative to accelerate commercially-driven collaboration and innovation in the Australian food and agribusiness.

“Nothing ventured, nothing gained so I signed up and took myself off to Brisbane for the day not knowing what to expect,” he said.

It was there he met Grover and her team.

“They were clearly knowledgeable and supplied us with all the information required to make an informed decision about entering the US market,” he said. At the end of the day, I felt a charged feeling that I was armed with the full facts about entering the US market but also with the appreciation that it was not going to be easy in the slightest.

“After the workshops, FIAL organized a US market insight tour in January 2017 for those of us who were interested,” he said. The destination was San Francisco and the Specialty Food Association’s Winter Fancy Food Show.

“In the interim, I started to trawl through some of the contacts that I had already made and followed up with an email to the buyer at TJX group. By chance, TJX had just appointed a food sourcing specialist here in Australia and my email was forwarded on to her,” he said.

“We modernized our packaging in August to create a more vibrant, colorful look so new samples were sent,” said Condon.

“Ironically, after signing up for the trip we received our first order from TJX which was packed and being shipped whilst I was in the US,” he said.

The five-day trip included store visits, presentations by brokers, distributors, logistics specialists, and packaging experts in advance of the event.

“Fancy Food was way bigger than any show we have in Australia and features so many great products,” said Condon. The event drew 33,000 attendees and a record 1,400 exhibitors. Grover had arranged meetings with relevant distributors, there were flash meetings on stairs between escalators, opposite the shoe shiners, he said. “She saw to it that we met all the people we would have never met had we just been wandering the show on our own,” said Condon.

“The five days were a roller coaster of emotions,” he recalls. “One moment you felt that entering the US market was going to be way too hard and expensive. Next moment you would feel that we can do this, and so on. At the end of the day, we came away armed with great knowledge, great contacts, and our eyes well and truly opened to what it takes to enter the US market. We were certainly under no illusions that it will be easy.”

During impromptu presentations, Condon shared the good news of his first order. “I felt that having our teas in the US would at least give us some exposure,” he said. “One distributor told me they would not look at the teas due to us being in home goods stores. Another said ‘fantastic,’ as her clients would not look at products unless they were already being sold in the US.”

On his return to Queensland Condon immediately began following up on new leads.

“I am still liaising with great contacts that I made whilst on the trip and I am hopeful of some more interesting outcomes,” one of which is placement in grocery, he said.

“We are still aiming at the health food stores,” he said.

Specialty grocery

Specialty grocery is a tempting target. Food sales in this retail segment, often referred to as “fancy food,” were $120.5 billion in 2015, up 21.2% percent since 2013. This total represents 14% of all US retail food sales. One of the fastest growing categories in these stores is tea and coffee.

“Specialty food sales are exploding right now,” says Phil Kafarakis, president of the Specialty Food Association, which owns and produces the Winter Fancy Food Show. “We’re seeing Millennials and men emerging as key consumer groups, foodservice sales are experiencing impressive increases, while online shopping and retail serve as key consumer sales channels. People are very interested in high quality, great tasting food and specialty foods offer both.”

But grocers have little wiggle room when it comes to selecting the right retail mix for their shelves. American grocers averaged only 1.7% net profit in 2015, up from the recession years but thin compared to most industries. Weekly sales average $11 per square foot of retail area, according to the Food Marketing Institute (FMI). To maintain that average, the high volume, low margin nature of the grocery business makes it imperative that every product in the store turnover rapidly.

As product development manager at The Great Atlantic & Pacific Tea Co., Grover launched 500 SKU’s to create the Master Choice brand, the first premium store brand in the US. She later worked with Liberty Richter and BRI-AL relaunching proprietary brands and coordinating marketing for 50 imported and domestic brands.

“Buyers do not have a hole on the shelf. They are monitoring thousands of items, many best sellers,” she explains. “My responsibility (as a buyer) was to add some variety, to compete with variety,” she said.

Suppliers succeed where there is an opportunity gap. “As a buyer, I’m always willing to listen to opportunities but they must be commercially viable, and not so unusual that people cannot visualize it on their table. Blood orange sounds like a great artisanal flavor for tea, but not blood sausage tea,” she laughed.

A typical store stocks around 25,000 food products including hundreds of teas. The USDA’s Economic Research Service estimates there are 320,000 packaged foods from which to choose which means there are more than a dozen contenders for every slot.

This is why metrics are so critical, says Grover. “In addition to seeking products that enhance their variety of offerings, buyers are constantly reviewing slow performers, the bottom 10% on their category list,” she explains.

Brand Australia

Australia has a large urban population, 90% of the country’s 24.5 million residents live in urban areas with 60% of those in cities larger than 1 million. But even in Melbourne (4.6 million) and Sydney (4.2 million) the female population of tea drinkers under the median 37 years of age with a taste for pomegranate hibiscus is small. There are only 1.4 million females in the entire country between the ages of 15 and 24 years.

“We felt now was the time to look at new avenues as Australia only has a limited population and potential. The Australian government is trying to encourage exports hence the funding to the likes of FIAL. China is also a huge opportunity but the US appealed as culturally our two countries are similar, we speak the same language, and already have many close links. You have to appreciate that one large state in the US gives us the same potential as the whole of Australia,” he said.

In 2016 the US imported only $189,000 of Australian tea (this is the value declared to customs), down from $372,000 in 2015. Many smaller shipments will have arrived by mail and are not included in this total. Australia exported $3.1 billion worth of goods in 2016 but exports of tea, coffee, mate, and combined represent only 0.02% of the total value of exports.

Gatekeeper

It takes a diverse, experienced, and skillful team to bring a product to market. Large corporations employ career specialists, Grover uses a different approach.

“She can pull in just the right people for almost any project from her extensive network,” say colleagues, adding “On the rare occasions when she hasn’t done something firsthand, she knows someone who has.”

Grover is focused on providing solutions that require putting people together to get the job done.

Her team consists of Donna George, a brand manager and strategist with 35 years of experience; Patty Murray, the team’s marketing and communications specialist; and Cas Sloane, a veteran sales executive based in Canada.

Her role as a gatekeeper is critical in conserving resources and credibility.

“Janis likes to succeed and likes to help other people succeed,’’ says Murray. “Sometimes that means helping someone understand they are not ready for market. Even so, Janis will tell them what they need to do. When they are ready, she will be ready too.”

Go With the Flow

North America is the world’s most lucrative market for tea.

Persistence Market Research (PMR) forecasts the global market for tea will surpass $21 billion by 2024, reflecting a compound annual growth rate of 5%.

Rahul Singh, manager of Digital Marketing at the New York City firm, estimated the global tea market totaled $14.45 billion by the end of 2016, up from $13.85 billion in 2015.

“North America is expected to account for a relatively higher value share of the market in 2016 followed by Europe and Asia Pacific (APAC) respectively,” he wrote. “The region is expected to continue its dominance, gaining 210 BPS (basis points) reaching an estimated 37% share of the market in revenues during the forecast period.”

At the global level, black tea production increased annually by 2.6% during the period 2005–2014 and green tea by 6.4%, in response to continued firm prices,” according to the FAO IGG (Food and Agriculture Organization’s Intergovernmental Group of Tea).

Consumption patterns are changing as high-value (packaged and blended) teas find consumer acceptance in producing countries where low-value tea remains the predominate choice.

Production doubled during the past 20 years to 5,305 million metric tons in 2015. Exports have increase annually by 1.6% in the decade ending 2014 reach 1.73 million metric tons in 2014. In 2015 1,802 million metric tons of tea was exported.

Tea has a steady wind at its back, sails full with lots of room to maneuver.

In part two, STiR explores marketing strategies used by Australian tea brands that have landed their teas in America. The article describes logistical challenges that inevitably arise when first exporting to the US.