After Unilever: The Fragmented New World Order of Global Tea

November 2020

Unilever’s planned exit from most of its tea operations will be a seismic event in global tea. It will further accelerate the key long-term trend in the competitive landscape of global tea: fragmentation. In the future, the key players in tea will be regional or national in nature, and there will be little direct competition between them.

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Key Findings

The world’s largest tea company is preparing to largely exit the category

Unilever – by far the largest company in global tea – has announced plans to divest most of its tea business by the end of 2021. This will include major global brands like Lipton and PG Tips, although it does intend to hold onto its share of its RTD joint venture with PepsiCo, as well as its tea operations in India and Indonesia.

Exit caused by a challenging environment in many of Unilever’s core markets

Unilever’s model of selling large volumes of black tea bags through grocery channels still works in parts of the developing world, but in its core European and North American markets, tea consumption is shifting towards premium and herbal tea – two areas in which Unilever has had trouble establishing itself.

The exit of Unilever leaves the competitive landscape with no central player

Assuming a single buyer is found for all the brands up for sale, the purchaser of Unilever’s tea brands will become the largest tea company in the world. Without RTD tea and the key Asian markets, its tea positioning will, however, be weaker than Unilever’s was. There is also a good chance the buyer will focus on cost cutting and profitability, and further shrink the footprint of Unilever’s old brands.

Regional players will now assume centre stage in global tea

This shake-up will increase the prominence of regional players, whose category and/or geographic focus has positioned them better for the future. The largest players will not compete directly with each other, as companies like ITO EN, Orimi Trade and Teekanne maintain their focus on their home regions.

All signs point to a more fragmented future for global tea.

Numerous trends, which include the rise of e-commerce, increasing herbal tea consumption and the dominant role China plays in global growth, point to an increasingly fractured global tea landscape. In contrast to other beverage categories, like coffee, the structural factors at play in tea are towards greater fragmentation.

Introduction

Scope
Key findings

Why Unilever Wants Out of Tea

Why is Unilever eager to sell most of its tea business?
The market for black tea is not what it used to be
The inability to gain share in the largest markets was especially critical
Herbal teas are the dominant source of growth in developed countries
Unilever has not kept up with the wider shift towards premium
The RTD exception: why Unilever is staying involved
Why Unilever wants to become a regional tea company

The New Landscape of Tea

Forces driving fragmentation in the tea market
Map: only Unilever holds more than regional sway in global tea
The break-up of Unilever tea operations will further fragment the market
The move to e-commerce will further erode share of the big players
Why hasn’t tea gone the way of the consolidating coffee market?
The future of tea foodservice looks set to remain divorced from retail
RTD will remain largely under the control of soft drinks companies

The Key Regional Players

No one exerts control over the massive Chinese market
ITO EN tries to move globally from a fragmented Japan
Orimi Trade creates an effective block to foreign brands in the CIS
Tapal maintains a wide lead in the growing Pakistani market
Teekanne rides the herbal wave
New Unilever will be a potent regional player
ABF and Ahmad: the last of the global players

Conclusions

Conclusions: the new world tea order after Unilever
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