Rising Demand In New Zealand For Single Source Hot Drinks

The process of selling and enjoying tea and coffee in New Zealand is following the path of wine. Consumers are asking for specific blends of tea or coffee from specific origins. Tea and coffee from specific origins have a unique taste and largely appeal to passionate tea and/or coffee drinkers.

In 2010, both black speciality tea and fresh ground coffee registered impressive current value growth of 9%. Much of this was due to fresh ground coffees and black speciality teas from specific countries of origin. Despite their premium retail prices, consumers appreciate the unique tastes offered by single origin teas and coffees. In fresh ground coffee, Latin American coffee (Colombian, Brazilian and Jamaican) and African coffee (Kenyan and Ethiopian) enjoyed wider availability through supermarkets as well as foodservice outlets such as cafés, bars and restaurants.

Consumer appreciation of tea from specific geographies is also on the rise. The traditional and dominant single origin tea, Ceylon tea, is being complemented by several other single origin teas such as from Kenya, India and China. Both The Bell Tea & Coffee Co and Dilmah New Zealand have made significant efforts to popularise single origin tea.

Branded tea retail outlet promotes exotic premium varieties

Australasia’s first Dilmah T-house was opened in September 2009 at Ballantynes Department Store in Christchurch. Named after the ‘t-series’ in the Dilmah Single Origin range of teas, the T-house offers 23 variants of tea from Sri Lanka (Ceylon). The teas range from indulgent varieties of gourmet black teas to green tea, handmade white tea and infusions. The T-house also offers Dilmah boutique Watte teas – four teas in a more super-premium price tier.

This kind of branded retail extension of a packaged tea line is a strategy that has found some success in places like China, but it is still a rather untested approach globally. Premium tea brands have more commonly arisen out of successful retail concepts than the other way around. However, tea overall is still viewed by many consumers as a cheaper product. Offering consumers an in house experience with higher quality teas and tea preparation is a good way to raise consumer awareness of the unique taste benefits offered by tea and coffee from different origins.

Dilmah New Zealand is likely to expand its Dilmah T-houses to other major cities in an attempt to offer a wide range of single origin teas with different taste profiles. Such activities will lead to better consumer understanding and appreciation of single origin tea and also lead to a wider range of single origin tea in the off-trade channel. Further segmentation is also likely in single origin tea, with tea based on particular geographical locations such as upcountry, low country or in the mountains.

Banking on a café culture

In coffee, foodservice sales continued to be seen as a dynamic channel, with novel coffee flavours being offered to complement the vibrant café culture throughout the country, although the current economic climate limited consumer frequency of visits to cafés and restaurants. The different coffee flavours offered by an increasing number of speciality coffee shops in recent years has led to the significant expansion of the premium flavoured coffee niche in the off-trade. With many households opting to avoid expensive foodservice offers during the recent recession years, shoppers tended to instead enjoy more affordable premium flavoured coffees such as cappuccino, latté and flat white at home.

This consumer desire for more premium off-trade coffees is expected to remain as their economic situations improve, and as a result there is a strong opportunity for the emergence of more premium single source coffees, especially from established major brands. Coffee outsells tea by a nearly 2:1 margin in retail value terms in New Zealand and specialist coffee retailers are well established and will continue to drive this preference.

Forecast uncertainty remains

The main threat to forecast growth will be low consumer confidence as the country is currently experiencing a period of economic recession. The recent earthquake in Christchurch further worsened the situation and it is likely that economic recovery will be a slower process than originally estimated. This has led to a situation of cautious consumer spending.

Despite these recent developments, the underlying trend of a shift towards higher quality coffee and teas remains. Manufacturers and retailers alike should take the opportunity to highlight the differences in quality of premium single source hot drinks through both in store consumption and a greater promotional focus on consumer education. Though the top 5 players controlled more than 70% of hot drinks retail value sales in 2010, there is no dominant leader in the premium hot drinks space. As this segment develops, there is room for new entries to make an impact.