Feb 15th 2010 Issue
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Building a tea collection

Charles Cain - Feb 15th 2010

Fava Tea Company -- Appleton, WI

Fava Tea interior

For anyone considering a new tea venture, building a product collection is one of the most important, and most enjoyable parts of the process. While "playing with tea" is what draws many people to this business, when the time comes to start making decisions, the range of options and strategies can easily get intimidating. I was talking last week with the owner of a tea retail shop that currently sells product primarily under the brand name of a prominent tea company. They have had some difficulty with their supplier and so were asking me the following questions:

1. Are we better off selling under the name of an established brand or creating our own private label?

2. What is the likely impact to our existing business if we start making dramatic changes to our collection?

3. How many teas should we carry?

I've talked with dozens of tea entrepreneurs facing these decisions and would like to take this opportunity to share my thoughts and to highlight the product selection and branding strategy of one successful brick-and-morter and online retailer, Fava Tea.

Let's start with the question of branded vs. private label. There are a lot of advantages and disadvantages to each of the options, but I was uniquely impressed by the strategy of Fava Tea, founded in late 2007 by husband and wife team Bryan and Mellisa Stafford. They offer three established brands plus their own private label teas.

Their theory was that existing tea drinkers would feel most comfortable buying from a new vendor that carried familiar products from familiar brands. The Staffords chose Rishi Teas, Adagio Teas and Harney & Sons to give them branded products that targeted specific demographics of tea drinkers. Rishi Teas is known for their super-premium and very expensive specialty teas. Adagio was selected as a gourmet-value brand, and Harney & Sons to cater to the more price sensitive customers. Each brand fits well within the category of "Specialty Tea" and positions Fava Tea well above the local supermarket, but each brand also has a particular image and appeal to segments of existing tea drinkers.

These established brands offered instant credibility and maximum efficiency in the early stage of the store's development. Simply open the box and put the product on the shelf. No need to create packaging and labels, write descriptions and stress over what will or won't sell. The wholesaler can give you a list of their best selling teas and you're off and running.

Fava Tea also offers a line of private labeled teas to help build awareness of their own brand and achieve a level of customer loyalty that can't be duplicated with branded products (which can be purchased elsewhere). This gives Fava the maximum flexibility, and allows them to slowly transition customers to their own products. Carrying at least a few teas under your own name gives you and your staff a greater sense of pride in ownership and allows you to tell a much more interesting story to the consumer. (NOTE: Their website only shows their private label products)

The second question, for existing retailers, is what the impact will be of making changes to the collection. The answer differs dramatically between physical retail and e-commerce models. With an online shop it is exceedingly easy for the customer to comparison shop and select a different vendor. Stop carrying their favorite tea and it's a toss up whether they'll choose to buy something else or search for their tea from another vendor. In a physical retail location, the cost of comparison shopping is much higher. You should find it relatively easy to substitute another product and you'll get at least one chance to prove to the customer that your changes are for the better and keep them coming back. Short answer, don't be afraid of change, but train your staff well on how to identify what it was the customer liked about the tea and cross sell to similar products.

The third and final question was how many teas a shop should carry. Let me preface by saying that the answer is highly dependent on your business model. In a cafe, bistro or tea room/restaurant the focus is the food and the service and a small collection of 10 to 20 teas is probably sufficient. If you are a specialty tea retailer it's in your best interest to offer a MUCH larger selection. Fava Teas claims 320 teas.

My impression, based on my travels and conversations with tea people, is that those who consider themselves a little more mainstream tend to carry between 60 and 120 teas. The best tea retailers who cater to connoisseurs carry 150 to 300. I've seen a few shops with over 300 teas, but don't believe this is necessary for most operations. (NOTE: Given the limited nature of many small lot productions, a shop that claims 320 teas over the course of a year may have 280 in stock at any given time).

The goals are competitive differentiation and offering a compelling experience that makes it worth the customer's time to come to your shop. Like it or not, you are competing with the online retailers and their large collections. You also need to be aware of what other tea shops are doing. If 250 teas is considered "impressive", and you carry 150, what does this say to your customer? As importantly, the range of teas on the market is much larger than most people realize. When I worked behind the counter every day, my shop carried roughly 300 teas and I was CONSTANTLY getting requests for things we didn't have. Because our collection was so large, I was able to sell the customer on something else. I have no doubt that if our collection had been much smaller, many customer would have simply concluded that our shop was not that impressive and would have taken their business elsewhere.

For me at Adagio these questions are a bit easier to answer... of course all of our teas will be Adagio Teas. That said, we are already making changes to the collection in anticipation of the needs of our physical retail shop. First, we are adding a Master's Collection of 10-20 super premium teas to put us in direct competition with the best tea companies in the world. Second, we will be expanding our existing collection of roughly 150 teas to encompass more unique and specialty items. Third, we will allow customers to create their own custom blends using our flavored and base teas and a selection of popular inclusions (added fruits, flowers or spices) to make the range of possibilities truly endless.

At the end of the day, my primary advice for anyone getting into the tea business is to start large and remove what doesn't sell. Your customers will form an opinion of your operation on the first visit. Fail to impress them and they'll never return.

Adagio Teas