04.15.10
Behind the curtain of tea wholesale
posted by Charles Cain | 7 comments
The U.S. wholesale tea business is a fascinating niche business characterized by an incestuous supply chain and an irrational focus on everything BUT product quality. In this post, I’ll attempt to unpack a few basic truths about the wholesale tea business that every entrepreneur should learn before either becoming a tea wholesaler or buying from a wholesaler. For those of you who are simply consumers…you might not want to read this.
The supply chain for most teas sold in the U.S. is ridiculously incestuous. Half of wholesalers buy from other wholesalers. It’s not uncommon to find the same flavored tea, blended by the same large wholesaler, sold at dramatically different price points under the names of quite a few smaller wholesalers. Many independent retailers pride themselves on choosing only the finest teas for their collection. As proof of this, they buy from many different tea wholesalers. I’ve heard shop owners boast of having more than 30 tea vendors. The incredible irony is that I’ve also heard tea wholesalers boast of selling to the same shop owner under the names of half dozen different companies.
Lest I lose you in the details, allow me to elaborate. Because they don’t have the resources to set up their own fully functional warehouses, and source and store a couple hundred different teas in sufficient quantities, many wholesalers are really only virtual distributors. They rely on larger wholesalers to drop ship under their company name. So Charlie’s Tea Shop sits down on a sunny Monday morning and places orders with 10 different vendors. What Charlie doesn’t know is that five 
of those vendors are actually reselling the teas of the same wholesaler. Instead of getting all of his teas in a single shipment (or better yet on a single pallet), Charlie is now going to pay shipping costs for five different shipments. Worst of all, Charlie is paying the markups and extra handling and packaging costs of these additional middlemen who are adding no value whatsoever to the supply chain!! This scenario plays out far more often than most will admit.
A rather large percentage of the customers I’ve sold wholesale to are, in turn, wholesalers in their area. This is not necessarily wrong. The question is whether the wholesaler is adding value to the supply chain. Value can be added in a number of ways, including:
1. Local warehousing for just-in-time inventory management
2. Quality packaging that adds to the sale value of the tea
3. A brand that has a loyal customer following
4. Training, custom blending, or other services
At the end of the day, extra steps in the supply chain are not necessarily a bad thing. Unfortunately, a significant percentage of U.S. tea wholesalers are not really adding value to the supply chain and are only taking advantage of the lack of sophistication and accurate information on the part of buyers.
This leads me to my second point - buyers often have an irrational focus on everything BUT product quality. In many cases this is because they simply don’t know how to tell the difference between a high-quality and low-quality tea in each of two dozen categories of teas they carry. Buyers of bulk, loose teas tend to buy based on the personality of the salesperson, the story behind the company, and the price of the tea, irrespective of quality. Buyers of packaged tea products purchase based on the quality of the packaging, price points, and low minimum orders. Buyers of tea for service often buy based only on convenience (they sell so little tea that it’s not worth it to them to search for the best supplier).
I’ve talked at length over the past few years with a great number of small business owners. My information is anecdotal to be sure, but an amazing number of people who make their living selling tea choose their vendors based on company websites and only sample the teas as a matter of curiosity. I’ve seen buyers sample 10 teas and then place an order for a collection of more than 50. If all such buyers were purchasing from highly reputable companies with proven track records of supplying only high-quality teas, that might not be the end of the world. Unfortunately, this flippant approach toward buying is all too common among wholesalers as well.
The end result of all of this inefficiency and dysfunction is that there is very little correlation between the final retail purchase price of a tea and the quality of the leaves. That’s the bad news. The good news is that it really isn’t all that hard for a business to “do it right,” and those that do are rewarded with loyal customers and much better long-term results. My final word of advice - if you’re going into the tea business, make sure your teas are not an afterthought!
April 15th, 2010 at 7:46 am
This is very well written! I think you hit one of the biggest problem of tea market!
April 15th, 2010 at 1:50 pm
And as the niche of loose leaf/specialty teas continues to grow, this problem you are speaking of (bottomline being not great teas) will happen more and more. What we’re seeing in our area is coffee house owners wanting to jump quickly onto the loose leaf train and going to their coffee bean distributor (who brings up also that this happens in the specialty coffee niche as well as the tea niche) and just buys whatever loose leaf program they have thrown together.
The best part is what happens for us: People go and buy loose leaf from such a place or some other storefront that brings in loose leaf on the spur of the moment, and then come running back to us for really great loose leaf that we have taken inordinate, almost crazy, amounts of time and effort to find and cup.
Then, here’s a problem I believe to be a problem as well which Charles may not: 100’s (I’ve ven heard 1000 at one shop) of teas available at any given time, again some which probably were never seriously cupped for taste by the retail buyer, and presented to the public for pick and choose, with employees who have no idea of either the taste or anything much else about most of the teas they carry. And, if they don’t turn quickly, the problem of age comes in, and that’s what we just heard the other day about another store’s teas “It tasted old”. wow…tea has decent shelf life so one can only guess how long it was sitting that a customer could discern the ‘oldness’ of it!
But this is part of the real world and happens in every niche. Hopefully, the winners aren’t those with the most funding but the ones with the most passion for finding the best teas through hard work of cupping, sample, cupping, sampling. Not even the most artistic/greatest blenders come up with winners every time. We only look for teas that hit 10 area on the taste scale and rejet most of what we cup. It’s upsetting to know there is alot of garbage out there people are being sold as ‘loose leaf’ as if, just being loose leaf, makes it all great.
April 16th, 2010 at 4:57 pm
Good article Charles. It is nice to see more openness in relationship to the supply chain with tea. Taking it a bit further, it has always been very interesting to me how limited the distribution channels are internationally. Competition is very limited on the international distribution level, so it is little wonder that what ends in our domestic market is mediocre. The best teas are siphoned off to add value to the vast amounts of low quality tea that is produced on the equally vast plantations of Africa and South America where the majority of tea is grown that is sold in Europe and the US.
I find that even at very large tea companies in the US very little is know about the complete supply chain. Even people that travel to some of the areas where quality tea is grown, very little knowledge of the supply chain within the country of origin is understood.
The same incestuous environment that is true in the wholesale market for tea is also true of the information about tea. It would be nice to see that change as well. I imagine that it will happen eventually because consumers are demanding both better quality tea and better quality information.
Since you are an influence at the World Tea Expo perhaps consistent with this years ‘Quality Theme’, you might suggest to them to ask some questions that would help to facilitate bringing down the barriers to quality. It seems to me that the practices of blending, flavoring, and using tea as an ingredient stand it the way.
I was in Dubai when the tea trading center there was getting started, and spent the day with the marketing director for the largest Assam producer. The company controlled six major plantations. I asked him how he intended to address the issue of demands for better quality. He said, nothing much we can do, we would have to reinvent our agribusiness model. Corporate commodity farming will never produce the kind of quality that small skilled farmers will produce.
Thanks Charles. These are the issues that need to be discussed, and the people that don’t want to hear about it should just keep doing what they are doing. There are plenty of 7 11’s in and Burger Kings in America. There is room for everyone. The people however that want to elevate the business need to be talking about these very issues.
Austin
April 17th, 2010 at 8:21 am
Very well put. The tea market is so diverse and so large in scale that problems like this are sure to arise. Now let’s see if anything is done about it.
April 19th, 2010 at 2:00 pm
Great article. Thank you!
April 19th, 2010 at 9:20 pm
This is why I’m attracted to new tea businesses that start off with a small selection. Instead of launching with 50 teas, most of which are mediocre at best, you launch with 5 or 10, all of which you’ve tried and tested. Frankly, unless you’ve been drinking tea seriously for a very long time, you’ve probably only developed expertise for a few specific varieties of tea.
If I started a tea company today, I imagine I could pick a pretty damn good Earl Grey, but would really struggle to pick a half-decent pu-erh. With time, yes; but it takes time to develop expertise, and new tea business owners need to know they have that expertise before they start stocking a tea.