Typhoo sale shows UK tea market shift

Premier said it had agreed a sale for £80m (€117m) with Apeejay's subsidiary, Apeejay International Tea.

The business being sold includes the Typhoo, London Fruit & Herb, Lift and other associated brands, own label contracts and Premier's tea blending and packing facility near Liverpool.

The deal marks a new chapter in Typhoo's 102-year history, but also demonstrates how difficult it has become to make money from a declining market that has also been increasingly targeted by private labels.

Premier Foods' sales dropped almost £17m in the first half of this year, partly damaged by a nine per cent dip in tea revenues that the firm said reflected general tea market decline.

Market research group Mintel​ said in a report earlier this year that the overall UK tea market was in decline. Instant coffee sales have now moved ahead of standard tea sales in Britain for the first time.

But, this simplistic analysis hides deeper trends. Mintel said in its report that the growing popularity of speciality/herbal and fruit teas "has done much to curtail a dramatic slump"​. These sectors increased their value by 50 per cent and 30 per cent respectively between 2002 and 2004.

Typhoo's problem is that it has found itself caught in the no-man's land opening up in the middle of Britain's tea market.

It was not inside the 2004 UK top 100 Grocery Brands, unlike rivals Tetley Tea (32) and PG Tips (36), suggesting it has perhaps been more susceptible to rising competition from private label players.

Sainsbury's Red Label tea is one of the retailer's oldest own-brand products and a 160-bag box is around two thirds of the price of PG Tips. Price wars between Tesco and Asda have made private label tea even cheaper.

Own-brands as a whole now account for half of the UK's retail grocery sales.

That said, Apeejay may be able to prosper where Premier Foods could not. The India-based firm already has a good foothold in the top end of the market, selling several teas in London's Harrods department store.

Premier Foods chief executive, Robert Schofield, said his firm had dumped Typhoo because it was keen to slim its focus to only market-leading brands.

"We believe Typhoo will benefit from the focus and investment a vertically integrated tea business like Apeejay can bring,"​ he said. There is still a market to be had: the UK Tea Council says Britons drink 165m cups of tea per day, giving the country's tea market a value of around £700m.

Grabbing consumers when they are young appears to be key, with Mintel's study revealing that almost a third of adults only ever buy one type of tea.

Unfortunately these youngsters are exactly who tea firms have failed to woo. More and more young people in Britain are turning to coffee and bottled water, as a result of the trendy, sophisticated image now associated with the former and the health benefits connected with the latter.