Dec 2nd 2009 Issue
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Moving an online tea collection into retail

Charles Cain - Dec 2nd 2009

Premium Silver Needle White Tea

After 10 wildly successful years in the online tea business it's safe to say that Adagio's tea collection is a proven success. But success online will not necessarily translate to a retail store. The question, is how does a company like Adagio need to adjust their tea collection to be successful in a physical retail environment?

Adagio's Current Strategy
To this point the Adagio brand has revolved around making a premium product accessible to the masses. The population of tea consumers is heavily skewed towards the mass market, and Adagio has successfully positioned itself at the "doorway" between the commodity companies and the premium retailers.

This strategy has been effective for two key reasons:

  • The average consumer lacks an understanding of the drivers behind tea quality and, ultimately, price. By pricing slightly above the mass-market brands, while delivering a premium message and accessible brand image, Adagio captures the customer that wants to buy luxury but cannot justify the premium prices of some brands.
  • Adagio's primary distribution channels, online and grocery, are competition intensive and therefore highly price sensitive. A customer can, and will, select a less expensive product or company unless presented with a compelling reason to pay more.

Specialty Retail Strategy
The environment of a Specialty Tea Retail store does not share the key characteristics that have made Adagio stand out against its competitors online.

  • The customer fear of overspending on a product they will not appreciate is diminished by the lack of alternative brands in a specialty store environment. Fewer options means less uncertainty. Customers in specialty stores are more likely to buy luxury items at luxury prices.
  • The customer's lack of information is offset by the availability of experienced, helpful sales people. Again, less uncertainty and a greater appetite for luxury purchases.
  • Price sensitivity is also reduced by the lack of alternatives and the existing investment of time and effort to get to the shop in the first place (shopping around and coming back later is not worth the money that can be saved).

A specialty retailer's primary obstacle to success is offering enough value to convince the customer that it is worth their time visit the store in the first place. A specialty retail customer will go out of their way for three main reasons:

  • Selection – products that are not available elsewhere
  • Service – Experienced, helpful sales staff or a service that cannot be found elsewhere
  • Experience – A process, environment or association that delivers a real or perceived benefit.

The Case for a Broader Approach
Based on my observations of the development and evolution of the typical tea consumer I believe the following scenario is playing out among Adagio's customers:

  • Adagio is introducing new customers to the world of tea through aggressive pricing, accessible teas, and excellent sales and customer service systems.
  • As these customers develop their palettes and expand their curiosity, those inclined to become connoisseurs may shift their business to other more specialized sources.

This same scenario plays out across the spectrum of consumer goods. The most popular mass-market wine labels, for example, are very effective at attracting new drinkers, but lose their appeal as the customer base becomes more educated and discriminating. Many of these wineries responded in recent years with premium lines of reserve or special label wines. While they will never attract the true oenophile, the mass-market brands have been very effective at capturing multiple levels of the customer evolution. Sterling Vineyards, for example, offers a low priced Vitner's Collection, their standard Sterling Collection, a Reserve Collection, and a range of small-lot wines. The same strategy of market segmentation has proven effective in consumer products from electronics to cars to clothing.

I draw two conclusions from all of this:

  • Customers go to specialty stores for specialty items, so carrying the most popular and therefore widely available teas is probably not enough
  • You're leaving money on the table in a specialty store environment if you don't offer premium products for premium prices. The customers, especially the connoisseurs, expect something special from a stand alone tea shop.

Proposed Changes
Based on these conclusions, I am proposing the creation of an Adagio Masters Collection comprised of between 12 and 24 premium teas which may be accurately described by some or all of the following: Limited edition, seasonal, single estate, small farm, and/or hand processed. This Masters Collection would be set apart both in packaging and in-store presentation, and would be priced well above the average of the regular collection. Teas which sell for between $25 and $65 for 4 ounces should be the target, with periodic entries at even higher price points.

There are about a half dozen teas in the existing collection that we may choose to repackage as part of the Masters Collection. While most of these teas would be classical, unflavored teas, it would be wise to include a sampling of premium flavored teas (more expensive, rare flavorings and a higher quality base tea) in an effort to stretch the pricing of the core flavored collection and capture those willing to spend more money but intimidated by, or uninterested in classic teas.

In short, a premium collection, resulting in greater pricing spreads within the collection, will allow Adagio to remain competitive with the lower priced commodity brands while stealing market and mind-share from the premium brands.

Needless to say, Adagio's strategy of targeting the largest group of specialty loose tea drinkers has been far more profitable online and in the grocery aisle than the more selective strategies of the super premium retailers. I would never propose abandoning the mass market, but I believe we can increase sales AND profits by stretching the collection and taking advantage of the specialty store customer's willingness to pay for quality.

Adagio Teas