Retail Profits in Specialty Tea

chofmann
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Wed Mar 14, 2018 8:48 am

Thanks for the replies here, I certainly appreciate it.

While we do negotiate with our farmers, we still want the best for them! As I have mentioned in one of the vendor threads, our current oolong farmer (who is well known here at TeaForum) sells through his own site, and we were able to match his prices through a combination of negotiating a unique contract with him and decreasing our own margins (typically in the 40%-50% gross margin range, but lower for some teas, higher for others). In general, we find that farms, even those that have experimented with selling directly, are interested in working with us. It is a hassle for them to manage a site, deal with individual retail orders, and enter the customer service business. With us, they can drop all that, focus on making the best tea, and still make a lot of money. Unlike the past 50+ years, as we grow larger, we won't re-negotiate and demand better prices, putting our farmers between a rock and a hard spot. Instead, we'll save on shipping and packaging related costs, thus increasing our margins (or at least offsetting additional labor costs), while still honoring our contracts with our farmers. It really is a win-win-win.

What we are trying to do now is to help reveal to our consumers and the broader market that a very small % of the retail price typically goes to the cost of the tea itself (post-processing). We are hoping to shine a light on this issue in a transparent way, and, selfishly, paint ourselves in a better light by doing things differently.

The tricky part is that tea has such an incredibly wide variance of both cost and quality, even at the farmer level, that it is hard to prevent an 'apples vs. oranges' sort of comparison.

We can be as transparent as we want, but if our comparisons to the "industry standard" or an "average competitor" aren't realistic, then the whole discussion falls apart before it even begins, sadly.

Thanks again for the comments! You guys will be the first to hear about this when we go live with it!
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Tillerman
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Wed Mar 14, 2018 10:41 am

choffman:
I think that overall, we are in massive agreement here. I applaud your efforts to increase transparency and I wish you well in your efforts. I believe that being transparent is really the only way forward in this (or any) business.

Ethan:
No, a couple of small players in the business - and I'm really small - aren't going to resolve the issue of grower compensation. But I, for one, don't wish to contribute to it in any way I can avoid. I have been told I am naive and romantic - but that's only half right.
Ethan Kurland
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Wed Mar 14, 2018 12:30 pm

Tillerman wrote:
Wed Mar 14, 2018 10:41 am
choffman:
I think that overall, we are in massive agreement here. I applaud your efforts to increase transparency and I wish you well in your efforts. I believe that being transparent is really the only way forward in this (or any) business.

Ethan:
No, a couple of small players in the business - and I'm really small - aren't going to resolve the issue of grower compensation. But I, for one, don't wish to contribute to it in any way I can avoid. I have been told I am naive and romantic - but that's only half right.
Neither of you are naive & romantic. You are good guys trying to do business in an uncommonly good way and I think that you will succeed (but you won't be rich in terms of $).
TeaZero
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Joined: Thu Apr 05, 2018 12:44 pm

Thu Apr 05, 2018 1:00 pm

And yet, we do see retailers like American Tea Room and Teavana closing their business. I've always been aware of these margins, but I rather by from retailers than direct from farmers, as there's more quality control through the supply chain.
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