Need to Know (Dec. 23, 2013)

What tea professionals need to start the week.

Holiday sales are strong with online surging. Starbucks breaks loyalty card record but fewer shopping days since Thanksgiving limited brick-and-mortar traffic. ShopperTrak reported that store traffic during the week of Dec. 15 dropped 19.9%… Tealet Discusses Benefits of Bitcoin Transactions…export earnings in Sri Lanka rose 10.7% through November… Farmer Brothers introduces a new line of premium tea… severe frost in the Nilgiri Mountains of India will depress yield…. the Pew Research Center released a fascinating chart comparing beverages worldwide. 

Retail

Holiday sales of tea look strong. Tea Biz talks regularly with retailers who report welcome demand for their gift lines and seasonal specialty teas with better than expected online sales. The U.S. Census Bureau estimates the greatest sales gains are in big-ticket items with an estimated 8% growth in appliances and electronics, and furniture and home furnishing stores with sales up 9.4% compared to last year. The National Retail Federation (NRF) estimates 3.9% gains overall. Online sales are breaking records accounting for almost 40% of all spending. Online retailers have benefited from a compressed holiday season, with six fewer days between Thanksgiving and Christmas this year, according to The NPD Group. The weekend after Thanksgiving saw a 34% increase in electronic-commerce transactions over 2012. Starbucks is selling 1,500 loyalty/gift cards a minute with a record 2.4 million cards loaded in single day last week (Dec. 19). Today is likely to exceed that total. During the 2013 holiday season $1.4 billion was loaded. The company reports that $4 billion has been added to its cards in the past year.

Bitcoin Option for Tealet Transactions

Consider for a minute the challenges faced by tea retailers attempting to deal direct with specialty tea growers in 50 countries.

In addition to shipping and postage* there are cross-border fees and currency exchange fees, bank charges to transfer funds, credit card transaction and merchant fees and significant fluctuations in currency over time. The Indian rupee for example is trading at INRs 62 against the U.S. dollar and INRs 101 against the British pound. A few months ago INRs 50 bought a dollar’s worth of goods. In late August the exchange rate hit an all-time low of INRs 69.

Tealet is an online marketplace where retailers can source handmade artisan tea. Founder and CEO Elyse Petersen employs a novel approach to facilitating these transactions while lowering cost. Her firm accepts a digital cryptocurrency known as Bitcoin and she is teaching growers the advantages of doing the same.

SEE: Bitcoin Primer 

“Since getting involved with the movement I have learned much about the power of Bitcoin to make international business more efficient,” says Petersen, whose business is based in Hawaii but trades with small growers in all the tea lands.

Growers ship their tea to Tealet’s warehouse in California for distribution to subscribers and to be sold in bulk to retailers.

“I like to compare Tealet’s use of Bitcoin to pay our growers to the role tea played in establishing the world’s first trade routes,” said Petersen. Vendors along the long and treacherous Tea Horse Road accepted bricks of tea from the Chinese as payment for food and supplies, she explained.

“Tea served as one of man’s first forms of currency so it is very appropriate that the next innovation of currency is being applied to the tea industry,” said Petersen.

“This year we started to accept Bitcoin as payment for our growers’ tea and it has been quite successful. We receive the payment in full without having to pay 3% Paypal or credit card fees (right now we pay 0% with Coinbase),” she said. PayPal charges 3.9% plus 30-cents per transaction for receiving payments under $3,000 from buyers outside the U.S.

“We thought that if we could take advantage of Bitcoin’s efficiencies in accepting payment: Why can’t we take advantage of it for paying the growers?” she said.

Tealet has not executed the project but is building the groundwork for connecting the growers’ bank accounts to an exchange that will convert Bitcoin into their local currency. “The fees associated with this service are only 1% of the transfer amount, versus 10% that farmers are currently paying if they use Paypal,” said Petersen.

Her goal is to bypass the banking and online payment systems just as Tealet bypasses tea importers, distributors and middle-men in the supply chain.

“My plan is to have a protocol ready for all growers by the Spring of 2014. Team Tealet will do an aggressive sourcing trip to meet all our grower partners and help them learn about Bitcoin so we can start using the digital currency to pay for their teas,” she said.

“We are really excited about the project and feel we have taken on responsibility for inspiring other businesses that they too can benefit from using Bitcoin,” said Petersen.

*Three Kilos

Anyone sending Christmas packages this month has a much lighter wallet.  My own cost for mailing several small parcels to family and friends topped $145.

Sending three kilos of tea from Chicago to India requires a drive to the local Post Office and costs $75.25 adding approximately $25 to the wholesale price per kilo. Sending the same 12x12x24-inch package via UPS will cost $87 adding $30 per kilo. By comparison, shipping a container of tea brings the shipping expense down to $1 per kilo.

Now consider the reverse.  The same 7 pound (3 kilo) parcel sent from India SAL (Surface-Air-Lifted) or by Air Post costs around INRs 2,040 (US$32.92). Many opt to pay INRs 2,882 for Speed Post ($46.51) for delivery to the U.S. which sounds like a bargain until you consider the time and money involved in getting parcels to the Post Office. In India parcels must be presented at the post office in person and meet restrictive packaging guidelines. Gardens are quite remote so the first leg of the parcel’s journey could require a three hour ride over rough roads to a post office that can accept international or SAL parcels. Reimbursement for loss is limited to $56 and since loss and damage are common, insurance is necessary (and required). In the event of loss, compensation cannot exceed the value of the contents (to a maximum $1,615). If you use a reliable air freight service like UPS (Worldwide Expedited) the cost would be INRs 4,651 (US$75).

Source: India Post Rate Calculator 

Bitcoin Primer

World Tea News recently published an article I wrote on the emergence of many popular tea brands in Bitcoin’s new online MegaStore. Larger retailers with a thorough understanding of the risks should definitely consider accepting Bitcoins as this digital currency promises to significantly lower the cost of online transactions. 

The novelty of buying things with Bitcoins has a certain appeal to consumers but most of those who own Bitcoins are holding them tight anticipating an increase in value greater than current savings rates.

Prices for tea in the MegaStore (which lists 100,000 items and went live in August) are displayed as a percent of the current value of a Bitcoin. A single coin was trading for $US858 last week when the article was published. At that rate ?0.0842 was the equivalent of US$72. Today Bitcoins are trading for $US634 making a dollar worth ?0.00157.

This volatility illustrates one of the obstacles to widespread use of any peer-to-peer payment system. To insure that Bitcoins remain “rare” there are only 22 million in circulation. This means that even small numbers of speculators trading Bitcoins will alter its value in the market.

The fact that the currency lacks liquidity and is accepted by only a small (albeit fast-growing) number of vendors suggests Bitcoin will emerge as the strongest of the cryptocurrencies but anyone can create a competing product, make it equally scarce and useful provided enough vendors accept it as payment.

Critics point out that Bitcoins are not legal tender and therefore are not regulated by legal tender laws. Bitcoins have no intrinsic value which means if they fall in value, unlike gold and silver, they could fall to zero. There is no government backing, no Federal Deposit Insurance Corp. rescue plan. Bitcoins are not going to replace the U.S. dollar.

All that said, there is value in a frictionless exchange of a universal currency that is not subject to geopolitical influence. The payment system is transparent and math-based, not subject to government manipulation. It protects against identity theft. It is private but not anonymous to guard against money laundering and fraud. Bitcoins will grow in popularity so long as online purchases require credit card authentication with its requirements of a billing address and the burden of fees and onerous service charges.

Compared to existing payment systems Bitcoin is almost as handy and frictionless as cash.

Learn more at: Bitcoin.org and BitcoinFoundation.org and BitcoingCharts.com and BitcoinMagazine.com

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