First a disclaimer, there is no statistical evidence involved in this analysis of tea trends in the tea industry. What I am going to offer here is more like a farmer looking at signs in the environment and predicting the weather. There are some things that have happened in the industry recently that I think are significant indicators of where things will be going. Let me tell you what has happened and why I think it is important. In fact, some trends I’m seeing are important enough to cause me to change our company’s strategy.
First of all, Teavana is spreading like a juggernaut across the country. I am happy to see their success. It expands the market. Regardless of how one views the quality of their teas, what is important is that they are charging and getting prices that you would pay for better quality tea. Adagio is trying to go after Teavana with retail outlets of their own, hoping that having a little better quality will earn them some of Teavana’s market share. They have also added some more expensive teas to their offerings that they are also selling at a much higher price point. There are rumors that Specialty Teas was bought out by Teavana, but I don’t know whether that is true or not, in order to bring some better quality tea into their catalogue.
The other major event that was interesting to me was the departure of TeaGschwendner from the American retail market. The biggest tea retailer in Europe has been failing in its effort to sell profitable franchises across the US. They did a pretty good job of rolling the project out, so why did they fail? My uninformed opinion is that they raised expectations for quality, but did not deliver. Not only were expectations not met by the quality of tea that Europeans accept, but the American market’s expectations are more rooted in Asian definitions of quality, than in the old European standards. Teavana has a little bit more of an Asian motif than does TeaGschwendner, but quite a few people have commented about their teas being disappointing.
So what does all of that mean to Seven Cups and other small tea businesses in the US and abroad? I think that there are a number of things to be aware of. Large American retailers are shattering traditional price points for tea, pushing their prices up. This is a good thing for small companies that have been worried about carrying better quality teas. It will affect small quality tea businesses the same way that Starbucks affected independent coffee roasters and higher-end coffee shops. Few people think that Starbucks sets any standards for quality, but they did grow the market.
Seven Cups is making a major strategic change as a result of what we see as a trend towards better quality We will continue to keeps our high standards for quality and service for our retail customers. In the past we have been primarily focused on retailing the teas we sourced. We wanted to get the best teas we could find for our customers, both online and in our teahouses. We did very little wholesaling and it was by request only, we never put any effort into marketing that portion of the business other than having a contact page on our website.
We have always been aware that sourcing is the primary obstacle to success for small tea businesses, followed closely by being able to finance your inventory. Currently, the teas that are available for wholesale are the same disappointing teas that you can buy at big retail stores. They buy those teas by the container, commercial or specialty, flavor them or blend them, and the competition is for who can make the same old stuff taste better, and put it into a prettier package. Big companies can buy in large quantities leaving small companies unable to compete for price or outdo big marketing budgets. Try outbidding Teavana for a keyword driving your Google ad. Small companies must compete by having better quality tea, period. There is nothing else that can distinguish you from the competition. Clever puns and proprietary blends are a dime a dozen.
Good tea, by contrast, comes in smaller quantities and is not readily available in the wholesale market. Early in 2010 we started asking ourselves how we could lower our prices so that small companies could afford to purchase better teas, in manageable quantities, directly from China without having the expense of sourcing in China. We decided to open up our sources so that smaller tea companies could access the higher quality teas they need to delight their customers and grow their businesses.
Thus our new brokerage service was born. We will use our tea sources, our existing sourcing infrastructure, and the research we constantly do about each tea. We have started by supplying Simply Tea in Denmark because we wanted to be able to provide the service internationally, as well as domestically. That has been a successful pilot program and we’re ready to offer it to more people. We have been able to sell tea in Europe at better prices than if they were buying from a Chinese wholesaler, and in small batches, which helps them plan and finance their inventory.
We are hoping that our brokerage service will make it easier and more cost effective for smaller tea companies to carry better quality tea.