Everything about tea is big business and it has always been that way, ever since the Chinese discovered the beauty of brewing the leaves of Carmelia sinesis, a shrub, into a beverage. After discovering tea and adopting it as a national beverage, and through their mercantile prowess spread it around the world, tea business has continued to grow.
Increasingly, unique niche markets are being created by innovative entrepreneurs. These days venture capitalists are also beggining to provide financial support to entrepreneurs with profitable ideas. For instance, growers are learning they can skip a few links in the traditional supply chain to deliver fresher tea, a development accelerated by venture capital.
Once or twice a year TechCrunch, the technology blog headquartered near San Francisco, reports on Silicon Valley investments in tea. The latest is a $1.4 million Series A round in Vahdam Teas, a two-and-half-year-old Indian “tea-commerce” site selling specialty teas via its website and Amazon. The money is drawn from funds such as Fireside Ventures, Mumbai Angels, the Singapore Angel Network and private capital. The company previously raised $500,000 in January.
It is helpful to remember that in Mumbai a $1.4 million investment equals 90 million rupees, which buys a lot of tea and the labor needed to market, track and ship tea. Average per capita income ranges from $5 per day at the tea gardens to $50 per day in the cities.
As TechCrunch puts it: “Backed by some of India’s most eminent angel investors, Vahdam Teas is among the world’s first vertically integrated online-first tea brands.”
The company has 150,000 registered customers and claims that 45 percent of the company’s buyers return for a repeat purchase every four months.
Rival Teabox, also backed by venture capital from both the U.S. and India, operates a subscription tea business also designed to deliver garden fresh tea.
Retailers in the 100 countries served by these companies should take heed. These specialty teas move quickly from pluck to packet, often in less than a week with air freight delivery hours from major U.S. and European cities. Most sales are via the company website but in the U.S. Amazon helps Vahdam sprint the final mile to a discerning customer’s doorstep.
Bala Sarda, CEO of Vahdam Teas is not exaggerating when he says he can cut up to nine months and three weeks from typical delivery dates.
He told TechCrunch the supply chain for the last 200 years requires three to four months to pluck and export. “Teas are then handled by multiple middle men, by the time the consumer gets to have tea it is 10 months onward,” he said.
The argument that fresh teas are better tasting is compelling. While not strictly true―considering the many varieties of wulong and puer and teas that improve with age―many first-flush and lightly processed teas have a flavor profile that resembles fresh produce. In Russia for example, teas plucked along the Black Sea tea-growing region near Sochi are processed late in the day, packaged evenings and delivered to grocery stores and markets before day break.
“Unlike your everyday cup, Vahdam Teas do not travel in containers for months before being packaged and sold. All teas are packed and shipped to Amazon warehouses in the U.S. direct from source in India,” according to the company. A 2017 English breakfast sells for $1.56 per ounce in 16-ounce packages and an organic second flush Darjeeling from this year’s troubled harvest is listed at $17.95 for 9 ounces.
Sarda, 26, points out that “by cutting out all middlemen, we are also able to retain all earnings in the region where teas are grown by millions of passionate tea workers, a process which helps every farmer get a better price.”
Cutting these costs also makes it practical to finance cold-storage logistics and subsidize the cost of air freight, which falls appreciably as volume increases.
“If we believe that we need to retain the freshness and flavour of tea, we need to invest in this,” he says.
Shipments are vacuum packed at source, they display the month the tea was plucked and are available both in tea bags and loose leaf. A sampler offering 10 teas (an estimated 50 servings) is listed at $19.95 on Amazon.
Typical tea shipping logistics
It is not well known by consumers, but virtually all tea sold online in the U.S. and Canada is sourced from a half-dozen importers willing to purchase tea in bulk. Importing shipping containers is by far the most economical way to transport tea, adding as little as 5 cents to 8 cents to the cost per pound, but doing so requires sophisticated logistics, bonded (and sometimes organic certified) warehouses, receiving, food safety and customs clearances, that together require millions in capital investment. A single container of tea is valued at several hundred thousand dollars.
Shipping can occur as soon as three to four weeks after harvest, but more typically the tea is stored for one-and-half to two-and-half months. Transit requires several weeks from India, Sri Lanka, China or African countries. The density of specialty tea varies greatly. Whole chests weigh from 35 to 60 kilos with a maximum of 73 kilos. Half chests typically weigh 20 to 40 kilos. Jute bags of tea weigh 25 to 60 kilos per bag. Framed chests are made of cheap plywood and break easily, which limits the stack height to four high for 50 kilogram chests at sea.
Air freight is $6.50 to $10 for each pound of tea, adding a minimum of 40 cents per ounce in the price paid by consumers. Equally daunting is the fact that tea coming from small farms doesn’t always have the paper trail demanded by transport and logistics specialists and customers brokers.
“Whether you ship two tons of tea in a container or a few hundred pounds by air freight, you still must pay the same amount to a customs clearing agent to represent your shipment in person at the airport, and submit the paperwork. You still have the same cost in annual bonds,” writes Verdant Tea’s David Duckler in an informative blog post titled Transparency in the Tea Industry: The Cost of Shipping. He estimated in 2014 that customs costs add 10-12 cents per ounce to the retail price.
Direct seller savings
Teabox and Vahdam have each found ways to minimize shipping expense by using technically advanced logistics. Front loading larger quantities based on known buying patterns and then refrigerating pricey teas like first flush Darjeeling is one example.
Until the logistical capabilities were in place, Sarda told TechCrunch that the company focused “more on retention marketing than user acquisition marketing.”
That is about to change with the addition of market specific websites like www.vadahmteas.ru in Russia and a subscription service as well as product launches into several new categories.