Latest acquisition by Sara Lee shows thirst for gourmet tea
The contrasting nature of these companies sheds some light on differences between the previous deals and this one. Both Honest Tea and Sweet Leaf Tea are specialized in ready-to-drink teas, which have very specific distribution channels and business models. Ready-to-drink beverage manufacturers usually hit a ceiling in their distribution, production and marketing capacity that prevents them from growing at their full potential. The need for solid partners with far-reaching distribution networks and deep pockets becomes self-evident in order to gain ground nationwide. Going down this route becomes almost inevitable. Tea Forté, on the other hand, is a "hot" tea company, specialized in premium loose and bagged teas that are supplied to luxury hotels, gourmet restaurants and specialized retailers. Due to its premium pricing and a more fragmented distribution network, it is a less convenient option for a company such as Sara Lee that is focused on mass-market brands. So what gives?
Despite a seemingly meager turnover of $12 million in 2011, which is dwarfed by Sara Lee's $9 billion global sales, Tea Forté is an established brand in the gourmet tea industry, which remains a relatively small playground in terms of sales. Its products also score high on packaging design and international distribution. The unique pyramid-shaped tea bags are sold in 35 countries, giving the Massachusetts-based company a worldwide exposure that few other US companies can match. But beyond these specific considerations, the larger implication of this deal is the potential that Sara Lee (and other giants of the food and drink industry) sees in the gourmet tea market. Gone are the days when full-leaf teas were sold in generic pouches with self-printed labels at local markets. They now sport the same aesthetic packaging as cognac or luxury chocolates. This transformation has brought teas to a wider audience and made them an integral part of a gourmet's shopping experience.
The fact that Teavana, the largest tea retailer in the country, has gone public last year and that words like Darjeeling, Genmaicha or Oolong are no longer taboo only confirm that the proliferation of gourmet tea is happening now. With many beverage sectors seeing declines due to the emergence of health and environmentally conscious consumers, Sara Lee is wisely tapping this trend. It hopes that its newest tea brand will be able to maximize this breakthrough in specialty and, potentially, in mass retail. Indeed, Tea Forté seems to have the capacity to make it all the way to most supermarket shelves thanks to a mix of a popular product, unique packaging and brand recognition. If history serves as an indicator, Sara Lee is relying on a blueprint used by luxury alcoholic beverage makers a few years ago. It's no secret that the success and the omnipresence of brands like Glenlivet, Hennessy or Moët Chandon (owned by international corporations such as LVMH and Pernod Ricard) can be traced back to the availability of their respective "accessible luxury" ranges in mass retail.
It is wishful thinking for anyone in the tea industry to believe that we will see a competition-grade Ali Shan oolong on a shelf in Wallmart in the near future, but so is the prospect of grabbing a bottle of Richard Hennessy cognac. A far more probable scenario is that quality tea will take a sizable bite out of the current offer of entry-level products, just as coffee beans displaced their inferior instant cousin. Sara Lee, which owns several brands of instant coffee and, more pertinently, bottom-of-the-barrel tea, hopes this acquisition will ensure that it doesnt find itself on the back foot going forward.
Stepas Parulis is the editor of TeaTrend and oversees Adagio's operations in Europe. He analyzes the tea industry through the prism of market and consumer trends.