This morning, Jackie had a brief conversation with Adagio Tea’s brick-and-mortar retail guru, Charles Cain, via Twitter. It started with a simple question posed by Charles about at what price does tea become expensive. It’s a good question and, in our opinion, really gets to the heart of the matter when it comes to challenges that the tea industry needs to overcome. The question itself speaks to the primary factors that are holding back that great Tea Revolution we’ve heard so much about and it all comes down to two things – price and availability.

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Here’s a transcript of the conversation that took place:

leafboxtea: “Expensive” is so relative. Would I splash out occasionally on an expensive tea, yes. But for daily sipping $5 is too much.

TeaPages: At risk of being unhelpful, I say “depends” For really high quality I’m less price-sensitive. But $7-8 gives pause.

leafboxtea: Thing is, I drink an awful lot of tea. We go through 4oz in about 4 days in my house. Can’t spend $20 every 4 days or so.

dloehr: $10 might be that tipping point for me.

Teawench: It depends on the tea. $5/ounce for a good Darjeeling is different than $5/ounce for an average blend or flavored tea.

dloehr: I’ve shopped at a tea place that rhymes with nirvana, and they add up quickly there.

AdagioRetail: Funny thing customer psychology: $5 per oz is $0.50 per cup at home. And yet we’ll gladly spend $3 on a brewed cup.

dloehr: I’ve rarely if ever seen that equation. That’d be easy to promote/inform. (Said marketing boy…)

TeaPages: We don’t always do a great job communicating that to buyers. Many don’t know how to translate oz to cups.

leafboxtea: tea for us is a daily “necessary” drink. No soda, or coffee ūüôā And the cafe-brewed tea here at $3 doesn’t compare to our own

AdagioRetail: Agreed. Still amazing to see what people do spend daily on coffee, soda, alcohol etc.

AdagioRetail: Frustrating that, for many in the US, coffee, soda and alcohol are part of the grocery budget and tea is a luxury.

AdagioRetail: Frustrating because it should be so easy. 1 ounce = 10 cups (2.8g each)

leafboxtea: Thing is, Americans see it as luxury because it’s marketed as a luxury. There needs 2 be a balance between commodity & luxury

Our opinion in detail

The basis of what we think here at Leafbox Tea is summed up in that last comment. From the consumer’s perspective, the tea industry is represented by extremes – there are luxury brands and there are commodity brands. The number of luxury brands has increased in recent years. Brands like Mighty Leaf, Adagio, Rishi, Numi, Revolution Tea, and Teavana are setting the stage for industry. Those are spotlight names. In addition to them, there are dozens of smaller, up-and-coming brands whose owners and employees are working hard everyday to compete and differentiate in a heavily crowded tea marketplace.

The troubling fact is, every single one of those brands is selling its tea as luxury product. Look at the glossy packaging and expensive design seen throughout the industry. Both online and off, brick-and-mortar stores sell teas as a luxury item. Up-market cafés style tea as urban and stylish. All that style and design costs money, and it is the consumers who pay for it. Only one company seems to buck the trend, Upton Tea, with its old-fashioned website and hard-to-read paper catalog lacks style and flash, but offers incredible value for consumers who are able to navigate its offerings. Simply because they stuck with the old ways, they have now differentiated themselves in a market that seems to push luxury at every corner.

With all this, there is another part of the market that needs to be considered and that is the commodity outlook of tea. In most of the world, tea is treated as a commodity item. In the marketplace, commodity tea is Lipton and its direct competitors. If we look at the low end that Unilever created with Lipton and the upper end of the luxury, specialty tea market – we really find no middle ground in the place that matters – the humble grocery store.

supermarket teaWe’ve had tea shop owners turn up their noses at us at the mere suggestion that mid-quality loose tea products should be sold in bulk in grocery stores. This is a favored topic by us and something we’ve discussed before (Are you getting the best value with your tea?). This is the middle ground and the area that should be explored. The Europeans sell bulk, loose tea in 125 gram pouches in many ordinary grocery stores – what are they doing right that we are are doing wrong?

Since the conversation here started with Adagio, we’ll circle back here to them here. We’ve seen Adagio tea products in the grocery store, but in every case it looks like a failed channel for them. About 3 ounces of ordinary tea for about $12 in packaging that just looks expensive – and every time it sits there, isolated, dusty and lonely-looking among the colorful boxes of tea bags. It is very hard to buy something like that. That product style can’t compete in a grocery store because it doesn’t fit into the magic price area of grocery store tea of $3-$7.

Anyone in the grocery industry will tell you that sales come down to packaging and finding the right mix of value and appearance to grab customer’s eyes and attention. Everything about packaging has been fine-tuned through decades of marketing. The loose tea segment of the tea industry should learn from those lessons. Someone with the¬†entrepreneurial¬†spirit and the money should eschew the traditional tea shop and tea parlor methods that are so ingrained in our culture and jump on the grocery store bandwagon. Grocery stores are the last channel of the American marketplace that the loose, specialty tea industry has failed to penetrate.

Operating a warehouse in a dingy part of town, driving truckloads of tea across the city to the food broker’s distribution warehouse every week is not as¬†glamorous¬†or trendy as running a tea shop or caf√©. There are no fancy tea parties or $300,000 websites. The entire enterprise would probably seem boring, without flash, style, or even much customer contact and the ego-build (and¬†tear-down) that comes with it – but it will probably do very, very well.

A way of looking at it is that there is no loose tea for sale in the grocery store – does that mean it doesn’t work? Not really, it just means that, for now, there is no competition and in filling that void, tea companies will enter into that untapped middle ground between commodity brands and luxury brands.

Share your thought below – do you have price threshold for tea? What is too much?