Service and Innovation

Service and innovation differentiate tea retailers. At its core, specialty tea is a commodity since most blends use similarly sourced mid-grade green or black tea enhanced with ingredients and flavor.

The lowest tier in the sector consists of tea-only blends that are bagged and retail for less than $300 a kilo. The entry point is $5 for 200 grams (equivalent to a 100 ct. box of 2-gram teabags) or $25 per kilo with many supermarket teas selling for $7 to $8 per box ($35-$40 per kilo). This tea costs $2 per kilo at origin and is blended with similarly priced teas for consistency. It costs $1 to ship a kilo to the U.S. and less than $1 to fill, tag and box 100 tea bags. Marketing established blends is a rising cost. Store-brand competitors pressure national brands but there will always be a place for bottom-shelf tagless tea bags selling around a nickel to a dime.

The upper tier is loose leaf with fruit, spice and floral inclusions, pyramid bagged, gift boxed or in tins. A 25-gram pouch of specialty blend sells for $15, earning retailers $300 per kilo. Retailers get only 5-cents a tea bag selling Lipton but they sell a lot of Lipton. Nearly every home in the country has a nationally branded tea in the pantry. Fewer than one in ten are willing to pay $1 a tea bag for a foil-wrapped Tea Forté pyramid (with 4 to 6 grams of tea) but grocers selling Adagio, Rishi, Numi and Republic of Tea are getting $250 a kilo a ten-fold premium.

The core component of these teas arrives in shipping containers warehoused and blended by a few gateway importers with entrenched (often family) supply chains originating in China, Taiwan, Japan, Sri Lanka, Kenya and India. Raw materials for blending are very similarly sourced and priced with tea often the least expensive component. There are an infinite number of blends and taste sensations but remarkably little variance in a warehouse stacked to the ceiling with four million pounds of tea.

This is why service and innovation are critical to retail success. Service is the key point of differentiation. It begins with that first impression, the cold-call presentation that gives buyers a reason to believe that working with you as a wholesaler will benefit their business. There are often two or three wholesalers with identical price points pitching a retailer whose first concern must be to meet the needs (within limitations) of his or her customers. The fact that sales of these similar teas are growing is due to the nearly continuous introduction of new formulations and experimental blends and the presence of color, texture (chunks and leaves, not dust) and intense flavor (often added).

This suggests the path forward is to innovate with taste and convenience foremost. Cultivate in those who show interest a more sophisticated appreciation of the profitable, highest quality teas. Tell the story, let them taste the tea. Repeat. Repeat. Repeat. Retailer and customer advance in step with sellers bringing ever-larger numbers of specialty tea drinkers into the tent where a growing percentage of newly-converted tea lovers share and spread the joy of discovery after readily paying the always-reasonable price for the pleasure of a fine cup of tea.

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—- Dan Bolton