Yes, We Can

Usually, when you hear “Can it!” it’s not a good thing. But it looks like some ready-to-drink iced tea companies are taking the order to a literal extreme, and they consider it a positive development, as well.

That’s a big turnaround from the past decade, in which the glamour plays in the RTD tea category were defined by full-leaf brands that commanded packaging in high-end glass or at least elegant PET bottle designs. With consumers spending much of the decade trading up, it seemed like a great way to create separation from the mass market Liptons and Nesteas of the world, as well as AriZona, the category leader, and Snapple, the only bottled brand to have major mass market share.

But now, with the economy still down and consumers watching their expenditures, there’s a decidedly downmarket shift taking place in tea packaging -- and it is coming from brands that typically have an upmarket aura. Yoga-mom friendly marketers like Steaz, Sweet Leaf, Guayaki Yerba Mate, and even Snapple itself are rolling out cans in the months to come, trying to put pressure on AriZona in a category that the Purchase, NY-based company has dominated for years.

“It’s a great way, for the next six months at least, to really get the brand out there and introduce it to people,” said Steaz’ CEO Eric Schnell. Steaz launched a line of fair trade and organic-certified canned iced “Teaz” a year ago, but this summer Schnell and his partner, Steve Kessler, have begun an all-out pricing assault on grocery stores, dropping as many pallet displays of his inexpensive (think 5-for-$5 at retail) but highfalutin’ product into as many outlets as the channel will bear. With its crunchy credibility, Steaz has long been a Whole Foods stalwart, but this represents a change to reach consumers in old markets and new. And with large pallet drops and deals on multiserve packs as well, Schnell believes he is tapping into the organic consumer who has taken a blow to the wallet.

“We took the price decrease as a marketing decision,” Schnell said. “Whole Foods is loving it because they have one of their premium brands out there at a regular supermarket price.”

And it comes at a time when RTD tea’s five-year growth spurt – according to Mintel, RTD tea grew 19 percent from 2003 to 2007, as marketers took advantage of tea’s twin virtues of a healthy aura and moral rectitude – finally ended, the result of a consumer downturn that has pulled all beverage categories down with it.

It was a nice, long run, however: Honest Tea, Sweet Leaf, Tazo and Fuze all pulled in capital from Coke or Pepsi, while many other brands drew significant investment from private sources. With consumers rabidly chasing both the antioxidant health benefits of tea consumption and the good feeling that they were ingesting a natural, green product (not to mention one with plenty of caffeine) there was plenty of high-end love to spread around.

But with consumer buying power decreasing, the price point for many of the brands chasing companies like Honest Tea and Sweet Leaf has made them somewhat exclusionary, marketers say. Companies are faced with a tough choice – cut prices to keep their product out there while they continue to lose money, or go for less expensive packaging and risk losing cachet.

“We do see the organic consumer being more value conscious,” said Kara Nielsen, a trend analyst with the Center for Culinary Development. “Consumers have had to reorient their commitment to organic products to the economy. Everybody has been hit, and organic products strated shifting. People kept up with produce and milk, but not so much in the center store.

For Steaz, that issue is a nonstarter – it came out in cans first, so plans to possibly migrate the tea into glass bottles will remain on the shelf – but for other brands, keeping packaging high-end means a squeeze, even if it will be a temporary one.

“In this environment, there’s a lot of price pressure, and [cans] are so much less expensive than glass or PET it’s easy to jump at,” says Inko’s founder Andy Schamisso. “But the economy is bound to improve, and three or four years down the line, the premium-price item is bound to come back. Inko’s is a premium item, and our packaging has to reflect that.”

The movement into cans comes at a time when, oddly enough, many of the mainstream brands are trying to take advantage of the momentum accumulated by the upmarket brands. Both Coke and PepsiCo recently completed brand makeovers with their tea partners that emphasize their healthier qualities and feature cleaner, more modern packaging – as well as upscale lines like Lipton PureLeaf and Gold Peak. AriZona introduced a line of organic green teas, in bottles, at a higher price point than its best-selling 24 oz.-for-$.99 cans. And Snapple, while planning a cold-filled can line that will undercut AriZona on price (at $.79), recently made over its hot-filled premium glass bottles and has introduced products like white tea, all sweetened with natural cane sugar.

Still, Schnell seems to believe that at his new price point, Lipton drinkers are Steaz consumers who just need to give him a try.

“Stores are happy to have such a low-cost organic,” Schnell said. “We’re getting a lot of new customers who would never have gotten a chance to try us.”

As for losing his base, Schnell isn’t worried: he believes his product meets or exceeds so many of the cultural hurdles for the crunchy customer – in addition to its organic and fair trade credentials, it is low in sugar and features an indigenous farm worker on the label – that putting it at a value price isn’t going to turn off the consumer he’s been selling his green tea sodas and energy drinks to for years.

Expanding the base is also behind the move of a product like Guayaki Yerba Mate into the aluminum can game, according to Pierre Ferrari, who runs the marketing operation for the fast-growing company. By introducing a lemon-ginger flavor in cans, he hopes to hook a whole new group of consumers on yerba mate’s stimulating effects.

“The major move is to make the ready-to-drink mate available at a lower price,” Ferrari said. “The can is cheaper ($1.99, as opposed to $2.49 and up), it ships more easily, and it’s lightweight. It offers tremendous opportunity for new use occasions, like outdoors.”

Meanwhile, Snapple’s move into aluminum is clearly aimed at AriZona, the category leader. Snapple’s products have long been associated with bottles, but at a recent investor conference, Dr Pepper Snapple marketing chief James Trebilcock made it clear that “penetrating the value tea market… is a must do for us.”

Of course, with a canned product in place, Snapple isn’t the only company trying to pick off the AriZona buyer.At the tallboy end of the spectrum, Xing Tea has found distribution in 38 states with its mix of volume – 23.5 oz. – and all-natural ingredients, including pure cane sugar and while leaf tea, as well as a higher price point than AriZona to reflect its more premium mix. Meanwhile, Polar Beverages has introduced BlackJack in the Northeast, which actually undercuts AriZona with a permanent 88-cent cost on the label.

If you ask AriZona, the idea that there might be other value players on the market, even ones with organic bona fides, isn’t a scary one at all.

“Everybody’s copying us,” said AriZona spokeswoman Leigh Parinello. “Everybody’s doing 99 cents. Hey, it’s a great idea. We’ve been doing it for years.”