1. 72 STiR tea & coffee industry international
By Si Chen
C
hinese tea companies are attracting frugal middle class customers with “right
size” pricing, value packaging and innovative tea café concepts.
Sales of consumer goods grew at 7.4% last year, less than half the rate of
three years ago signaling a cooling of China’s $185.3 billion consumer goods market.
The slowdown forces both local and foreign brands to target the same middle class
customers, according to a Reuters news service report:: “Increasingly, the domestic
firms are winning: nearly two-thirds of foreign brands surveyed report lost market
share in China, according to Bain & Company and Kantar World Panel.”
“The good domestic brands are able to play off the idea that they know how to
develop something that a Chinese person is going to want,” Reuters reported.
Here are three trends demonstrating the resiliency and market prowess of Chinese
tea retailers:
Tea service innovations
How to serve Chinese tea? There is a renaissance of tea ceremonies in China but tea
service means different things to different people. Tea houses now compete with cof-
fee and international giants like Starbucks which enjoys worldwide fascination. West-
ern influences are beginning to morph the tea-making style in China’s tea bars. Chi-
nese retailers, inspired by Teavana, now serve tea alongside displays of retail products.
Yunitea, a tea bar in Kunming (Yunnan province), offers eye-catching beverages
like ‘Green Teapucino’ and ‘Caramel Black Teachiato’. Owner Wei Wen Bin, young
and sharp and confident, describes his view of the changing market as he tamps 4
grams of CTC black tea before inserting the tea into a fancy Italian Espresso maker.
“Chinese tea has been cultural-laden for centuries, which has been heavy and out-
dated for lots of young people,” said Wei. “I want to offer an alternative solution for
people who are warded off by the tea tradition. Coffee should by no means be the only
choice for the modern life-style. If they are in a rush, they can just grab something and
leave.” What’s more, “if you really need to perk up,” Wei grinned, “I can make you a
double tea shot. Wanna try?”
Long term prospects are optimistic despite the fact that wholesale and retail prices for the most
prized domestic teas have dropped at least a third due to government enforced frugality policies
following an anti-corruption campaign dating to 2012. Tea companies that specialized in luxurious
high-end gift sets find “the loss nightmarish” writes STiR Tea & Coffee correspondent Si Chen.
China’s Cleverly
Evolving Tea Retail
Tea retailing has a bright
future in China according
to the China Academy of
Social Sciences which
reported the domestic tea
industry generated $80.6
billion in 2013 and
$1 billion in exports.
Matcha station at ‘Yutai Oriental’ cafe in Qianmen, Beijing

2. STiR tea & coffee industry international 73
Inside the ‘Yutai oriental’ café on the
second floor of Wuyutai tea shop you
can grind your own matcha powder us-
ing a table stone mill. Patrons can stay
as long as they like for RMB50 ($8). The
store provides a complete matcha set in-
cluding a Japanese whisk for those who
want to drink freshly ground matcha.
Tea espresso and make-it-yourself
matcha are new retail concepts. It is too
early to tell whether customers will em-
brace these and other retail innovations
as China’s tea companies probe for cre-
ative solutions to ambiguous challenges.
Convenient packaging
Customers walking through Wuyutai
and Hua Xiang Yuan tea stores now find
most products offered in small, conve-
nient packages. According to the sales staff at several stores, tea tins of small quantity,
such as 20 or 50 grams, are well-received by customers. The top selling product at Yu
Cha Yuan, a tea supermarket in Beijing, has consistently been the mini Pu-erh cake, a
moderately priced 6-gram individual pack.
Propelling this trend is the shift from the high-end buyers to less affluent con-
sumers. Tea has long been one of the most popular gifts in China, especially among
government and state-own enterprises who formerly reserved a fat percentage of their
budgets for tea gifts. The price of tea gifts remained high because the money was com-
ing from the state’s budget and not their own pockets. It was not a best practice by any
Wei Wen Bin, owner of Yunitea, is demonstrating the making of the tea beverages
using an Expresso machine.

3. 74 STiR tea & coffee industry international
means, but the tea retailing industry thrived on these high margin gifts. Luxurious gift-
sets have always been an important portion of tea companies’ profits; some companies
allocated their entire resources to producing tea gifts.
The impact of the frugality and anti-corruption campaign of 2013 is no less than
a hurricane for affected industries. Beginning in late 2012, the central government cut
expense budgets and instituted airtight supervision of lavish spending such as ban-
quets, tours and the acceptance of expensive gifts. High-end restaurants, spas, hotels
and the gifting industry have been impacted severely. According to one government
officer, the 2013 budget for banquets hosted by his department was a mere 7% of the
previous year. A series of corruption cases have deterred officials from violating the
rules. Enforcement of the policy has been army-firm, which suggests these policies are
not likely to fade away soon. As a result tea businesses are pressed to be innovative in
terms of product design as well as business structures.
The result is greater attention to middle class consumers, a segment that will ex-
pand to 186 million people by 2020. Small-quantity and individually packed products
suit the need for daily usage; and for those accustomed to extravagant layers of packag-
ing, the easy-to-use, standardized packages are refreshing.
From the perspective of consumer psychology, when making a purchase, consum-
ers keep two prices in mind: the first is per capita tea or the ‘absolute price.’ This is the
unit value based on what an individual consumes, calculated as the cost of drinking one
cup of tea.The total depends on how many cups of tea one drinks per day, per month,
etc. The second consideration is the ‘relative price.’ These are the actual dollars con-
sumers must pay at the register. If a consumer feels comfortable at both price points,
then one is likely to make the purchase. The challenge for companies is to make both
prices appealing to customers.
Consider high-end green tea brand Zhu Ye Qing. Four different kinds of packag-
ing are offered at a typical store. The first is a 20-gram tin containing 5 individual tea
packets each containing 4-grams of tea. The tin sells for RMB65 ($10.50). The second
offering is a 50-gram bag with 12 individual packages. A larger 100-gram bag contains
25 individual packages of 4 grams each. These sell for RMB158 ($25.50) and RMB268
($43.20) depending on the grade. The largest “value” size is the 228-gram tin box which
sells for RMB698 ($112.50). This includes 57 packets of 4-gram each. Individual pack-
aging makes it easy for customers to calculate the ‘absolute price’, namely, how much
they are paying per brew (i.e. 4 gram), which ranges from RMB10.7 to 13 ($1.72-$2)
depending on the grade. Small packages of 25 grams or 100 grams sell for RMB65 to
158 ($10.50-25.00), which is viewed as affordable. The tea is not cheap, yet with a clear
‘absolute’ and ‘relative’ price point in mind, customers seem to be more comfortable in
making an informed purchasing decision.
Highly processed tea
Tea companies now offer a range of tea-derived, highly processed products to increase
sales. Examples include tea gum, tea candy, tea cakes and entrees. Hawley & Hazel’s
Darlie green tea and jasmine flavored toothpaste is a top seller and there are even tow-
els made of tea fiber.
Wuyutai’s tea ice cream, which debuted in 2009, is a remarkable example. The
company’s three Beijing stores annually gross $325,000 each by selling up to $3,000 ice
cream cones a day in only two flavors—green tea and jasmine tea—at $1 per serving.
On the Chinese version of Yelp—Dazhong Dianping, there are 932 rave reviews
with an average ranking of 4.5 out of 5 for the ice cream sensation.
Reviewers compared Wuyutai’s tea ice cream with MacDonald’s and DQ’s, praising
the slight bitterness of the green tea and the jasmine scent that make the treat authentic
and unforgettable. Various travel books and websites insist that tasting the ice cream at
the Qianmen Dashilan Street store is a must-do.
“Tea ice cream is a product that somehow goes beyond its basic function to cre-
ate an emotional connection with the customer,” said Chen Xi, the public relations
spokesperson at Wuyutai, “people feel like checking out our products while pampered
by ice creams even when they have never thought of buying tea. The allure is hidden in
the delight generated by the treats. ”
The result: Company revenue soared to $97 million last year.
Display of Zhu Ye Qing green tea at
Wuyutai Tea Shop: the 20-gram tin
pictured contains 5 individually pack-
aged 4-gram servings.
Matcha stations at ‘Yutai Oriental’ cafe
Mini pu-erh cakes weigh 6 grams

4. STiR tea & coffee industry international 75
100-gram package (4-gram per
package, 25 packages)
50-gram package
Wuyutai Tea Ice Cream (Green and
Jasmine flavor sell for $1 a cone).
Understanding the needs of Chinese
consumers gives local companies an edge,
according to Reuters. Privately owned
Jiaduobao Group (JDB) makes canned
herbal tea, claiming that the tea puts out
internal “fires”, playing on a concept in
traditional Chinese medicine. “Our cam-
paign around ‘fearing internal fire’ has
helped JDB herbal tea become the high-
est selling canned drink in China,” senior
executive Wang Yuegui told Reuters.
Online tea sales
The internet has ushered in permanent
changes in Chinese life as tea companies
jostle online for sales. In 2013 alone, the
tea e-commerce industry reached a record
high of RMB8.5 billion ($1.37 billion).
Efuton, established in 2008, recog-
nized the rapidly-changing retail battle-
field and was the first to launch itself as a
tea e-seller at the heart of the phenome-
non. Tailored to white-collar office staffs,
Efuton offers a cost-effective solution
with detailed guidance for tea selection
along with an unconditional return policy.
The website has garnered three mil-
lion online members and experienced
exponential growth. It is now the biggest
online tea seller in China with $32.2 mil-
lion annual revenue.
E-mania has led to concern for tradi-
tional brick-and-mortar shops that must
compete with online prices while manag-
ing greater operating costs.
“It is definitely crucial to have e-com-
merce as a supplemental online presence,”
said Lin Rong Xi, vp at Bama, “and the
online sales have been steadily increasing.
But customers are used to seeing cheaper
prices online, a harmonized price tag of-
fline/online turns customers away.”
“We are still at the infant stage of
tea e-commerce,” predicted Wang Qing,
vice chairman of China Tea Marketing
Association.