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THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE. The Starting Point – Historical Tea Supply A look at the UK Tea Market Breakdown of the Packer’s Cost Structure A comparison of Retail & Auction Prices A few Concluding Comments ===========================================

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slide1

THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE

  • The Starting Point – Historical Tea Supply
  • A look at the UK Tea Market
  • Breakdown of the Packer’s Cost Structure
  • A comparison of Retail & Auction Prices
  • A few Concluding Comments
  • ===========================================
  • Reminders  This is average data This averages all Packers Data This looks at Average Auction Prices April 2006 Data mainly for 2004 & 2005
slide2

THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE

  • The Starting Point – Historical Tea Supply
  • A look at the UK Tea Market
  • Breakdown of the Packer’s Cost Structure
  • A comparison of Retail & Auction Prices
  • A few Concluding Comments
  • Reminders  This is average data This averages all Packers Data This looks at Average Auction Prices Data mainly for 2004 & 2005
slide3

Tea Price has fallen 3% pa in Real Terms

1957-2004

Note: Prices are based on London Auction Prices to 1998 and then for Mombassa auction price. (for Best PF1, Kenyan)

world supply has continued to run ahead of demand
World Supply has continued to run ahead of Demand

Source: ITC and LMC International

slide5

THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE

  • The Starting Point – Historical Tea Supply
  • A look at the UK Tea Market
  • Breakdown of the Packer’s Cost Structure
  • A comparison of Retail & Auction Prices
  • A few Concluding Comments
  • Reminders  This is average data This averages all Packers Data This looks at Average Auction Prices Data mainly for 2004 & 2005
uk definitions assumptions
UK Definitions & assumptions
  • Retail prices exclude the impact of promotions.
  • Packers:

Unilever - PG tips

Premier Foods - Typhoo

Tata-Tetley - Tetley

ABF - Twinings

Fairtrade - Clipper, Café Direct

Taylors - Yorkshire

  • Retailers: Tesco, Sainsbury, Asda, M&S
  • Fair Trade premium €0.50 per kg (£0.34)
2005 uk tea sales by volume
2005 UK Tea Sales by Volume

The market is dominated by

TEABAGS

+/- 90%

Source: LMC International

slide10

THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE

  • The Starting Point – Historical Tea Supply
  • A look at the UK Tea Market
  • Breakdown of the Packer’s Cost Structure
  • A comparison of Retail & Auction Prices
  • A few Concluding Comments
  • Reminders  This is average data This averages all Packers Data This looks at Average Auction Prices Data mainly for 2004 & 2005
slide14

THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE

  • The Starting Point – Historical Tea Supply
  • A look at the UK Market
  • Breakdown of the Packer’s Cost Structure
  • A comparison of Retail & Auction Prices
  • A few Concluding Comments
  • Reminders  This is average data This averages all Packers Data This looks at Average Auction Prices Data mainly for 2004 & 2005
2005 average prices auction as a of retail price
2005 Average Prices Auction as a % of retail price

Economy

Products

Source: LMC International

auction prices versus retail prices in 2005 per kg
Auction Prices versus Retail* Prices in 2005£ per kg

8.69

8.12

7.06

4.64

4.33

* Net of promotions

Source: LMC International

slide18

THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE

  • The Starting Point – Historical Tea Supply
  • A look at the UK Market
  • Breakdown of the Packer’s Cost Structure
  • A comparison of Retail & Auction Prices
  • A few Concluding Comments
  • Reminders  This is average data This averages all Packers Data This looks at Average Auction Prices Data mainly for 2004 & 2005
tea value chains per kg
Tea Value Chains£ per kg

Upgrading to Speciality should be the future driver for change.

Reduce plain teas.

main reasons for differences in packer s in store prices
Main reasons for Differences in Packer’s In-Store Prices
  • Advertising & Promotion costs
  • Packaging costs
  • Differing Supply Chain Efficiencies
  • Economies of scale
  • Market power with Supermarkets
  • Margin Strategy (Volume/Value)
slide21

RETAIL TEA SUPPLY CHAIN: UK Port - to - Supermarket Shelf

CUSTOMERS WAREHOUSE

PACKERS

FACTORIES

SUPERMARKET STORES

ARRIVAL

PORT

RECEIVE

REPAIR (?)

(RE-)PALLETISE

SAMPLE

STORE

TASTE

CREATE BLENDS

PICK PALLETS

BLENDING

PM PURCHASE

TEA MACHINES

PACKING OPS

CODING

DESPATCH

STORE

RECORD & RECEIVE

QC CHECK

STORE

RE-PACK (?)

PICK PALLETS (?)

DISTRIBUTION

ROUTE PLANNING

DESPATCH

UNLOADING

UNPACK

STACK ON SHELVES

PROMOTIONAL DISPLAYS

TRANSACTION SYSTEM

SALES DATA ANALYSIS

RE-ORDERING

UNLOAD

INSPECT

SAMPLE

QC CHECK

DOCUMENTS

CLEAR CUSTOMS

CERTIFICATION

(WAREHOUSING)

TRANSPORT

TO PACKERS

TRANSPORT

TO CUSTOMERS

TRANSPORT

TO

THE

STORES

FINANCE & MATERIALS CHARGES

FINANCE CHARGES

FINANCE

CHARGES

PORT HANDLING CHARGES

QA COSTS &

TEA LOSSES

TRANSPORT COSTS

IT COSTS

WASTE

TASTING EXPERTISE

HIGH LABOUR COSTS

slide22

RETAIL TEA SUPPLY CHAIN: UK Port – to - Supermarket Shelf

CUSTOMERS WAREHOUSE

PACKERS

FACTORIES

SUPERMARKET STORES

ARRIVAL

PORT

RECEIVE

REPAIR (?)

(RE-)PALLETISE

SAMPLE

STORE

TASTE

CREATE BLENDS

PICK PALLETS

BLENDING

PM PURCHASE

TEA MACHINES

PACKING OPS

CODING

DESPATCH

STORE

RECORD & RECEIVE

QC CHECK

STORE

RE-PACK (?)

PICK PALLETS (?)

DISTRIBUTION

ROUTE PLANNING

DESPATCH

UNLOADING

UNPACK

STACK ON SHELVES

PROMOTIONAL DISPLAYS

TRANSACTION SYSTEM

SALES DATA ANALYSIS

RE-ORDERING

UNLOAD

INSPECT

SAMPLE

QC CHECK

DOCUMENTS

CLEAR CUSTOMS

CERTIFICATION

(WAREHOUSING)

TRANSPORT

TO PACKERS

TRANSPORT

TO CUSTOMERS

THE SUPERMARKETS ARE SQUEEZING THE PACKERS

MARGINS VERY HARD

TRANSPORT

TO

THE

STORES

FINANCE & MATERIALS CHARGES

FINANCE CHARGES

FINANCE

CHARGES

PORT HANDLING CHARGES

QA COSTS &

TEA LOSSES

TRANSPORT COSTS

IT COSTS

WASTE

TASTING EXPERTISE

HIGH LABOUR COSTS

slide23

RAW TEA SUPPLY CHAIN: Manufacture – Auction - FOB

PRODUCERS WAREHOUSE

EXPORTING

MANUFACTURE

1. ESTATE

1. ESTATE

BUYERS WAREHOUSE

TRANSPORT

LOTS

TRANSPORT

LOTS

INSPECTIONS

CERTIFICATES

CLEAR CUSTOMS

PORT LEVY

THC ORIGIN

B/L ISSUE

LOAD

SAIL

INSURE TO FOB

CESSES

ASSOC CHARGE

MANUFACTURE

SAMPLE

QC CHECK

PACK

MARK

PALLETISE

STORE

PICK PALLETS

DESPATCH

RECEIVE

REPAIR

PALLETISE

SAMPLE

STORE

PICK PALLETS

DESPATCH

RECEIVE

REPAIR

PALLETISE

SAMPLE

QC CHECK

STORE

RE-PACK

MARK

FUMIGATE

PICK PALLETS

CONTAINERISE

DESPATCH

TRANSPORT

CONTAINER

AUCTION CHARGES

BUYING CHARGES

AUCTION CHARGES

FINANCE CHARGES

FINANCE CHARGES

slide24

RAW TEA SUPPLY CHAIN: Manufacture – Auction - FOB

PRODUCERS WAREHOUSE

EXPORTING

MANUFACTURE

1. ESTATE

1. ESTATE

BUYERS WAREHOUSE

TRANSPORT

LOTS

TRANSPORT

LOTS

INSPECTIONS

CERTIFICATES

CLEAR CUSTOMS

PORT LEVY

THC ORIGIN

B/L ISSUE

LOAD

SAIL

INSURE TO FOB

CESSES

ASSOC CHARGE

MANUFACTURE

SAMPLE

QC CHECK

PACK

MARK

PALLETISE

STORE

PICK PALLETS

DESPATCH

RECEIVE

REPAIR

PALLETISE

SAMPLE

STORE

PICK PALLETS

DESPATCH

RECEIVE

REPAIR

PALLETISE

SAMPLE

QC CHECK

STORE

RE-PACK

MARK

FUMIGATE

PICK PALLETS

CONTAINERISE

DESPATCH

THE PACKERS ARE SQUEEZING THE TEA PRODUCERS TO BECOME MORE EFFICIENT

TRANSPORT

CONTAINER

AUCTION CHARGES

BUYING CHARGES

AUCTION CHARGES

FINANCE CHARGES

FINANCE CHARGES

slide25

RAW TEA SUPPLY CHAIN: Manufacture - Private Sale - FOB

PRODUCERS WAREHOUSE

EXPORTING

MANUFACTURE

1. ESTATE

1. ESTATE

MAINLY BY TAKING COST OUT OF THE SUPPLY CHAIN

TRANSPORT

LOTS

INSPECTIONS

CERTIFICATES

CLEAR CUSTOMS

PORT LEVY

THC ORIGIN

B/L ISSUE

LOAD

SAIL

INSURE TO FOB

CESSES

ASSOC CHARGE

MANUFACTURE

SAMPLE

QC CHECK

PACK

MARK

PALLETISE

STORE

PICK PALLETS

DESPATCH

RECEIVE

REPAIR

PALLETISE

SAMPLE

QC CHECK

STORE

FUMIGATE

PICK PALLETS

CONTAINERISE

DESPATCH

TRANSPORT

CONTAINER

SELLING CHARGES

FINANCE CHARGES

main conclusions
Main Conclusions
  • Packers margins are low (4-8%)
  • Retailers margins on branded are also low (5%)
  • Retailers final margins are higher on their own label (20%)
  • Depending on product type & components, 40-60% of the Retail price is Packers costs
  • Really only Tea Estates make money out of Fair Trade. Fairtrade remains niche & is outside the Auction Market Mechanism.
slide27

THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE

  • Reminders This is average dataThis averages all Packers DataThis looks at Average Auction PricesData mainly for 2004 & 2005

THE END

April 2006