THE OVERALL TEA SUPPLY CHAIN & ITS

COST STRUCTURE
The Starting Point Historical Tea Supply
A look at the UK Tea Market
Breakdown of the Packers Cost Structure
A comparison of Retail & Auction Prices
A few Concluding Comments
===========================================
Reminders
April 2006

This is average data

This averages all Packers Data
This looks at Average Auction Prices
Data mainly for 2004 & 2005

THE OVERALL TEA SUPPLY CHAIN & ITS

COST STRUCTURE
The Starting Point Historical Tea Supply
A look at the UK Tea Market
Breakdown of the Packers 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 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

Source: ITC and LMC International

THE OVERALL TEA SUPPLY CHAIN & ITS

COST STRUCTURE
The Starting Point Historical Tea Supply
A look at the UK Tea Market
Breakdown of the Packers 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

Retail prices exclude the impact of promotions.
Packers:

Unilever

- PG tips

Premier Foods

- Typhoo

Tata-Tetley

- Tetley

ABF

- Twinings

Fairtrade - Clipper, Caf Direct

Taylors

- Yorkshire

Retailers: Tesco, Sainsbury, Asda, M&S

Fair Trade premium 0.50 per kg (0.34)

2005 UK Tea Sales by Volume

The market is dominated by

TEABAGS
+/- 90%

Source: LMC International

Packers Average In-Store Prices

per kg

UK Retail Prices are very steady in

constant money terms

Source: LMC International

THE OVERALL TEA SUPPLY CHAIN & ITS

COST STRUCTURE
The Starting Point Historical Tea Supply
A look at the UK Tea Market
Breakdown of the Packers 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

The Make-up of the Retail Price

Packers Average Cost Structure

2004 (m)
148

Margins
(Profit as % of Sales )

THE OVERALL TEA SUPPLY CHAIN & ITS

COST STRUCTURE
The Starting Point Historical Tea Supply
A look at the UK Market
Breakdown of the Packers 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 Auction prices by segment

per kg

Source: LMC International

2005 Average Prices

Auction as a % of retail price

Econom
y
Products

Source: LMC International

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

THE OVERALL TEA SUPPLY CHAIN & ITS

COST STRUCTURE
The Starting Point Historical Tea Supply
A look at the UK Market
Breakdown of the Packers 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
Upgrading to
Speciality
should be the
future driver
for change.
Reduce plain
teas.

Main reasons for Differences in

Packers In-Store Prices

Advertising & Promotion costs

Packaging costs
Differing Supply Chain Efficiencies
Economies of scale
Market power with Supermarkets
Margin Strategy (Volume/Value)

RETAIL TEA SUPPLY CHAIN: UK Port - to - Supermarket

Shelf

CERTIFICATION

PORT
HANDLING
CHARGES

TASTE
CREATE
BLENDS
PICK PALLETS
BLENDING
PM PURCHASE
TEA MACHINES
PACKING OPS
CODING
DESPATCH
STORE
FINANCE &
MATERIALS
CHARGES
QA COSTS &
TEA LOSSES

SUPERMARKET
STORES

RECORD &
RECEIVE

UNLOADING

QC CHECK

UNPACK

STORE

STACK ON
SHELVES

RE-PACK (?)
PROMOTIONAL
DISPLAYS

PICK PALLETS
(?)
DISTRIBUTION
ROUTE
PLANNING
DESPATCH

TRANSPORT
TO
THE
STORES

(WAREHOUSING
)

RECEIVE
REPAIR (?)
(RE-)PALLETISE
SAMPLE
STORE

TRANSPORT
TO CUSTOMERS

DOCUMENTS
CLEAR
CUSTOMS

TRANSPORT
TO PACKERS

UNLOAD
INSPECT
SAMPLE
QC CHECK

CUSTOMERS
WAREHOUSE

PACKERS
FACTORIES

ARRIVAL
PORT

TRANSACTION
SYSTEM
SALES DATA
ANALYSIS
RE-ORDERING

FINANCE
CHARGES

FINANCE
CHARGES

TRANSPORT
COSTS

IT COSTS
WASTE

TASTING
EXPERTISE

HIGH LABOUR COSTS

RETAIL TEA SUPPLY CHAIN: UK Port to - Supermarket

Shelf

RECEIVE
REPAIR (?)
(RE-)PALLETISE
SAMPLE
STORE
TASTE
CREATE
BLENDS
PICK PALLETS
BLENDING

PORT
HANDLING
CHARGES

DESPATCH
STORE
FINANCE &
MATERIALS
CHARGES
QA COSTS &
TEA LOSSES

SUPERMARKET
STORES

RECORD &
RECEIVE

UNLOADING

QC CHECK

UNPACK

STORE

STACK ON
SHELVES

RE-PACK (?)
PROMOTIONAL
DISPLAYS

PICK PALLETS
(?)
DISTRIBUTION
ROUTE
PLANNING
DESPATCH

TRANSPORT
TO
THE
STORES

THE
SUPERMARKETS
CERTIFICATION
ARE SQUEEZING
(WAREHOUSING
THE PACKERS PM PURCHASE
)
MACHINES
MARGINS VERY TEA
PACKING OPS
CODING
HARD

TRANSPORT
TO CUSTOMERS

DOCUMENTS
CLEAR
CUSTOMS

TRANSPORT
TO PACKERS

UNLOAD
INSPECT
SAMPLE
QC CHECK

CUSTOMERS
WAREHOUSE

PACKERS
FACTORIES

ARRIVAL
PORT

TRANSACTION
SYSTEM
SALES DATA
ANALYSIS
RE-ORDERING

FINANCE
CHARGES

FINANCE
CHARGES

TRANSPORT
COSTS

IT COSTS
WASTE

TASTING
EXPERTISE

HIGH LABOUR COSTS

RAW TEA SUPPLY CHAIN: Manufacture Auction FOB

1. 1.
MANUFACTURE
EST
ESTAT
ATEE

RECEIVE
REPAIR
PALLETISE
SAMPLE
STORE
PICK PALLETS
DESPATCH

FINANCE
CHARGES

RECEIVE
REPAIR
PALLETISE
SAMPLE
QC CHECK
STORE
RE-PACK
MARK
FUMIGATE
PICK PALLETS
CONTAINERISE
DESPATCH

AUCTION
CHARGES

EXPORTING

TRANSPORT
CONTAINER

AUCTION
CHARGES

BUYERS
WAREHOUSE

TRANSPORT
LOTS

TRANSPORT
LOTS

MANUFACTURE
SAMPLE
QC CHECK
PACK
MARK
PALLETISE
STORE
PICK PALLETS
DESPATCH

PRODUCERS
WAREHOUSE

INSPECTIONS
CERTIFICATES
CLEAR
CUSTOMS
PORT LEVY
THC ORIGIN
B/L ISSUE
LOAD
SAIL
INSURE TO FOB
CESSES
ASSOC CHARGE

BUYING
CHARGES

FINANCE
CHARGES

RAW TEA SUPPLY CHAIN: Manufacture Auction FOB

1. 1.
MANUFACTURE
EST
ESTAT
ATEE

RECEIVE
REPAIR
PALLETISE
SAMPLE
STORE
PICK PALLETS
DESPATCH

FINANCE
CHARGES

RECEIVE
REPAIR
PALLETISE
SAMPLE
QC CHECK
STORE
RE-PACK
MARK
FUMIGATE
PICK PALLETS
CONTAINERISE
DESPATCH

AUCTION
CHARGES

EXPORTING

INSPECTIONS
CERTIFICATES
CLEAR
CUSTOMS
PORT LEVY
THC ORIGIN
B/L ISSUE
LOAD
SAIL
INSURE TO FOB
CESSES
ASSOC CHARGE

THE PACKERS ARE

SQUEEZING THE
TEA PRODUCERS
TO BECOME MORE
EFFICIENT
TRANSPORT
CONTAINER

AUCTION
CHARGES

BUYERS
WAREHOUSE

TRANSPORT
LOTS

TRANSPORT
LOTS

MANUFACTURE
SAMPLE
QC CHECK
PACK
MARK
PALLETISE
STORE
PICK PALLETS
DESPATCH

PRODUCERS
WAREHOUSE

BUYING
CHARGES

FINANCE
CHARGES

RAW TEA SUPPLY CHAIN: Manufacture - Private Sale FOB

1. 1.
MANUFACTURE
EST
ESTAT
ATEE

TRANSPORT
LOTS

MANUFACTURE
SAMPLE
QC CHECK
PACK
MARK
PALLETISE
STORE
PICK PALLETS
DESPATCH

PRODUCERS
WAREHOUSE

RECEIVE
REPAIR
PALLETISE
SAMPLE
QC CHECK
STORE
FUMIGATE
PICK PALLETS
CONTAINERISE
DESPATCH

EXPORTING

MAINLY BY
TAKING
COST OUT
OF THE
SUPPLY
CHAIN

TRANSPORT
CONTAINER

INSPECTIONS
CERTIFICATES
CLEAR
CUSTOMS
PORT LEVY
THC ORIGIN
B/L ISSUE
LOAD
SAIL
INSURE TO FOB
CESSES
ASSOC CHARGE

SELLING
CHARGES

FINANCE
CHARGES

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, 4060% 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.

THE OVERALL TEA SUPPLY CHAIN & ITS

COST STRUCTURE
Reminders

This is average data

This averages all Packers Data
This looks at Average Auction Prices
Data mainly for 2004 & 2005

THE END
April 2006