Tea Time

Health perception of tea leaving retailers feeling profitable.

Dana Squilla, Freelance writer

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Low risk, high margin and plenty of growth potential: These are just some of the reasons convenience retailers are locking in on fountain beverages. Today’s stores routinely offer eight, 10, 12, 16, or even as much as 20 valves at any one unit—in addition to individual urns for other beverages next to the larger dispensers.

And while carbonated soft drinks have long dominated the category, a noncarbonated, iconic quencher—iced tea—is quickly finding its niche.

“We’re expecting a total market sales growth for teas of about 8.9% in 2011,” says Goel Lal, senior consumer analyst for Chicago-based Mintel International.

Why a sudden interest in this summer favorite? It’s all about the health perception, experts say. Ken Pearson, vice president of foodservice for Carmi, Ill.-based Martin and Bayley Inc., operator of about 100 Huck’s convenience stores, agrees with Mintel’s findings.

“Customers are looking for healthier alternatives for their caffeine kick rather than ingesting sugary soft drinks or coffee. And iced-tea beverages fit the bill,” he says. “Whether it is a tea in the fountain or freshly brewed on the spot and placed in a dispenser next to the fountain, it’s capturing consumers with its flavor innovation and antioxidant power … and it’s quickly becoming a profit driver for us.”

Greater Variety, Greater Success

Picking up on Pearson’s comments, Chad Prast hits on the importance of variety. “Having an assortment is the main role for this program,” says Prast, foodservice director for Valparaiso, Ind.-based Village Pantry. “As we saw CSDs dropping slowly over the past few years, we found more customers trading over to teas. So we decided to start up a pilot fountain iced-tea program, which involves 50 stores in our Midwest division as well as 50 stores in the Southeast. Including this beverage helped us gain customers who didn’t want just the fountain drinks anymore.” And having two or three spigots running on the fountain at any given time supplies the customers with a plethora of choices. “Pepsi supplies us with the tea from the fountain, both regular and flavored in the Midwest; S&D Coffee does the same for our Southeast leg. Plus, we also offer freshly brewed sweetened and unsweetened options in urns next to the fountain apparatus,” Prast says.

Likewise, Huck’s also has taken on the “the more variety, the higher the sales” technique, and is tag-teaming major brands with a proprietary brew.

“Pepsi is our key supplier and provides us with Lipton regular, Lipton raspberry and Lipton peach, which we offer at the same time,” Pearson says. “But we’ve recently began carrying our in-house freshly brewed sweetened and unsweetened iced tea as well.”

Cynthia Hswe, senior marketing manager for Portland, Ore.-based Boyd Coffee, recommends using flavored Italian syrups to spice up the selection—a low-risk option for very little cost. “It’s a fantastic option for the conveniencestore operator who may not be willing to commit to an entire case of a particular flavored tea,” says Hswe. “So instead they can add one bottle of our Italia D’Oro Italian simple or flavored syrups to each 3-gallon brew of iced tea. And voila: They have a sweetened and/or flavored iced tea.” Another option, she says, is to place bottles out in the dispensed beverage area to allow customization for the consumer.

The Leader in Flavor

When it comes to the in-house freshly brewed dispensed tea, Hswe says that while regular black tea has always been a solid sales item, S&D is seeing growth in flavored offerings. “Tropical, raspberry and strawberry peach teas are really beginning to pick up pace,” Hswe says. “And we also just introduced a green tea due to several request from our customers.”

Even with all of the variety retailers are offering, whether it be from the fountain or freshly brewed, there is a flavor that takes the cake with consumer taste buds—and it isn’t of a fruit essence. “Our homemade sweet tea is our top-selling flavor. It just seems like our customers can never get enough of the stuff,” says Prast of Village Pantry. “Then our unsweetened tea is next, followed by the flavored teas, which are found strictly in the fountain.”

And Huck’s has garnered the same result with its iced-tea program. “In our stores, it seems as if we have a lot more sweet-tea drinkers than unsweetened and flavored-fountain tea drinkers. I would estimate that our sweet tea is responsible for about 70% of our tea sales,” says Pearson. “As soon as we began carrying sweet, it took off with the customer, and I think that’s partly because of the refreshing, homemade taste.”

A Seasonal Specialty?

With summer temperatures transitioning to fall, should retailers expect icedtea sales to fall until spring rolls around again? According to Hswe, no.

“For as long as we’ve offered tea to our retail customers, we’ve never found the sales volume seasonal. It’s always been consistent,” she says. “It is definitely popular year-round, and I think we have ready-to-drink iced tea to thank for that—it really changed consumers’ attitudes and behaviors toward iced tea.”

And although this will be Huck’s first winter season selling the beverage, Pearson remains optimistic his program will continue to thrive well above the 5% of total fountain sales it garners now.

“I believe a true tea drinker will drink it all year round,” he says. “Look at McDonald’s. They offer their sweet tea 365 days out of the year, and it’s been extremely successful no matter what season it is.”

But if you still aren’t convinced, Hswe says to keep in mind the power of merchandising. “Iced-tea merchandising up to this point has been pretty generic and lacking personality,” she says. “Our recent relaunch of our iced-tea program sought to bring some life to it, to build on how refreshing it is and put it into context for consumers, and I think it definitely helped.”

Meanwhile, Prast says his stores offer fountain combos, including both fresh and fountain tea, paired with different food items: “Right now we have a ‘buy a hot dog, chips and drink,’ which can include tea, for $2.99 and we’ve also done a ‘buy a footlong sub and get a free tea’ promo as well to make the consumer more aware of the tea option.”

Hidden Obstacles

Nevertheless, it isn’t always smooth sailing to harbor this type of program, Pearson says. “With the fountain, all you need to do is hook up the bag to the line and you’re ready go. But with your fresh-brewed, you have to watch your flow times and expiration times. You also need to make sure the equipment is properly cleaned out after every batch. It can be very tedious work, but you need to do it in order to serve up the best quality beverage possible,” he says. “It’s definitely more of an investment in labor because it acquires a different awareness level than soda typically does.”

To take most of the cleaning work out of the equation for Village Pantry stores, Prast says the stores have added disposable tea liners to their fresh-brewed dispensers. “Although this technique has made offering fresh brewed a little less labor-intensive, our store employees still have to clean the urn daily and, of course, brew it,” he says. “If they miss one of these steps, it can make for a bad customer experience.”

Where From Here?

Overall, the question stands: Does this beverage belong as part of the fountain program, and does it have the potential to last? “Absolutely,” says Hswe. “Iced tea is the fastest-growing beverage segment in convenience stores, so one that isn’t offering tea of any variety is missing out on a huge growth opportunity. High demand and high profitability are great business partners.”

As for the future of iced tea across the board, Prast expects it will continue to soar. “As the years go on, we’re going to see this beverage popping up in the fountain program in more stores and offering an even greater variety than it does now,” he says. “As the sales warrant, we have another couple hundred stores that we would like to grow tea into.”

Similarly, Hswe has a comparable forecast for the healthy beverage alternative: “As long as operators keep offering different flavors, whether preprepared or personalized by the customer, and make an effort to use iced-tea merchandising with high taste appeal, and maintain cleanliness of the tea brewers, then the sky’s the limit.” 

Iced-Tea Best Practices

  • Customers are drawn to a greater variety of flavors and look for options when they enter the fountain area.
  • Be sure to offer a sweet-tea option in addition to other flavors. Sweet tea is currently the go-to iced-tea choice for consumers.
  • Consider carrying both freshly brewed iced teas as well as branded programs.  

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