The Real Impact of Specialty Teas

NOTE: I first want to express my condolences to the Walker family and assure them that, unlike some have tried to intimate, no disrespect toward them or David Walker is intended.

Tea_Blog_TT-CastletonMoonlight2F2012B2Specialty teas have been on the rise and, until recently, the reason that this has been bothering me to an ever increasing degree has been unclear. I just knew that it did. And articles like this one just increased that feeling of unease. The notice of the death of David Walker, a 50-year veteran in the tea world, was sad but as I read this article about him, the reason for my worry over the move to specialty teas became clear.

Specialty Tea Confusion

Despite efforts by the Specialty Tea Institute (don’t feel bad for not know about them – they’re pretty obscure), just about anything and everything is being called a “specialty tea” these days, accounting for this chart showing the meteoric rise in wholesale value. These figures are grossly overstated, it seems:

Wholesale Value of US Specialty Tea Segment

Stash, Teavana (now owned by Starbucks), and T2 (now owned by Unilever which owns several popular brands) are all jumping on the bandwagon, touting what is basically just flavored teas as their “specialty teas.” In addition, what is a specialty in one market is normal in another. Green tea is a good example, dominant in Japan but less known in the U.S. and therefore often marketed as a specialty tea. Even common flavored teas like Jasmine and Earl Grey are being labeled this way – another source of confusion for newbie tea drinkers and those wishing to explore better quality teas. But worse yet a potential disaster for tea garden owners being persuaded to follow this route to “riches.” And creating a market bubble in the process that, when it bursts, will make effects of the bursting 2007 housing bubble in the U.S. look like a mere hiccup.

The Henry Ford Business Model in Reverse

Basically, the push to specialty teas is the reverse of how Henry Ford expanded the car market. Cars used to be made all by hand. Result: there were few available and only the very, very rich could afford them. Ford developed a way to increase production and bring down prices to increase sales and grow the market (as the jargonese goes). Result: lots of cars of lower quality (the Model T couldn’t hold a candle to the Rolls Royce 1907 Silver Ghost), for a fraction of the price of those hand-made cars, and car sales booming.

In tea, the trend went a bit like this:

  • Thousands of years of tea growing and drinking in China, with the best teas reserved as “tribute teas” for the Emperor and his Court.
  • Trade with other nearby nations, usually involving teas that had been fully oxidized and even possibly aged (or “fermented” as some call it, although there is no alcohol involved) to last the long journey, grew and resulted in expansion of tea gardens in China.
  • The Dutch in the 1600s start importing tea to The Netherlands and France, where it becomes popular with the aristocracy.
  • Cheaper ways are found to transport the tea to Europe and even the Western Hemisphere, so prices fall, making tea more affordable to a wider market and encouraging others to get into the tea export/import business.
  • Robert Fortune breaks the Chinese monopoly on tea growing and plants gardens in West Bengal, India.
  • Tea growing expands in Assam, India, and other areas of that country as well as Sri Lanka and several places on the African continent.
  • Electricity and the resultant machines it runs make tea even more affordable, and brands like PG Tips, Liptons, Typhoo, etc., become dominant in the UK and other tea drinking areas.
  • Grumbling about low prices for tea farmers and poor quality starts in the late 1990s or early 2000s by people with no knowledge of economics.
  • Specialty teas push begins, thinking this will raise prices and make everyone associated with these teas rich and successful, contrary to how such things usually go.

As you can see, growth in the tea market back in the 1600-1700s depended on lowering the price of tea. Anyone in business can tell you that this is true across the board and why having sales is a popular marketing ploy.

Impact of Specialty Teas

Henry Ford made cars plentiful and affordable, albeit not quite top notch (the Model T, produced by Ford Motor Company from October 1, 1908, to May 26, 1927, couldn’t hold a candle to the cars being built in France at that time). Over time the quality of cars improved, while they remained plentiful and affordable (prices went up but stayed in line with other price increases in other product categories).

For specialty teas, the push back to small lots, hand processing, and marketing ploys involving phrases like “old tree tea,” “wild tea,” “premium,” and “specialty” is still a very minor part of the tea market. The goal is counter to any sensible marketing tactics: to raise the price of teas. There are two ways to do this, usually:

  • Restrict supply (most effective when demand is still high)
  • Make people think that the higher price is justified (the emotional approach such as part of the proceeds going to support a currently popular cause, or a claim of higher quality, which is what is being done here)

Big companies are trying to add “specialty teas” to their line-up to be part of this trend. Thus the acquisitions named above by Starbucks and Unilever. Coca-Cola is jumping in, too, with a brand name: “Honest Tea.” That’s for folks who shop by name and do no checking of the facts behind them. Big bucks are promised. One report presented a few months ago at a tea expo showed these figures:

Type of Tea Production Cost per Pound Wholesale Price per Pound Retail per Pound (My Guesstimate*)
Traditional $0.75 $1.13 $4 to $5
Specialty $10 $15 $45 to $60
Top grade unspecified $59 to $90 $240 to $540

* A rule of thumb: mark-up is usually 4 to 5 times the wholesale price.

What this means, of course, is that marketing has to be hyped to the hilt to get consumers to pay much higher prices. Doesn’t work for cars (the percentage of Rolls Royce premium models on the road is about the same as it was in 1907). Why would it work for tea?

The Big Marketing Flaw

Right now marketing is being totally misdirected:

Target

Consumers who are affluent, young, educated, health conscious

Flaws

Not sure in our current economic climate if there are enough of those affluent, young, educated consumers around to buy these teas. Even if their student loan debt is wiped away (at taxpayer expense), how likely are they to buy a $5 cuppa tea, the way they have been buying that $5 cuppa joe? Starbucks is surely banking on this, but have you seen what they are calling “specialty tea”? Ugh! These “educated” consumers will soon see they’ve been duped. As for the health conscious part, some of the things for which tea is being touted as healthy are now being shown to be unhealthy. One of these is anti-oxidants.

Target

Manufacturers looking to cash in on the increased profitability

Flaws

  1. Remember, prices fall when there is increased supply that exceeds demand, so the goal here is to increase demand, as you increase supply – very tricky, risky, and expensive (not a problem for Starbucks, Unilever, and Coca-Cola, but impossible for small vendors).
  2. These teas have the same profit percentage as traditional teas and a much higher market risk. Henry Ford knew it was easier to sell lower priced cars than expensive ones. And others have found that the market for high-priced teas, even when labeled as “specialty teas,” is a tough road.Consider this: A 500-gram bing of raw pu-erh can last even the most ardent tea drinker for months. You’d need to sell about a hundred bings per month to break even on operating costs (even if you’re running the show and have no outside help). And you are competing with other tea vendors, including those in China who have decided to stop going through U.S. firms and sell direct. Convincing someone to make one purchase from you is tough, a hundred people even tougher, and a hundred per month (1,200 per year) tougher still. David’s Tea spends a fortune on marketing and has done so since their founding, but they didn’t succeed by focusing on specialty tea. Most of their teas are cheap flavored stuff. So for manufacturers to start churning out higher quantities of “specialty tea” just increases supply at a time when a lot of folks are unemployed, under-employed, or simply not interested. And all the marketing plans in the world won’t fix that.
  3. Specialty Teas are still not standardized, despite strong-armed attempts by some tea vendors. So folks will quickly see a sham going on here. Learning about tea is not rocket science. I did it, so can others. And there is a preponderance of courses that “guarantee” to make you a tea expert in no time. So sooner, rather than later, those “specialty teas” won’t seem so special.

Target

Restaurants and tea salons wanting to stand out from the crowd

Flaws

Along with these teas has to go knowledge. That means time and effort spent on training. Or you hire one of the growing legions of folks with a piece of paper declaring them to be a Certified Tea Sommelier. In addition, contrary to my personal approach of trying to make tea seem as mainstream in the lives of my fellow Americans as coffee, these places reinforce the idea of tea as something for special occasions, something to have now and then.

When Light First Dawned

In February 2010, about 7 or 8 months after I had decided not just to enjoy tea but to write about it, I got a sample of Chicago Tea Garden’s Tie Guan Yin Oolong Tea and posted this review. (Never heard of Chicago Tea Garden? Sadly, a short-lived online tea vendor. Tony Gebely was a co-founder and now works for The American Tea Room in California as well as blogging about tea.) This tea was wonderful, marvelous, and unaffordable. For someone who drinks a gallon or more of tea per day, as I do on average, paying a premium price even for such a marvelous tea was out of the question. So light dawned: specialty teas are a side-line, not the main event as some are now trying to make it. Over the years, this impression has become solidified as I have tried hundreds of samples and bought maybe one or two that were super special.

Bottom Line

Just as even the richest of us doesn’t eat caviar at every meal, so it is that specialty teas (the really special ones, that is) are occasional, not mainstream. Tea farmers need a good, solid business approach and marketing strategy to keep interest and prices up. And they don’t need people pushing them to pay workers more than they can afford and supply things for those workers they also cannot afford. In addition, organic certification is an unnecessary expense, and the whole fair trade scheme is anything but fair, with the small guys bearing the brunt of both. Forget the hype and drink what you like.

© 2015 A.C. Cargill photos and text

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