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Is bigger better?

December 19, 2011 / / 15 Comments

If you ask this about blogging, the answer is obviously no.

You want an example? I have several files, articles and so on about Teavana IPO, finances and such (this is the nice part when a company goes public) but I have tried to analyse all of it in depth and I have been stuck in nowhere, unable to go anywhere but unwilling to let it go.

How does this connect to tea?

When I asked myself what I should do and found the question I asked myself at the beginning, the answer came to me: What is the growth strategy of Teavana? Where do they do make their money? Where do they make their profits?

I don’t know if I will be answer to answer all these questions but I will focus on them (this means I won’t cover everything but perhaps I might come back to it later).

“Teavana is a rapidly growing specialty retailer of premium loose-leaf teas, authentic artisanal teawares and other tea-related merchandise.”

I will come back to the growing part later on, so let’s focus on the sales mix.

Here is Teavana’s sales mix over the last years.


 2008 2009 2010
Tea 51,00% 54,00% 56,00%
Merchandise 44,00% 42,00% 40,00%
Beverage 5,00% 4,00% 4,00%

Tea is the biggest part of it but not by much (only between 1 and 6% more than the two other categories put together) but its importance is growing while Teavana is experimenting a rise in their sales (from 63, 86 millions $ in 2008 to 124,70 in 2010), so when you mix the two of them, you see that tea is really important for Teavana.


 2008 2009 2010
Tea 32,57 48,74 69,83
Merchandise 28,10 37,91 49,88
Beverage 3,19 3,61 4,99

So important, that their tea sales were in 2 years multiplied by more than 2.

This is coherent with Teavana’s strategy as “A primary driver of our expected margin expansion will come from the continuation of our sales mix shift away from tea-related merchandise towards higher margin loose-leaf teas that our stores generally experience as they mature. In general, this trend is consistent with the evolution in our customers’ buying patterns as they graduate from purchases with a greater focus on merchandise with which to prepare and enjoy tea towards transactions centered more on replenishing their favorite teas and experimenting with new blends.”

To sum it up, they aim at opening more and more new stores but they also aim at bringing the consumers to the world of loose-leaf teas where their margins are higher.

Does it work or is their future growth the result of a growing number of stores?

Here is a first hint to see if it works.

The graphics provides us with a first analysis: the growth in the number of stores is obviously linked to the growth in revenues and also to the growth in profits (even if it takes time to get a return on investment, even if Teavana claims to do it rather quickly with a payback period of 1.5 year) but it is only one of their main components (I checked also using statistical formulas but I don’t want to bother you here with them).

So it seems that Teavana figures are in line with their strategy :

expand the number of stores,

  • increase the same-store sales,

  • expand the online presence.

 

Will this strategy work? Perhaps and since I don’t read the future in tea leaves, I won’t answer that question. However, what I know for sure is that perpetual growth is an unknown phenomena.

If we get back to Teavana, from all the weaknesses they have identified in their strategy, I think the most important one is the potential problems with the new stores (suitable locations, lease terms, cash to invest) and the personal (train and retain it).

Why?

Simply because quality is not enough, you need to have the right people able to create a specific relationship with the buyers, allowing them to come back and to “upgrade” their experience.

You also need to be visible, meaning being in the right place, which comes at a cost.

So is bigger better? Only up to a certain point.

What point? It all depends on how a company is able to evolve and make the best of its size but sometimes, it just becomes too big to fail, which usually leads to a failure.

But one thing I know is that for now, Teavana is not going the Starbucks way and comparing the two is like comparing broccolis and carrots, they are both vegetables but that’s all. Teavana and Starbucks are both beverage companies but that’s all.

 

Of competitive intelligence, letters and tea

November 9, 2011 / / 4 Comments

We live really interesting times.

Thanks to the Internet I can chat with people from all over the world about tea or any other topic I might be interested in.

I can also find a lot of surprises while looking for other things (which is probably my favourite part of the Internet) and I can also have access to a whole set of data and figures on tea trade, tea consumption, tea whatever you might think of.

Now, you are probably wondering if I have lost my mind somewhere over the rainbow or if the Mad Hatter took it to make one of his special teas.

The answer is none of the above.

When I read a book on trade or spying in the old times, I am always amazed by how they informed themselves about prices, products, competitors…

The whole process might surprise a few people that think that we (those of the modern era) invented everything but let’s look more closely at a modern concept: competitive intelligence.

What is it?

According to Wikipedia, “a broad definition of competitive intelligence is the action of defining, gathering, analyzing, and distributing intelligence about products, customers, competitors and any aspect of the environment needed to support executives and managers in making strategic decisions for an organization.”

Now, let’s go for a few lines in the mind of one of the tea merchants from earlier and see if this definition would fit.

Let’s say you belong to a big company, perhaps the East India Company and you want to know if you can still sell tea, how, to whom and at what price (you know that you want to sell tea, don’t you?).

Surprise, you just defined your intelligence needs about your customers, competitions, needs that will allow you or more likely the board of directors to decide what is the best sales strategy for tea.

The next step is to decide who are the people able to answer your questions.

First, accountants to let you know how much it costs, where you make a profit, how much tea you sale each year and other mundane things.

But then, comes the tricky questions regarding competitors, foreign markets.

What do you do?

Today, you would probably look all over the Internet for raw data, chat with people for qualitative information, give a few phone calls, look at the press… But apart from the press, none of these tools were available during the time of the East India Company.

So the only option would be to take your most beautiful feather and write letters (or make others write them after all you are the boss here) to selected consuls and gentlemen to ask them to collect data on the local/national market (depending if there is a thing like a centralised state or if it is more a balkanised one).

You would probably ask the same questions to several people so as to be able to double or triple check their answers (you never know).

Now, gathering and analysis are likely to be done (it was not done as quickly or easily as I might make it sound but still) and this is when distribution of the collected and analysed data would be useful.

If you were in the Middle Ages, you would probably write it down in some obscure language but now in the 19th century, you are civilized, so you probably print it since His Majesty ordered the East India Company to do so.

And guess what? Years later, the Bayerische StaatsBibliothek made a copy of it and put it on the Internet, so enjoy the Papers relating to the trade with India and China including information and prices of tea, in foreign countries.

To help you to read through it, I gathered every tea related information I could find in this book and put it under Google Docs (file here)

Just to show you how serious these people (you know them, they are you) were with tea and competitive intelligence, I must tell you that each file has something like 18 tabs filled with data.

For one hour, I thought I was Johnny Depp

October 29, 2011 / / 6 Comments

Hamburg is a charming and quite busy city in Northern Germany and according to many sources, one of the biggest tea ports in Europe.

I went there for the weekend and after reading carefully Lahikmajoe’s post, we decided with my friend to go to the Hotel 4 Seasons.

To be honest, I was a bit intimated as I didn’t have trendy clothes on me but only the casual ones I had in the night train and during my morning stay in the city but I thought that it really didn’t matter (I looked at their website while I was writing this post and I saw that the dress code was Smart Casual, which I wasn’t for sure) .

This Hotel is famous in Hamburg and really upper class.

We were early (around 13h30) and as we looked around, we were greeted by a butler that said we were a bit too early for the cakes but that we could have a tea and that the cakes would come in a little while.

They had a decent choice with around 12 different loose leaf teas and they had a really nice card with small samples of each tea and a description in German and English (for those unfortunate enough not to read properly German).

While waiting for the cakes, we looked around and saw that the whole place was really like one of these English gentlemen club where you don’t want to disturb anyone and with the paintings on the walls looking at you with their gloomy eyes.

We didn’t speak about business and politics but about poetry, literature and other topics.

This (after all, poets are known not to care about their clothes, they are artists) together with the “if I was Johnny Depp, my clothes would be trendy” attitude helped me get better in a few minutes about this whole setting and enjoy the place and the tea.

The following day, we went to Blankenese, a charming little town all built around stairs, with a lot of former houses from captains and fishing people (for the old part of town).

Apart from finding a lot of pharmacies there (one every 100m in the new part of town, perhaps the people there are ill all the time), we were also looking after the first name to appear on the Internet when you look for Teestube (a close translation of tea salon in German) in Hamburg.

We found it in the newest part of the town, some 200m from the train station and it was like a piece of England in Germany with some Queen Elisabeth II objects (some were really kitsch like a small statue of the Queen waving the right hand in her royal way) and other posters/maps.

I was surprised by the number of teas available and we decided to go for a Blankense mix (Ceylon and Assam) and a Black Vanilla tea.

Both of them were good and after some inner questions regarding if they were using loose leaf teas or not, we found some proof that they were, which delighted us.

I sent a mail to the owner asking some questions and she told me they had 42 different teas from a German company that has been in the tea business for 120 years.

Checking if this is true could be the reason behind a next trip to this place (apart from the good teas and huge cakes).

A really interesting tea trip mostly thanks to Lahikmajoe and Internet.

Next time, we might also try the Chinese House.

Transformed in Germany, a new paradigm for German tea?

October 28, 2011 / / 6 Comments

I had a few discussions and mail exchanges with @Lahikmajoe about the German tea culture and its importance mostly in Northern Germany.

According to him, one of the reasons behind it is that this area is the hinterland of the port of Hamburg.

This was coherent with other things I had read about the importance of Hamburg for the importations of coffee in the whole Europe.

So I decided to try to find a little more information on this and asked the Port of Hamburg Authority about this.

I must say that their staff was really friendly and sent me quickly some data.

According to the German Tea Association, 76.778 tons of tea were handled in Germany.

This figure includes the 50.838 tonnes imported of which about half (25.940 tonnes) were re-exported (probably after some blending and/or repackaging).

About 75% of these tonnages went through the Port of Hamburg, making of it according to the Port of Hamburg Authority the most important European hub for tea trade.

However what I found most fascinating is the data provided to them by the German Tea Association regarding imports and re exports.

When you look at them, you can see two interesting changes over time:

  • the sudden increase from 1988 on of the imported tonnages,

  • the rise of re-exportation (a little over 50% of the imported tonnes in 2010).

This prompted me to look at the few figures I have one more time and to drop the re-exportations to see what is really consumed in Germany.

 

Now, we have a completely different picture.

The 1988 increase is still there but after that, it seems that the importations are more or less flat (in terms of tonnage, value being another interesting indicator to look at).

Is Germany a country famous for its teas? Perhaps or the reason could be different as I read in my Tea Lover’s Guide that Hamburg is home to a certain number of large tea brokers that supply almost all the European “importers” of a certain standing but the problem is that the figures don’t really support that.

For now, the set of data I have is not huge enough to allow me to go further into that direction but my next task is to gather more data and to see with the German Tea Association if they have any ideas on the reasons behind these figures .

So far, I didn’t receive any answer from them but I won’t let them run away with it.

After all, I have all the time in the world as long as I have my tea cup near me.

Middlemen surround us and for once, we should forget the Alamo

October 5, 2011 / / 11 Comments

I was in holidays and during that time, I saw something I already knew but sometimes you rediscover things you already knew: in hotels, camping places, bars, coffeehouses… you don’t have loose leaf teas but only the “not so good” old tea bags (from several brands, some completely unknown to me).
This puzzled me and I thought about it after coming back from holidays.

Are the people in these places unwilling to give good quality products? Probably not as you could buy/drink/eat other things that you would consider of good/upper quality.
Do they care for their tea customers? Perhaps or perhaps not. Tea is not the most drunk beverage out there and they probably (I didn’t dare to ask them) think that with 3-4 different tea bags (let’s say Darjeeling, Earl Grey, Lemon or Mint and then Assam or Ceylon), they have all it takes to satisfy all their customers. We know this is wrong but do they?

However, after giving it a second thought, blaming the shops (a generic term I use here for all the places where you can buy/drink tea from) is perhaps a bit too easy.
After all, they are only a small part of all the things that are happening between the producer and the final consumer (see the picture below) and most of the time, they don’t have access to all these wonderful products we do have access to but only to the catalogue of wholesalers, which are the middlemen helping them to get all kinds of supplies in an almost efficient way (after all, they don’t sell them good quality teas).


Now that you see the picture, how does it work in real life? Let’s take a simple example: a small baker that makes different small breads.
He might need up to 10 different flours to bake his breads and some in really small quantities.
Does he have the time to visit potential sellers and ask them for price? The answer is obvious: no and this is where middlemen come into the game. Another advantage (remember this is theory) of these people is that they buy more goods, allowing them to get better prices.

So if you want to change things on a big scale, those are the men you should target as they are the one buying and selling to others.
No comes the tricky part, convince them of changing everything. You will probably say, “they should sell better quality teas. People would drink more of these higher quality beverages. This way everyone would be happy.”

Right but wrong.
Nowadays, they have a rather standardised product that can be bought from identified suppliers. Tomorrow, they will have to buy/store/sell a lot of different teas with big questions on constant quality, quantities…
A second argument against the change is price. Who is willing to pay more for this higher quality tea? You will answer me: “I am”. Yes but the “average” people in the street? It is one thing to have a better product, it is another to have people see it that way and it is a third one to make people pay more for what is basically the same thing: drinking a hot beverage.

So is there no solution to this endless tea in bags thing?
I wouldn’t be so grim.
People (and this is a trend in a lot of products) want more quality, traceability and for some a fair attitude/experience.
If you don’t believe me, just look at Lipton (I know this is the example that everyone uses but they are among the most famous and the usual bagged tea reference): not only do they now sell their teas  also in loose leaf boxes but their Yellow Label is fair…
There is also a new product with cube shaped tea bags that gives more space to the tea leaves.

In the end, what people want is simple: they want a better experience and they want more for their money.
Is it possible to achieve this and to replace the usual teas in bags from the different places I mentioned earlier?
I do think so but it will take a lot of work towards the wholesalers or the shops.

For example, several “small” shops could get together and decide to focus on a few higher quality products at a reasonable price and by banding together (which is not easy to achieve), they could achieve this.
Why? Simply because what is needed to get this is critical mass and the willingness to skip several middlemen that can be useful but sometimes add really low added-value or no value at all for a rather high price.
For example, imagine your business is just collecting tea from different small blenders, repackaging them and selling them to hotels. What would be the price of your products? I stop you before you begin answering me in an accounting way, the answer is simple, you take the price of your supplies and you multiply it by 4 (or 3 or 5).
If you don’t believe me, this is a true story I learned from the boss of a small company working in the food industry.
Obviously, for our shops to be able to offer good quality prices, these people have to be skipped (sorry for them but such is the way of the market).

Another way around this could be to lobby the wholesalers to convince them that they should change.
This is probably out of our reach as individuals but companies and professional associations could and should do it.

As usual, all it takes to begin such a revolution is a few good men that are convinced that they are right.
Don’t stop asking for tea in restaurants, hotels… but ask them if they have real tea.
If we all do this, we might change the world, probably sip of tea by sip of tea but it will still be another step in the right direction.

Is forecast on the French tea market like the weather forecast?

September 1, 2011 / / 6 Comments

Is forecast on the French tea market like the weather forecast?

I found a summary of a study on the tea and coffee market in France in 2011. It was made by a company that specializes in market analysis and has been doing this for years.

I know that two third of the year is already behind us but I still wanted to share with you what is happening on a “mature” market and I swear that next year, I will be more reactive.

I only have access to the French summary but if you know someone with money that might be willing to subsidise me, let me know.

What can we learn in this study?

According to their forecast, the tea and coffee consumption in volume in France should rise by 1.5%, which is higher than the average rise of the food and beverage sector.

However, when you look at it more closely, the situation is not as bright as it might seem.

Coffee and tea capsules should be 2011 main product, the one that will still grow. Coffee (both roasted and ready to drink) and medium quality teas are decreasing.

Regarding the increased costs of supply, it seems that several health and climate issues had an impact on the industry as the tea and coffee processing industrials don’t have the bargaining power to increase their prices (the French panel that was used saw its raw margin decrease by 4 points between 2003 et 2010).

The way out for the producers seems to be innovation, both to change their products (with sometimes strange results, seeTwinnings and Earl Grey) and to create new markets through added value (check what Sylain Orebi, owner of Kusmi Tea, tells us about the launch in mid 2010 of Løv Organic, a brand of organic teas).

I won’t analyse the coffee market more than this but the hype seems to be these doses with new machines being launched, including some under store brands . And this could impact the tea market too as Nestlé launched in France its Special T, hoping to turn it into a new Nespresso.

I can’t be 100% sure about these trend analysis as I don’t have access to the full report, their summary is sometimes a bit messy with no clear distinction between coffee and tea (logical since they want you and me to buy their products) and this report focuses only on the French market.

But I thought that a “quick” theoretical analysis of this industry forecast could be interesting.

I hope to be clear enough for all of you and let me remind you that this is my own point of view/analysis.

The strategy used by all the main players seems to focus on innovation, be it either by changing the blends (exactly what Lipton does when it changes a lot of its recipes in a year), launching new brands with a different message and a different target (Kusmi Tea and Løv Organic) or trying to enter a new market (Nestlé).

Obviously, the last one is a bit different since they try to promote their know-how but it is not that much different if you think about it.

The final result is that companies are offering to their customers something with more perceived value that hopefully (for them) will cost them the same or less while allowing them to sell it at an increased price.

In other words, they try to differentiate themselves from their competitors, which is the definition of what a differentiation strategy is.

But how come these different changes of the value/price paradigm of different products all fall under the same generic strategy?

To answer that, we need to get a little more into differentiation strategies.

The uniqueness of the new offer is seen and valued by the whole market

The uniqueness of the new offer is only seen and valued by a specific market segment

Increase of the value/ price couple

Improvement strategies

Specialisation strategies

Differentiation towards the top part of the market

Decrease of the value/price couple

Purification strategies

Limitation strategies

Differentiation aimed at the lower part of the market

A posteriori segmentation that happens after the launch of the new offer

A priori segmentation that makes it possible to find what should be specific about the new offer

Adapted from Strategor, Dunod, 1997

Nice table, no? But what does it really mean?

An improvement strategy is when a company focuses on giving all customers a better value with specific products that would sell more if they were at the same price as the standard product. For example, Mariage Frères teas would be preferred by everyone if they were sold at the price of Lipton ones.

A specialisation strategy means that the company does the same as previously but only for a specific market segment Here, let’s say that a company focus is only selling teas adapted to the Chinese population in France.

A purification strategy (I am not happy with this translation but it is the best I could find for now) is when a company sells a product that is perceived as being of lower quality but at a much lower price than the standard tea.

A limitation strategy is the same but applied once more to a specific target. Let’s say that I don’t care about iced teas, a company selling me a box of teas at a lower price would satisfy me.

When you look at the “future” trends and at the above table, you can see that each of the three strategies exposed previously fits in there.

Lipton is clearly following the improvement or on the purification strategy as its target is the market as a whole and they try to change the value/price couple of their products (I don’t think we could all agree if they improve or decrease it so I won’t put them into a specific box).

Løv Organic is following what is more a specialisation strategy as it targets those interested in organic teas with high value/price products.

Nestlé gets into the market, which sets it a bit apart from the others, but I think they are targeting the whole market with a “better” quality product sold at a higher price. This is akin to an improvement strategy.

Now that we know what are differentiation strategies and that there is a differentiation strategy going on, the next question, which is very market specific, is rather obvious: when is it the right time to focus on a differentiation strategy?

To answer this, I think that Michael Porter could help us.

“A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs which are possibly under-served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy.” (Source: Wikipedia, Porter Generic Strategies)

Are tea drinkers price-sensitive? Yes like everybody but I think a bit less than most people (at least when these people moved away from tea in bags) since they want value their money and .know that a quality tea can be costly (which doesn’t mean that people are ready to pay any price for a tea).

Is the market saturated or competitive? Right now, I (and I do mean I) think the French tea market is rather saturated. You will always be able to find new niche players focusing on specific aspects but I see it as less competitive than the market in the USA. Why? Because the market is not that huge, is quite “old” and people prefer flavoured teas coupled together with the prestige of specific big names. Is this likely to change? It could change but it would take a radical shift in the way people in general think about tea.

Do people have specific needs that are not fulfilled? With the modern trend of customisation and differentiation among people, the answer is quite obvious and it is yes (and the tea industry isn’t the only one to be in this kind of situation).

Do companies have unique resources and capabilities […] that are difficult to copy? Yes and no. Yes because a blend is something unique, people are not eager to try to copy them and other companies try to differentiate themselves, which means that copying each other is not a good thing but no because as a lot of you know that with the right raw products, you can always get really close to the original blend.

Dealing with market analysis is a bit like dealing with a stormy weather forecast: in the end, it is either completely wrong or right but only in small pieces of the country.

Things are moving fast and what is true one day could be wrong the next one.

And in your different countries, how is the tea industry positioning/repositioning itself?

What’s in a name? … Price

August 17, 2011 / / 5 Comments

Inspiration can come to you all of a sudden.

I had already talked with lahikmajoe about prices and tea and when we met in the 1st ITTC, he told me a story about two identical teas that had a huge difference in price, all depending if you buy in one store or in another.

Interesting no?

Then I read a couple of articles about tea, price and value:

Generation Why: The price of tea in Teavana by Hilary Matheson from the Journal Standard posted on July 17, 2011 http://www.journalstandard.com/lifestyle/x920793235/Generation-Why-The-price-of-tea-in-Teavana

Price and sustainability: What is Overpriced Tea by Alex Zorach from the Alex Zorach’s Tea Blog posted on August 1, 2011 http://cazort.blogspot.com/2011/08/price-and-sustainability-what-is.html

The Price of Tea by Lainie P from Lainiesips.com posted on July 19, 2011 http://www.lainiesips.com/2011/07/the-price-of-tea/

and I thought, perhaps it is time to answer lahikmajoe’s question or rather to try to do it.

In order to be able to do it, I will make a couple of simplifications since otherwise, it would bring us too far away from the price topic.

  1. My example (and it will remain that) will only focus on two different “generic” companies,

  2. I will assume that they get the same amount of non-blended tea at the same price from the same company. I know this is a big If but getting into the auction system or the direct buying and coming up with hypotheses based on that would just add complexity to this post,

  3. I will use wrong figures but I think they still make sense.

So let’s start!

We have two companies selling teas: A and B (quite imaginative, no? ;))

Both have an online store but A has three stores in different towns while B has only one.

A is widely known for its top quality products while B is nearly unknown outside of its usual customers.

Due to its reputation, A also opened tea houses in its stores while B is still focusing on selling and did not venture in something else.

The scene is set and now we can come to the price.

I will use the price of the tea bought by the two companies as the basis for my calculations (see point 3).

Why? Simply because it is a way of having costs that you can compare.

To make things easier, I will call this price X (another display of my daring imagination).

A

B

Tea price (including shipping costs)

X

X

Renting the stores

10%X (the increased percentage is because they need more space because of the tea houses)

3%X

Sellers’ wage

12%X (because you have two different categories: those selling tea and those attending the customers)

2%X

HQ paperwork

1%X

0.5%X (done by one of the sellers that might own the shop)

Logistical network

10%X (with 3 different stores even if they were in the same town, you would need a small warehouse)

0 (supplies are kept in the store)

Margin

4%X (since they have a good reputation, they can charge more there since people are willing to pay more for this “better” quality, because of the perceived value)

2%X

Total and final price

137%X

107,5%X

With this oversimplified example, you end up with a tea that is 1.27 times more costly in A stores than in B one, meaning that if you buy it for 5€/100g at B, you will pay 6.137€ for the same amount of the same tea at A.

Of tea and strategy

July 31, 2011 / / 4 Comments

The Republic of Tea by Mel & Patricia Ziegler and Bill Rosenzweig

And no, this is neither a post on whether or not Sun Tzu, Clausewitz or any other general or theorist ever drank tea nor a real review of The Republic of Tea book.

What I intent to do here is to see if the story in this book can fit into an existing model of strategy formation.

But first, what is in this book?

It contains the various letters and faxes between Mel Ziegler and Bill Rosenzweig in 1990 and 1991 when they worked on what would become in 1992 the Republic of Tea company.

In it, they cover everything from motivation, product ideas, marketing, packaging, relations with business angels. If you want to look how a business comes out of an idea, this is a good book.

You will even be able to find their complete business plan at the end of the book.

What is “funny” and irritating at the same time is the main difference between Mel Ziegler and Bill Rosenzweig.

The first one will focus on a philosophical approach to business while the second one tries to get the practical things first while not being really willing to fully commit itself into the business.

I looked at the Republic of Tea website before writing and although the original founders sold their company in 1994 what I found the business is still in line with their original plans (for example, the children teas or the products that were launched over the years) but is not what they originally devised or had in mind (and this changed along the book too).

My analysis is that this results from a non conscious effort between the both of them to bring together two different concepts for strategy (the deliberate and the emergent one) into something else, the realised strategy.

But first, let’s define what these concepts are and then see if I am pushing the model or if it really fits here.

For this work, I am going to use the model provided by Mintzberg and Waters in their 1985 Of Strategies,Deliberate and Emergent; Strategic Management Journal, 6, 257-272.

Realised strategy is the strategy that is actually implemented.

Intended strategy is when an organisation has decided on a consistent course of action and when all its energy is focused on realising it, it becomes a deliberate strategy.

Unrealised strategy is what I call a good idea that was not practical enough to be implemented or that was no longer adapted to the context.

Emergent strategy is the answer to unexpected opportunities or to the lack of intentions.

The way all these concepts work together is described in the picture below.

As far as the Republic of Tea is concerned, the realised strategy is pretty obvious, it is the one that has been implemented.

The other ones are probably less obvious but can be found through the whole book.

Here are some examples coming from the book.

Mel Ziegler: “The fact is that creation is a projection of what already exists. What I am saying is that The Idea existed but had not manifested.”

Bill Rosenzweig: “what is the philosophy behind the Republic of Tea?”

Mel Ziegler: “To show through the metaphor of tea, the lightness of taking life sip by sip rather than gulp by gulp.

What would you say is the business behind the philosophy?”

Bill: “The business of The Republic of Tea is to sell (which means first we have to find) the best tea on Earth.”

Bill Rosenzweig: “the game, as you have so cleverly identified it, encompasses creativity and the process of being creative.”

Bill Rosenzweig: “4. In the middle of the night last night I woke up with ideas about the structure of our organization. I roughed them out on the attached sheet. I hope you can read the writing. Feel free to build on this and let me know your thoughts. And just for the challenge of it I took a stab at the first ten-year plan. This is a good exercice, even if it has nothing to do with what we end up doing, because it forces me to think where we want to go.

5. As I roughed out that org chart last night I realized that we need to write a “product charter” that guide our product-development process.”

Bill Rosenzweig: “Here are some more down-to-earth replies:

1. You’re right about painting our world too small […] I also find the packaging and pricing very intriguing. […]

I am working on a new diagram for us to show categories and distribution.[…] Waiting to have some information to come in before I can complete it.

3. Industry research. […] It will be important for us to feel confident about our point of entry.”

Bill Rosenzweig: “Last night it struck me that maybe it’s time for me to get somebody who’s a little less emotional about tea to tale a look at the business, and so I’ve appointed the other half of my brain as The Minister of Research, and here for a start is what I want him to find out:”

This is followed by a complete description of what is a tea industry analysis.

Mel Ziegler: “The key will be to find the right-talented like-minded people to own the offshoot business, and to lure them into helping the Republic of Tea creates itself.”

As you can see, we have two different strategy processes going on at the same time.

One that is rather predetermined and consistent all along the way, this is the intended/deliberate strategy.

The other one is dependent upon the circumstances and evolves all along the creation of the Republic of Tea. It is the emergent strategy that shapes the intended/deliberate one into what become the realised strategy.

Following Mintzberg and Waters’ classification of the different types of strategy processes, we are here typically in what they call a process strategy where the leadership focuses on designing the system that forms the ground from which the different patterns of action comes out.

You will say that this is what all new businesses do.

Perhaps but it is the first time I see this written in a book as most of the time, you only hear about how the creators had a wonderful idea, made it and sold it.

This alone makes the book worth reading.

A lot of data but no definitive answers

July 25, 2011 / / 2 Comments

All the data used in this article were found in the 2010 Tea Barometer of the Tropical Commodity Coalition for sustainable Tea, Coffee, Cocoa and are stated as being 2008 data.

The most obvious information is that there is a split in the producing countries between those favouring home consumption and those favouring exportation: China and India are both countries that drink more than 70% of the tea they produce while Kenya and Sri Lanka export 95% of the produced tea.

The explanation behind it seems quite logical as China and India have a long tradition of drinking tea whereas in the other two countries, it was only introduced to sell to a foreign market.

 

For auction and direct selling, Chinese teas are all sold directly while most of those coming from Kenya and Sri Lanka are sold via the classical auctions (see what happened in Europe when tea drinking became a must). India is in a third category as its production is sold nearly equally through auctions and direct selling.

When I tried to understand why it works like that, 3 reasons came to my mind.

The first and most obvious one is that these differences could be explained by the introduction of tea in a country “only” in order to supply a colonial power with the use of the sales techniques and infrastructures that keep on being used even when the country becomes independent .

Another plausible explanation was that the higher the quality, the higher the percentage of direct sales or the lower the production, the more the auction system is being used. However, this is not consistent with the facts as Sri Lanka has the lowest direct sales percentage but probably not the lowest quality and the difference in raw production with Kenya is not enough to explain this loss of direct bargaining power.

A third idea was that the countries with more tonnage sold were also the ones most heavily involved in auctions but again China with its “low” level of exportations goes against this rule.

Of these 3 explanations, only the first one is coherent with the 4 countries but the question would then be: why did the situation remain the same?


The smallholders/estates production split would seem to be linked to the timeframe and men behind the introduction of the tea culture (cf. the introduction of tea in Sri Lanka and how smallholders were crushed) but the facts don’t support this theory since only India has a really high percentage of its tea production coming from estates (more than 70%).

Another explanation could be that the countries producing tea in estates do sell teas strongly linked to the places they are in (a bit like terroir in wine) but the Chinese example with its 80% of its tea production coming from smallholders is an example that doesn’t support this theory.

 

Perhaps the reason lies in the workforce but even if in India, you need less men to produce one ton of tea than in the three other countries, the difference between Kenya and Sri Lanka shows that this explanation is not the good one either.

So in the end, what can we learn from this set of data? Several things but more importantly that nothing is as easy as it seems and that more work is needed to understand the tea industry.

If you have information or insights on how it works, please feel free to comment.

An interview with Kusmi

July 2, 2011 / / 12 Comments

[I rewrote this interview on a French radio of Sylvain Orebi, owner of Kusmi Tea and Løv organic as if it was made for a newspaper.

Here are the original transcriptions: Kusmi Tea – BFM Radio – French and Kusmi Tea – BFM Radio – English – ed.]

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» Could you present yourself in a few words for our readers that might not know you?

I am Sylvain Orebi, president of Orientis, owner of Kusmi Tea and Løv Organic.

» Sylvain Orebi, how did you decide to get into the tea business?

I followed the family tradition of coffee and cocoa trading before founding in 1985 with my father and my brother a new company specialising in coffee and cocoa trading.

Our business flourished until the early 2000s when challenged by the large global trading companies and by the food manufacturers, we decided to go downstream and we bought a coffee importer in Le Havre., Olivier Langlois.

It had a small department importing bulk teas since the 30s and it was right after this purchase that I began to look at tea from a business point of view and after finding out that there were good margins in it, I decided to go there.

» How did you do that?

For 2 years, I recreated the tea activity with a B2B approach but then I found out that there was a business opportunity in the niche market of B2C premium tea but in order to deal with my competitors, people like Mariage Frères, I needed a name.

This is when I was lucky since a friend of mine bought all the premium teas available in the Bon Marché [one of the most famous department stores in Paris, Francehttp://en.wikipedia.org/wiki/Le_Bon_March%C3%A9 – ed.] and among them were several Kusmi teas and I felt in love with the packaging before falling in love with the product and decided that I wanted to buy it and luckily enough, they were on the market but I didn’t know it at that time.

Kusmi Tea Can

» Could you tell us more about this brand?

Yes. Kusmi was founded in 1867 in St. Petersburg by the Kousmichoff family but exiled itself in Paris, Avenue Niel in 1917.

PavelThe original blends that are still used today have been created in the 1870s-1900s by Pavel Kousmichoff, a real creator , and his recipes were further elaborated by his son.

However, the brand belonged to a couple who had it for over 30 years after having bought it to the Kousmichoff family and that were not doing much to develop it or to make something out of it.

» The brand seems to have been barely alive when you bought it. How did you change this?

It was a lot of work. I had to completely rebuild it from the ground; we started from scratch, to be honest, we broke everything, we worked on the quality of the teas, on the packaging, on the distribution concept in France and abroad, quite a lot on communication too.

Luckily enough the company still had the blending expertise and know-how in its workshops but I modernised everything, including the packaging, which was at that time done by hand.

As far as the communication is concerned, it was my first management decision and I hired a part-time press secretary specialised in beauty who thought that Kusmi was a wellness, a beauty product and it allowed me to be in the “nice” media, such as Elle, Vogue… These magazines were obvious media for our brand as 80% of our customers are women that are attracted by our baroque packaging and that keep on buying our products because they are really good.

» How do you sell your products?

It took us two years to completely rework the products and the strategy and then in 2005, we were ready to sell again.

The distribution was and is still made only in selected places and corners in the whole world, in towns like Paris, Kyoto, Tokyo… We also have five stores in Paris, one in New York, another in Montreal. Right now, I am looking to open stores in Milan, London, Hamburg and Munich.

» You also created a new brand called Løv Organic. Could you tell us a bit more about it?

I created new blends for Kusmi and one day, I decided to listen to the people who keep on asking me for organic teas, not so much in France but rather in Scandinavia, Germany and the United States.

We went for a new brand because a brand is organic or not but it can’t be both.

For the same reason, even if both brands are distributed via mostly the same channels, there is now a Løv Organic shop in Paris.

» How do you see the future of the tea market? When a company like Nestlé launches a new product, it means something, no?

There is something going on but I am not sure it is a hype because tea is a product that has been drunk for a long time in China, India or the UK. Even if in France, people didn’t drink and might do so now, I wouldn’t call this a hype.

People have a taste that is changing, they want to be good and tea is a wellness, a health product.

The market has also changed thanks to companies like Mariage Frères that opened the market, allowing people to find premium teas at a price that was not necessarily low.

» And the future of your company?

In 2011, Kusmi Tea should have a turnover of 20 million Euros and I think that in 2015, the whole business should reach the 100 million Euros mark.