The world’s largest tea brand could be changing hands as Unilever struggles with a decision on the future of Lipton.
The internationally known tea has been owned by the Anglo-Dutch conglomerate since 1971. In 1984, Unilever also acquired Brooke Bond, giving it the leading position in Britain, a nation of avid tea drinkers. But traditional black tea sales have been hit by a slowdown outside the grocery aisles of the British Isles.
Thomas Lipton began planting tea gardens in Ceylon (Sri Lanka) in 1878. By growing his own tea, the Scottish merchant was cutting out the London auctions. This scheme, along with his trademark slogan Direct from the Tea Gardens to the Teapot, allowed a larger profit margin on his tea sales. Over a century later, the Lipton Tea brand accounts for 14% of the world tea market.
But the brand has been slow to adapt to the world’s changing taste in tea.
“For 10 years we’ve been trying to ignite growth into our tea business unsuccessfully,” said. Chief Executive Alan Jope last Thursday.
“We’ve built a very nice herbal and green tea business, but we have a big black tea business which, for some time, has been a structural drag on Unilever’s growth. Our number one priority in the business is accelerating growth. We feel tea might be better managed or owned, in a different structure than it is today.”
In other words, the parent company of global trademarks such as Dove and Ben & Jerry’s is looking to offload a brand that generates annual sales of about $3.3 billion because they didn’t read the tea leaves in time.
“Younger consumers are looking for novel experiences.” Mr. Jope said. “The black tea drinkers are getting older and consuming less and will start to fall over, and that is actually the fundamental problem.”
Apologies to British grannies.
Unilever has tried to pivot away from black tea by buying more innovative companies like Tazo Tea from Starbucks and the premium Australian tea company T2, which both sell pricey flavored tea and herbal blends aimed at a younger audience.
But, while big box stores now sell a 15-bag pack of specialty tea for 30 cents a bag, Lipton has for too long staked out the lower end of the market by pricing their black tea bags at around 4 cents.
There is no room for growth in that segment.
Nearly twenty years ago, I met a Lipton tea buyer in Assam after a day spent in the Guwahati Tea Auction Centre. After watching him purchase 40% of the offerings that day, I asked what his criteria were.
“For me, it’s always about the largest quantity at the lowest price,” he quickly said.
I suspected that steam had already gone out of the century-old company. It can take decades to change the course of such a mammoth establishment. Even then, those of us in the rising American tea culture were seeing a change of direction toward green tea and herbals in the marketplace.
My intuition was proven correct because the number of cups of tea drunk climbed 6.5% between 2012 and 2016, while tea sales grew 9.9%, meaning more people are drinking pricier tea – not 4 cent teabags.
I’ll drink to that!
CVS Capital Partners purchased Lipton and its portfolio of brands that include PG Tips, Pukka, T2, and TAZO for $5.1 billion at the end of 2021.