The tea industry reflects all the actors (e.g., businesses, NGOs) involved in producing tea. The tea market reflects the interaction of buyers and sellers, which form the market forces (e.g., supply and demand) and trends affecting it.
Players In The Tea Industry
The tea industry is comprised of several actors, each of whom plays a part in the tea industry:
- Growers are made up of small, medium, and large estates. They are the product producers.
- Tea factories include bought leaf factories, blending factories, and estate factories. Tea factories purchase leaf tea and process it using various methods of tea production (e.g., crush tear curl (CTC)).
- Brokers purchase the final tea product and act as a selling agent to the next buyer. Alternatively, the product is sold at auction, often securing more significant margins for the producer.
- Packers purchase the products, and then blend and package the tea domestically (i.e., local packer) or internationally (i.e., overseas packer).
- Distributors consolidate a variety of products, offering greater variety to retailers.
- Retailers offer tea blends to consumers, which are differentiated and enriched through effective marketing.
"There are three groups in the tea industry:
- Those who create tea, such as farmers and factories,
- Tea traders, like auctioneers and tea packers, and
- People who sell tea, such as wholesalers and retailers."
Major Global Players
The tea industry is highly competitive, and market leaders capture the most profit. Large brands dominate the market; a few global tea brands control the majority of the tea market.
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The Value Chain Of Tea
The tea industry exists to provide value to tea drinkers, and this value is created at different points in the tea supply chain. Producers (e.g., tea farmers), processors (e.g., factories, blenders), and retailers all create value for tea drinkers.
Tea cultivation allows farmers to add value to tea. The most common means by which tea gardens add value to tea is by differentiating based on tea terroir and origin.
“When tasted, tea and wine can show their "sense of place" more than any other agricultural product.”
Terroir And Farming Methods
Tea terroir, the sum of all environmental conditions affecting the tea, influences price. For example, a tea plant's location can affect the character of a tea leaf; different locations create different tasting tea infusions. Similarly, changes in climate, soil, or surrounding vegetation can change the leaf subtly, altering the tea's flavour.
Such environmental conditions may include:
- Plant’s location
- Climate and weather
- Altitude and latitude
- Minerals and drainage of the soil
- Surrounding ecosystem
- Water quality
- Pests and pest control
- Farming methods (e.g., wild-grown tea, monoculture)
- Traditions and practices of those cultivating tea (e.g., harvesting methods)
Tea’s flavour and quality can be greatly impacted by the growing conditions, cultivation practices, and harvesting and processing methods. Differences within any of these steps can produce variation in the final product.
"The notion of "terroir" helps define the specific characteristics of a particular region or expanse of land."
Tea farmers actively change the growing conditions to control the development of the tea plant. For example, Gyokuro, a premium Japanese green tea, is shade-grown to increase the concentration of chlorophyll and theanine, creating an infusion with vegetative flavours. Consumers may attach greater value to teas with superior or rarer flavour profiles, demonstrating that tea cultivation is one means by which farmers add intangible value to tea.
Harvesting methods also create variations in tea flavour and quality, demonstrating an additional means by which farmers can add or detract intangible value from tea. Premium teas (e.g., Gyokuro) are plucked by hand; this increases labour costs incurred by tea farms, but preserves the natural sweetness of the leaves. Hand-picked tea creates value for tea drinkers by providing more complex teas, with superior flavour.
Mechanical harvesting traditionally sheers tea leaves to the top of the tea plant. This may contribute to a stronger, more single-note tea, but reduces production costs. Lower production costs create value for tea drinkers as finished products can be sold at lower prices.
“Without mechanization, you can't scale production. So, the simple choice is mechanization or empty teacups. That is, in a nutshell, why mechanical harvesting is here to stay.”
A tea's origin can give the product considerable intangible value. Some tea-producing regions are renowned (e.g., Darjeeling, Nera Eliya, Wuyi mountains), and consumers may be willing to pay greater premiums for teas from these origins, over comparable regions which are less renowned.
Consider the comparative interest and prices of Darjeeling tea vs Nepal tea. Ilam Tea Producers Factory and Makaibari Tea Estate, are two tea gardens approximately 2 hours and 47 minutes apart by car.
Makaibari Tea Estate, Darjeeling, India
Ilam Tea Producers Factory, Antu Danda, Nepal
Camellia sinensis var. sinensis
Camellia sinensis var. sinensis
~1,500 m (~4,900 ft)
~1,448 m (~4,750 ft)
26.855478°N and 88.267652°E
26.8907° N and 88.1264° E
Yet, despite their apparent similarity, the degree of global consumer interest between Darjeeling and Nepal tea differs drastically.
Consumers attach a greater degree of intangible value to tea from specific origins, and are typically willing to pay for this perceived value.
“Tea brands from lesser-known tea-producing nations can distinguish themselves by embracing marketing and innovation. Doing so allows a tea brand to occupy a position in the hearts and minds of tea drinkers, even when competing with well-known tea estates or tea-producing countries.”
Further, the degree of quality and prestige that tea gardens, such as Makaibari, possess also influence profit margins.
“Customers favour Makaibari, Darjeeling, which is not a surprise. Makaibari has a name that people recognize, and its teas are the most successful.”
Many forces drive the adoption of organic tea; some virtuous, some environmental, and others economical.
“Farming organic tea at scale is the scope of the solution required to solve the problems of conventional farming.”
For example, at one time, Makaibari Tea Estate was threatened by landslides, caused by soil erosion. This risk posed to the world-famous tea estate was enough to shift the estate's approach to agriculture. The solution involved creating a micro-ecosystem, combating soil erosion, and producing economically viable crops.
Tea gardens face high upfront costs of restructuring to organic agriculture. Organic certifications may cost up to several thousand dollars. In addition, the transition from conventional farming to organic production often reduces production yields (16% to 25%) for tea gardens.
However, once established, organic gardens have lower operating expenses, as the costs of fertilisers and pesticides are eliminated. In addition, organic tea sells for high premiums; prices of organic teas are 50–100% higher than non-organic tea.
The higher prices tea farmers can earn selling organic tea at market is driven by consumer behaviour. Consumers are increasingly concerned about pesticides in tea, demonstrating a persistent and growing interest in organic tea.
Tea processing follows a series of general steps.
But the exact execution of these steps varies slightly, and is often proprietary. Historically, variation in local taste and techniques has driven tea innovation forward. One trend shaping tea production today is mechanisation; machines are crafted to mimic actions once taken by humans.
Mechanising certain steps in the processing of tea allows for quicker, more consistent tea production, which provides value to tea consumers.
For example, bruising is a manually demanding step in tea production, as it requires tossing tea leaves in baskets. Producing a batch of tea of consistent quality requires leaves to be evenly bruised. Today, many small-scale tea producers of specialty tea (e.g., oolong) use machines for the bruising process. Such machines replicate the traditional processes and don't break the leaf.
When artisanal tea producers use these bruising machines, it increases the quality and consistency of the tea produced, both of which ultimately add value to the tea product and benefit the tea consumer.
"We need to celebrate the things mechanical harvesting lets us do, like quickly harvesting huge land areas."
Adding Value To Tea
Packaging augments the tea product; it goes beyond a functional role (e.g., storage, transport) and reflects a company’s branding, positioning, and value proposition.
There are six forms of tea packaging:
- Compressed tea (e.g., teacakes)
- Loose leaf tea packaging (e.g., cardboard cylinders, tea tins, plastic food grade bags)
- Nylon tea pyramids
- Instant tea
- Ready to drink (RTD) tea packaging (e.g., canned tea, plastic bottles)
Packing must support the consumer's interests, conversations, and user experience.
For example, a tea trend shows that consumers are demonstrating a greater interest in sustainability. Wise tea brands can use their tea packaging to align closer with their target segment. In such a case, packaging innovation is essential and sustainable tea packaging becomes a priority.
"Savy specialty tea companies use sustainable tea packaging to differentiate their brand in the market. Advertising and content should highlight this point of differentiation to build brand admiration."
"The problem with sustainability is packaging permeability and exposure to moisture. And people will always choose taste over sustainability."
Teapigs, a savvy UK specialty tea company, aligns themselves with customers caring about sustainable tea packaging by incorporating the topic into their content marketing. The article “Is there plastic in our tea and packaging?” generates 110 monthly website visitors (as of November 2021).
This article does five things well:
- Uses copywriting to align teapigs with it’s readers interests (e.g., “We saw Blue Planet – we were horrified too),
- Addresses tea drinkers concerns (e.g., microplastics, recyclable packaging),
- Provides actionable content (e.g., how to recycle used tea bags),
- Educates consumers on the material used in teapigs packaging (e.g., cornstarch, paper), and
- Differentiates the brand from competitors.
Similarly, packaging can support relevant conversations. For example, traceability is a growing movement in the tea industry; businesses and consumers are interested in verifying tea's origin, connecting with producers, and verifying product treatment throughout its lifecycle. Verifying tea's origin is important to a number of segments of the tea market
Traceability can also connect tea drinkers to tea producers (e.g., pluckers) through technology (e.g., QR codes). This sense of connectivity is a benefit for which some customers are willing to pay. Transparency can distinguish tea brands in the market, allowing some to capture a more significant market share.
"Traceability and transparency are major tea trends; a growing number of consumers demand this."
Traceability potentially verifies product treatment through its lifecycle. This application of technology (e.g., blockchain) may help customers confirm the value of pricy teas.
For example, raw pu erh is a function of many variables such as, age of tea trees from which the leaves were plucked, origin of such plants, year harvested, factory processing the raw materials, age, and storage conditions. Age and storage conditions are critical to the quality of raw puer, yet these two variables are difficult to authenticate. Improving traceability (e.g., tracking product history with blockchain) can prevent customers from being exploited.
Packaging must also support the customer experience. The first experience a customer has with a product is seeing its packaging. This is particularly important in the American tea market where customers often make purchasing decisions based on visual cues (e.g., packaging). Packaging can also support the user experience of drinking tea. For example, tea pyramids may use wire instead of string to prevent the tea bag from falling into the mug.
Scenting tea alters the aroma and taste of tea during the manufacturing process. Tea is hygroscopic; it absorbs moisture and smells from the surrounding environment.
Scented teas, such as Jasmine tea, influenced Chinese tea culture as early as the Yuan Dynasty (1271-1368). Fresh fragrant jasmine flowers were dried among tea leaves, imparting their aroma. The dried jasmine flowers were then replaced with fresh flowers until the tea acquired enough of the scent and flavour of the flowers.
Today, some teas are scented using traditional methods, however, scenting and flavouring tea with oils and chemical compounds is also common. Contemporary tea scenting is closely related to flavouring.
Artificial flavours, aromas, and preservatives offer value. Artificial flavours can strengthen or complement tea's taste, embellishing the sensory experience of drinking tea. Artificial flavours significantly increase product variety (e.g., caramel tasting tea), meeting growing market demand. Preservatives also play a role in extending shelf life, so consumers can use their existing product before repurchasing.
"You want to fall in love with your tea by having you want the favors to work together; one flavor shouldn't overpower the others."
Decaffeination grew into a healthy food trend in the 1980s. During this time, consumers grew aware of caffeine's adverse effects (e.g., stress, accelerated heart rate), which increased market demand for decaffeinated products (e.g., decaf tea, decaf coffee).
Tea is decaffeinated by passing a reusable solvent over tea leaves to extract the caffeine content. The leaves are moistened with the fluid, which is then removed, and the leaves are dried. After the decaffeination process occurs, only around 10% of the caffeine remains. The decaffeination process can occur at the plantation factory or elsewhere in the vertical.
Decaffeination adds value to tea drinkers by making products usable in more situations (e.g., in the evening). However, the decaffeination of tea removes not only caffeine, it also removes some of the antioxidants. As a result, decaf tea may be less potent than caffeinated tea for some of the health benefits.
Single estate teas represent a particular flush; they are a lucrative segment of the specialty tea market. These specialty teas possess enough flavour to be consumed without enhancement. Specialty teas are often identified by region (e.g., Darjeeling and Ceylon), yet, like wine, premium tea is determined based on the estate (e.g., Margaret’s Hope, Makabari, Tjibuni Estate).
Pure teas are differentiated by tea type and name. For example:
- Black Tea: Castleton
- Green Tea: Longjing, China Green Monkey
- White Tea: SilverNeedle, Pai Mu Tan
- Oolong: Ti KwanYin, Yencha, Tung-Ting
Several tea companies (e.g., Whittard) balance their specialty tea products between pure tea and blends. Such brands offer high-quality single-estate teas as well as popular blends and flavoured teas.
Higher disposable income in tea importing nations (e.g., America) allows customers to pay for high quality tea. Once consumers acquire a taste for pure tea, they are willing to purchase products at high price points. Some of the more exclusive tea, like Tieguanyin Tea, may sell for $1,500 per pound.
"Our job is to show people that there's a reason and a value for buying more expensive tea."
Speciality blends cater to a wider market. Tea blends represent a large percent of all tea products sold on the global market.
Twinings became the world’s first leading specialist tea company. The brand grew famous for offering over 150 blends, and then grew into a global business with products in 96 countries. Twinings currently holds 14% of the total market, yet holds 60% of the speciality tea market.
Blends offer tea retailers the opportunity to position products with additional health benefits. By including established or trending tea ingredients, brands can capitalise on consumers' desire for health and wellness benefits. Ingredients such as hibiscus, chamomile, and turmeric can increase the product's perceived value.
The development of artificial intelligence (AI) is beginning to shape blend creation. Innovative new tea businesses reverse engineer popular blends by monitoring and using healthful ingredients that are of greatest interest to consumers.
“SAMA Tea uses AI to identify product trends and whitespace in the tea market.”
Marketing is a means by which your tea brand can increase the perceived value of your products.
"Marketing is how the tea industry premiumizes specialty tea and captures greater margins."
The core elements of marketing tea are:
- The people critical to bringing your product to market (e.g., suppliers)
- Processes you use to bring products to market effectively and keep your company viable
- Product lines (depth and breadth) and how you augment your products with packaging and intangible value (e.g., certifications)
- Places from which you distribute your products (online or retail)
- Prices at which you sell your products (premium or mass market)
- Promotions used to drive exposure and interest in your products
Your tea company's most important asset is its website and retail distribution. Your tea company can strengthen its online presence by replicating successful elements of the best tea websites. By investing in developing a website that reflects your brand and target segment, showcases products, and drives conversions (e.g., purchases, email opt-ins), you can position your company well.
The effectiveness of your website is enhanced by creating a digital marketing strategy and relying on other marketing channels and tactics.
Commonly used marketing tactics include:
- Content marketing creates and distributes content that stimulates interest in your products, increasing awareness and cultivating relationships with customers, inviting them further into the customer journey. The four building blocks of content marketing are blogs, videos, podcasts, and images.
- Search engine optimization (SEO) increases the quantity and quality of traffic to your website using organic search. SEO is a “free” durable source of website visitors. SEO involves optimizing your website (e.g., technical SEO), it’s content (e.g., On-page SEO), and getting others to link to your website (i.e., link building).
- Search engine marketing (SEM) refers to pay-per-click (PPC) advertising and display advertising. In both cases, you pay to insert your products into peoples’ consideration set. PPC typically involves paying when an action is taken (e.g., people click your ad); in display advertising you pay a cost per thousand impressions (CPM). Like SEO, SEM plays a role in your sales funnel.
- Social media marketing (SMM) uses social networks (e.g., Facebook, Instagram, TikTok, Pinterest) to connect with potential and existing customers. SMM can be critical for producing user generated content (UGC) and driving word-of-mouth. Some social networks (e.g., Instagram) are shoppable, and can drive your sales.
- Email marketing sends email newsletters to subscribers who opted-in to your email list. Email communication allows you to build relationships with current and potential customers and drive sales.
- Retargeting (often called remarketing) connects with existing or prospective customers who have interacted with your website (e.g., viewing a product page) without completing a sale. Retargeting layers onto other marketing tactics (e.g., display, social media advertising).
- Influencer marketing uses individuals with social credibility, clout, and an audience to promote your products. Brands leveraging Instagram tea influencers rely heavily on micro-influencers.
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