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Tea it Up!

More c-store customers are chugging back ready-to-drink (RTD) iced tea, sometimes in place of carbonated soft drinks and even bottled water.

"Bottled tea does well here -- it's coming close to replacing bottled soft drinks for some of our health-conscious customers," said Cindy Fisher, operations manager for West Texas Gas Inc. with 18 stores in Midland, Texas. "Bottled water is also pretty flat. There's more growth in teas and energy drinks."

Plaid Pantries, based in Beaverton, Ore., with 100 convenience stores, told Convenience Store News that RTD teas was surprisingly its best-growing beverage category in 2009, and the company realized this after cutting back on the shelf space previously devoted to it.

And BP's ampm launched its proprietary Essence teas bottled beverage line in the fall last year. "Ready-to-drink tea sales were among the fastest growing subcategories of packaged beverages in our stores," said Andrew Baird, BP's former vice president of marketing. "The Essence teas are a natural progression in the evolution of drinks exclusive to ampm."

It's not a majority subsegment for the c-store channel -- RTD tea accounted for 5 percent of packaged beverage dollar sales and 5.7 percent of packaged beverage unit volume, according to Convenience Store News Market Research, 2009. However, even in a down economy, ready-to-drink iced tea did see its average sales per store increase slightly (1.1 percent) in 2008.

Additionally, tea sales at convenience stores climbed 49 percent during 2006-2008, reaching $1.8 billion, partly driven by an increase in tea consumption among younger consumers, according to Mintel, a market research firm in Chicago, in its Tea and RTD Teas 2009 report.

And due to the rapidly rising "trendy, on-the-go" RTD teas, "convenience stores steadily gained retail tea market share from 2003 to 2008, primarily at the expense of supermarkets, ending the period at 28 percent," reported Packaged Facts in its December 2009 report, Tea in the U.S. While the channel lost a percentage point share in 2009, c-store trends still favor tea expansion, according to Packaged Facts. In 2009, convenience stores accounted for 27 percent of tea sales, up from less than 25 percent a few years ago, the research firm reported.

Suppliers and retailers alike are catching on. In 2009, RTD tea innovations included Sweet Leaf Tea Co.'s launch of a new 16-ounce aluminum can RTD tea line, specifically geared to the c-store channel.

"The cans allow us to sell premium products at more affordable prices," while still maintaining good margins for the channel, said Dan Costello, president. The cans have a suggested retail of $1.29 or 99 cents on promotion.

It is the 99-cent price point that has really grown the category for Folk Oil Co. in Homer, Mich., with 21 stores. "Bottled tea is growing here but it's mostly price-point driven," said Mike Schenk, marketing manager. "Our customers are finding the value in the 99-cent pre-priced Arizona teas and some of its competitors now. Arizona green tea is my No. 1 SKU. I watched it cannibalize Lipton at the $1.50 price point. We tried some of the premium teas like Tazo a few years back and it did nothing, even in my three best stores. People weren't ready for the $1.69 premium price, and I'm not sure they are now either."

Fisher agreed the premium tea products haven't resonated yet with her chain's customers. "We let one of our beer distributors bring in a premium RTD tea priced at $1.59 and it's not doing too well," she said. "We give it a 90-day probationary period, and we're probably going to pull it out after that. The highest price-point for our bottled tea customers right now seems to be $1.29."

For Schenk, sticking to core items is vital to the category success. "Fewer SKUs have sold better," he said.

But that may change as the market picks up and c-store customers become more exposed to premium brews.

"Some c-store operators are adding teas and more specialty-type teas in their fountain offerings first -- and we think that will have a synergistic effect with the bottled segment," David Lummis, senior market analyst for Packaged Facts told Convenience Store News in an exclusive interview. "We don't think that is going to harm the bottled tea segment, but just create more awareness and interest in tea in general."

Indeed, that is how ampm grew its Essence bottled line. "Our fountain sales of the Essence green tea were strong, indicating a market ripe for a beverage with natural, premium ingredients," said BP's Baird.

Selling more tea also "syncs up with the c-store push of the decade now, trying to move beyond the usual blue-collar male demographic and start scaling up to attract more females and those looking for healthier options," Lummis said. "Tea has so many things going for it -- it can almost be positioned as an indulgence, a snack, an energy boost, and it got a nice boost during the recession. When people were economizing more, they were rediscovering the comfort of tea during tough times that will cross over into buying it out in bottles as times get better."
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