Dec 10th 2009 Issue
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Can free tea increase sales?

Charles Cain - Dec 10th 2009

What is this cup worth to you?

An internal debate has been underway for the past month or so on the proper role of Tea-to-Go in the Adagio retail concept. Should we treat it as a profit center, a small side-business, or a marketing strategy to drive loose tea sales?

Before getting into the strategy behind these options, it's important to understand the core Adagio Retail Model. In short, the focus is creating a playground for tea that drives retail sales of bulk tea. We are NOT building a cafe designed to attract the loungers, laptops and morning commuters. The store will most likely NOT have customer seating. (more here)

While I'm avoiding customer seating and the requisite bathrooms, extra space and snacks, there is no question that the store needs the capacity to brew and serve tea. Experiencing the product is the whole focus, and that experience needs to engage all of the senses. It is important that we have the option of brewing any tea in the building, and that we have a range of brewed samples on tap at all times. All of that understood, I return to the question at hand: What is the proper role of Tea-to-Go?

Profit Center
Most cafes make their money on prepared drinks. I'm not sure of the numbers, but my impression is that a significant percentage of these are highly sweetened, fattened, blended and otherwise modified concoctions of tea or coffee. I'm not sure how profitable a store would be just serving brewed tea and coffee. Regardless of the role of Tea-to-Go, our focus is selling bulk tea, and so I'm skeptical of the value of preparing and selling blended, frozen, sweetened tea drinks. I see that driving business, but not the business that will ever translate to retail sales.

I've seen a lot of small retail tea shops that sell cups of tea as sort of a necessary evil. The cup sales themselves may or may not be worth the investment of equipment, supplies, space and labor, but the customers expect to be able to buy a cup of tea. As importantly, the customers want the option of trying something before they buy it in bulk. Under this strategy, a shop might not go out of their way to drive the service business - there's not much point in creating all sorts of fancy blended drinks - but the business provides a stable base of loyal customers and a small minimum purchase option for the tourist or novice tea drinker.

Marketing Strategy
The final option that has been proposed by a couple members of our team, is that Tea-to-Go be treated as a marketing opportunity. Why not offer cups of tea for free? Assuming that we're not offering highly blended, sweetened, frozen drinks, then anyone coming in for a fresh brewed cup of hot or iced tea is a "real" tea drinker. Once they see how easy it is to prepare given a few basic utensils, they'll soon begin buying tea to brew themselves at home. Tea-to-Go, according to this theory, introduces people to the product and the ease of preparation. It also brings people back to the store on a regular basis where they will be presented with exciting new options to feed their growing tea addiction. Finally, all of the customers walking around the area with Adagio cups will serve as a small army of little billboards letting the uninitiated know that there is something special and popular nearby.

The only way this strategy gets really scary is in the scenario of a "morning rush", where 20 people might be in line for a free cup of tea at any given time. The space, staff, and customer frustration due to long wait times would destroy any marketing value. There are two reasons not to fear this too much. First, the drinks that take a long time to prepare are the blended concoctions. A 12 ounce cup of tea is as easy as 4 grams of tea spooned into a paper filter dropped into a cup filled with hot water. Preparing the drink will take less time than ringing it up on the register and accepting payment. Second, I've yet to see a tea cafe that gets much of a morning commuter rush (unless the serve coffee).

Where this gets really interesting is the cost analysis. The Adagio website lists the per cup cost of each tea when brewed at home. Some of the premium teas cross $0.25 a cup brewed at home, but most are in the $0.10 a cup range. Of course our costs are lower. The truth is that the cost of tea, filter, paper cup, lid and cup sleeve will all add up to something like a quarter a per cup of Tea-to-Go. A direct mail postcard, by comparison, will cost me AT LEAST twice that when you include design, printing and postage. If we assume the Direct Mail industry standard of a 2% response rate and a cost of $0.50 per postcard that means I'll probably pay more than $25 per customer brought into the store via direct mail vs. $0.25 per customer in the store for a free cup of tea.

I'm not sure I'm ready to commit to free tea for all… but it does make you think…

Adagio Teas