You may be surprised to hear that Lipton tea, that standard, off-the-store-shelf tea we all know, is the #1 selling brand in China. China is one of, if not the world’s oldest tea growing and producing nation, and tea culture goes back thousands of years. So how in the world did a new, foreign tea enter the China market and become a leader in just the past two decades?
Currently, more than 70, 000 Chinese tea maker enterprises operate in China. However Lipton, owned by Unilever from the UK, is the most popular brand and holds the largest market share in China’s tea market. And they only entered the market in 1992. How did this come to pass? What are its secrets?
From Farm to Store, a Sophisticated Operation
The first secret to Lipton’s success lies in its global distribution know-how. The tea is grown in China, processed in China, and packaged in China by Chinese employees. Of course, local tea makers can do that too. What Lipton can do that Chinese competitors have not done historically is to build a sophisticated business system, including sourcing, production, branding, cost control, and R&D. Most Chinese tea makers are small and each business tends to focus on its limited area. When Lipton entered the Chinese market in 1992, it brought with it the business acumen related to controlling the entire cultivation, production, and distribution process. Western marketing techniques had also taught them how to build a brand. More than just selling tea, they had a clear vision of becoming a market leader in China and doing so by developing mutually supportive business systems that helped them reach every corner of the market while also building brand awareness among Chinese consumers.
Localized Investment and Operations
Lipton quickly realized that to be successful in China, one had to invest in China. According to statistics, Unilever’s investment in China has reached over $1 billion since 1986. In October 2005, the company invested $50 million to build the world’s largest tea manufacturing plant in Hefei and is now planning to build a tea production base in Huangshan. By 2012, Lipton had imported over 100 advanced technologies and hired more than 2000 employees in China.
Many foreign brands still try to sell from abroad or will produce product in China, ship it abroad, and then have it shipped back for sale, dramatically increasing cost for the Chinese consumer. By producing everything in-country, Lipton not only greatly reduces its cost, but is able to build political good-will among both the government and the people by, in a sense, becoming a local brand.
Moreover, being on the ground with a sophisticated distribution chain allowed Lipton to bring its expertise in tea cultivation to bear as well. With a large portion of the country still rural and fairly uneducated, there were no technical approaches to achieving maximum crop yields. For example, most Chinese farmers used pesticides incredibly liberally, operating under the blind assumption that “the more, the better”. The effect this had was not just to have more pesticide penetrate into the tealeaves, but also to strip the land of its fertility through overuse. Lipton introduced scientific farming techniques that increased yields, kept the land fertile, and minimized pesticide residue in its teas.
This local set up also allows Lipton to gain a deep understanding of the Chinese market and to respond to act quickly to meet the needs of the Chinese consumer. Their brand building spans Chinese films, TV, and fashion magazines in a way that Chinese consumers understand and relate to. In 2008, Lipton was one of the first international brands advertising online and on mobile in China. Not only that, but they were one of the first to identify e-commerce as one of the fastest growing markets in China, enabling them to position themselves quickly as an industry leader in the online marketplace. Lipton’s local presence put them in the ideal position to capitalize on these trends and quickly become a leader in the market when new opportunities arise.
Finding Opportunity in Differentiation and Adaptability
In 1992, drinking tea from a tea bag was uncommon. Traditionally, the Chinese consumer had always put the loose leaves directly in the water to drink the tea. Some other brands may have tried to match this culture, resulting in them competing with all the other local tea manufacturers. As we will see below, Lipton was astute enough to go the other way.
As mentioned in the beginning of our article, there were over 70,000 tea makers in China with an extremely diverse range of offerings from Yunnan Pu’er, Fujian Tieguanyin, traditional West Lake Longjin, and Wuyi, just to name a few. Within this confusing and jumbled market place, Lipton did market research and determined that 90% of tea drunk in China is green tea, with only 10% being other varieties. This understanding allowed them to reposition themselves when entering the Chinese market by launching two green tea brands – Jasmine Tea and Tie Guan Yin Tea – that more readily met the needs of Chinese consumers.
According to comments made to “First Financial Daily” by Unilever’s President of North Asia, sourcing quality tea was one of their most important decisions. Lipton sought out the highest quality tea leaves, identifying Huangshan, Yunnan, and Ya’an as the best regions and they have continued to maintain strong partnerships with suppliers in those areas.
Another advantage of this focused strategy was to drive down cost. Within such a fractured market-place, land use was small and costly for all the different kinds of teas. But by focusing on a few, particular varieties, Lipton was able to cultivate and produce tea at a much lower cost by scaling appropriately. Large fields also meant an increased ability to take advantage of more automated processes and machinery, further driving down cost. This is a very important point, because it allowed Lipton to keep the price of tea low, a key concern for Chinese consumers.
Additionally, Lipton was smart and saw its tea bags as a competitive difference rather than something that needed to be changed. Tea bags are convenient and inexpensive. But, more than that, they are considered cleaner and safer. By focusing on these unique differences in their marketing and branding strategy, Lipton was able to attract young adults and white-collar workers who care about the cleanliness and food safety that Lipton guarantees.
Food safety has always been a high priority in China, and foreign food brands are often considered to be safer. By building an entire system from growing the tealeaves to distribution, Lipton is able to guarantee the quality and safety of their tea in ways that local brands often cannot.
Unilever began to do business in China in 1928 as a soap maker, left during the war, and returned around 1986. Being involved with China for 8 decades gave them a competitive advantage in identifying what is important to the Chinese consumer. They knew they needed to change the current mindset that “tea is a leisurely drink for the elderly”. Knowing this, and being a foreign company, they were able to apply the above strategies and brand themselves as cool and hip to appeal to a new generation of upwardly mobile tea drinkers, setting themselves apart from an ancient tea culture associated more with the older generation, all at an affordable price.
The Right Timing
Lipton was also smart about its timing. If Unilever re-entered the Chinese market in 1986, why wait until 1992 to launch Lipton? It’s because Lipton’s success has a lot to do with revolutionary development in the retail market during the 90s, when major international retailers began to open stores in China. Without supermarket chains, convenience stores, and specialty stores such as Wal-Mart, Tesco, Carrefour, Metro Cash and Carry, or 7-Eleven, market launch and penetration would have been very difficult for Lipton.
Instead, they bided their time, waiting until the moment was right and they could enter the market in a way that would allow them to gain maximum exposure as quickly as possible. It’s also reasonable to assume that Unilever had previous relationships with these international chains from their penetration into American and European markets and so was able to leverage those relationships to quickly get their products placed on store shelves.
Lipton Remains on Top
While the Chinese market is still dominated by bulk tea, and the first few years after 2010 saw a slowdown in the market, Lipton was still able to see double-digit growth through 2013.
Lipton’s North Asian President continues, as quoted in “First Financial Daily” that the Chinese market has great potential for Lipton. Consumers are increasingly younger, they don’t have established affections for a particular brand yet, and they are more willing to accept the fast-food office culture that has become so common in China’s bigger cities.
Nowadays, older Chinese tea manufacturing brands are catching up in terms of sophisticated business systems, but Lipton has successfully placed itself ahead of the competition in many regards, and so is well positioned to stay competitive within the China tea market. With its decades-old knowledge of China and demonstrated ability to innovate and adapt to local needs, we can be sure that Lipton will maintain its advantage for a long time to come.
Casey W. Xiao-Morris is China Business Consultant at Leverage China, LLC, specializing in capturing China’s market opportunities for American companies. Casey can be reached at cxmorris@LeverageChina.com