How to Sell Tea to Specialty Shops
It is crucial to separate Specialty Tea Shops from other Specialty Retailers that carry tea. There are a lot of retail concepts in which a small collection of teas (loose or bagged) will sell well. For these, the preferred strategy is usually to sell an existing brand with shelf-ready retail packaging. The only burden on the retailer is to select a vendor and unpack the packages onto a shelf. Selling to small retailers who are not focused on tea requires excellent packaging, a streamlined sales and service approach, and solid margins. Most small retailers who are selling a packaged product will expect a 50% margin (a 100% markup).
The math typically works out to something like this: A wholesaler buys a tea for $10 a pound and repackages it in four 4-ounce packages. Let's assume the packaging costs $1 each. The wholesaler will sell each package to a retailer for $5 each, netting the wholesaler a 6% margin (on $20 in gross sales). The retailer then sells each package for $10. A larger wholesaler might get the same tea for less than $10 and thereby get a higher margin. In addition, more elaborate packaging may reduce margin by costing more than $1 per package (including tins, labels, etc.)
The challenge for a small wholesaler to create a profitable business selling to small retailers is that the primary driver of success in a mixed retail environment is brand recognition and packaging quality. Brand recognition is challenging to develop, and excellent packaging is expensive. The larger premium brands on the market have huge economies of scale in sourcing teas and packaging, and big leads in the branding arena.
Conventional wisdom is that selling teas to a tea shop is a much more attractive business model. These customers move a lot more tea and have a better understanding of what they are buying. Some independent tea shops will sell under someone else's brand, but most purchase loose teas in bulk and repackage under their name. Selling bulk loose teas removes the requirement for fancy and expensive retail-ready packaging. The flip side is that a tea shop buying bulk teas in larger quantities is going to expect better than a 50% margin, especially since they have to cover the labor and costs of re-packaging. Specialty Tea Shops target anywhere between 50% and 70% margin on loose teas.
These margins are tough for a new, small wholesaler to meet without huge quality sacrifices. At the end of the day, a large wholesaler who imports directly might sell a good English Breakfast Tea for $10 a pound. They'll offer the same price directly to the retailer and the small wholesaler. So, how does the wholesaler find a profit in that? By buying in quantity. The more you buy, the lower the cost, but this becomes a chicken-and-egg challenge. If you don't have the money up front to buy a lot of inventory, then it's hard to make a profit.
As importantly, most Specialty Tea Shops sell a wide variety of teas. One hundred fifty teas is not an uncommon number. To build a profitable business selling to Specialty Tea Shops, you need to carry a wide variety of teas in enough quantities to turn a profit. Even then, you'll be competing directly with the wholesaler you buy from, who will get your profit margin and theirs when selling directly to the target customer. Long story short, anything is possible, but the challenge of launching a tea wholesaler realistically requires a lot more capital than opening a retail shop. The opportunity for most tea businesses is to treat wholesale either as a side business or as a chance to help build a brand. Wholesale as a profit center is difficult and expensive!
The math typically works out to something like this: A wholesaler buys a tea for $10 a pound and repackages it in four 4-ounce packages. Let's assume the packaging costs $1 each. The wholesaler will sell each package to a retailer for $5 each, netting the wholesaler a 6% margin (on $20 in gross sales). The retailer then sells each package for $10. A larger wholesaler might get the same tea for less than $10 and thereby get a higher margin. In addition, more elaborate packaging may reduce margin by costing more than $1 per package (including tins, labels, etc.)
The challenge for a small wholesaler to create a profitable business selling to small retailers is that the primary driver of success in a mixed retail environment is brand recognition and packaging quality. Brand recognition is challenging to develop, and excellent packaging is expensive. The larger premium brands on the market have huge economies of scale in sourcing teas and packaging, and big leads in the branding arena.
Conventional wisdom is that selling teas to a tea shop is a much more attractive business model. These customers move a lot more tea and have a better understanding of what they are buying. Some independent tea shops will sell under someone else's brand, but most purchase loose teas in bulk and repackage under their name. Selling bulk loose teas removes the requirement for fancy and expensive retail-ready packaging. The flip side is that a tea shop buying bulk teas in larger quantities is going to expect better than a 50% margin, especially since they have to cover the labor and costs of re-packaging. Specialty Tea Shops target anywhere between 50% and 70% margin on loose teas.
These margins are tough for a new, small wholesaler to meet without huge quality sacrifices. At the end of the day, a large wholesaler who imports directly might sell a good English Breakfast Tea for $10 a pound. They'll offer the same price directly to the retailer and the small wholesaler. So, how does the wholesaler find a profit in that? By buying in quantity. The more you buy, the lower the cost, but this becomes a chicken-and-egg challenge. If you don't have the money up front to buy a lot of inventory, then it's hard to make a profit.
As importantly, most Specialty Tea Shops sell a wide variety of teas. One hundred fifty teas is not an uncommon number. To build a profitable business selling to Specialty Tea Shops, you need to carry a wide variety of teas in enough quantities to turn a profit. Even then, you'll be competing directly with the wholesaler you buy from, who will get your profit margin and theirs when selling directly to the target customer. Long story short, anything is possible, but the challenge of launching a tea wholesaler realistically requires a lot more capital than opening a retail shop. The opportunity for most tea businesses is to treat wholesale either as a side business or as a chance to help build a brand. Wholesale as a profit center is difficult and expensive!