Taiyuan, Shanxi tea merchants must drop their pretensions to get out of trouble
Mr. An, a tea merchant from Anxi, Fujian, set out early in the morning with a friend. Because rents at Modern Tea City had risen yet again, he had no choice but to look for a more suitable shop space to continue the tea business he had run for more than ten years. Since the start of this year, many tea merchants have found themselves in the same situation as Mr. An. Faced with rising rents, difficult business, and increasing costs, they have no choice but to plan their escape from the “besieged city” and open up new territory while consolidating their existing markets.
Out-of-town tea merchants build up the Taiyuan market
In the 1980s, tea had not yet formed a real market in Taiyuan. Because the water in the north is relatively hard, people were still accustomed to drinking scented tea with a rich aroma and a slightly bitter taste. Local Taiyuan tea merchants seized firmly on this local preference and spread jasmine tea to every corner of the city. In the mid-to-late 1990s, riding the east wind of market opening, tea merchants from tea-producing regions entered the Taiyuan market one after another, and among them the Fujian tea merchants did best. “I came to Taiyuan with friends to do the tea business when I was 17. Back then the local Taiyuan tea merchants were very strong. Yipinxiang, Qianhexiang, and the Taiyuan Tea Company basically monopolized the market. There was no outlet for our main product, Tieguanyin, so we first made scented tea according to the demands of the Taiyuan market. In our hometown, scented tea is the cheapest tea. We gradually opened up the market through low-price sales, and once the market showed signs of life, we began slowly promoting Tieguanyin.” said Mr. Liu, a Fujian tea merchant.
Because the state-owned tea enterprises at the time were struggling through restructuring, Fujian tea merchants seized the opportunity and vigorously promoted Tieguanyin through various media, gradually shaping the Taiyuan tea market into a structure with jasmine tea dominating the low end and Tieguanyin dominating the high end. The monopoly position of the state-owned tea enterprises was replaced one by one by small tea shops.
After 2000, Tieguanyin stood out alone in the Taiyuan tea market. The marketing methods of the Fujian tea merchants also awakened tea merchants from other regions. For a time, all kinds of tea appeared in the media one after another: black tea nourishes the stomach, pu'er scrapes the intestines, green tea fights cancer…… all sorts of gimmicks clamored loudly, not only driving up the prices of some ordinary teas but also letting some inferior goods pass themselves off as fine ones. In the words of tea merchant Mr. Wu, “They messed up the market.”
Restrictions on spending by public funds lead to falling tea sales
Starting in 2013, tea merchants' lives gradually became “tight.”
“In the past, tea prices could be pushed up, especially gift tea. Some people would walk in and just ask for the best tea, not caring about the price at all. That no longer works. Good tea doesn't sell, and tea that's too poor has no buyers either. Only mid-range tea moves best, but most of the buyers are individual customers. The tea city relies entirely on wholesale. We earn a few dozen yuan per jin of tea. If sales don't go up, we can't earn much money either.” said Mr. Yu of Modern Tea City.
Since the implementation of the central government's “Eight-Point Regulation,” the tea market has been declining all the way, and mid-to-high-end tea in particular became the first category in the tea market to enter “winter.” Mr. Fan, who runs a tea packaging business in a small commodities wholesale market, has felt this deeply: “First of all, high-end packaging stopped selling. Those used to be my main profit point, and now they've become a burden. When even the good tea from tea merchants won't sell, naturally I can't make so much high-end packaging. Now I've basically stopped making high-end tin boxes and iron boxes. Only plastic and paper packaging are made more, and plastic packaging still moves reasonably well.”
A person in charge at the Taiyuan Tea Industry Association said that the “Eight-Point Regulation” causing high-end tea consumption to decline is only one reason for the sluggish tea market. The main reason is that tea merchants hyped tea aggressively in previous years, which inflated tea prices while quality got worse. “People put all their attention on how to advertise and how to hype tea. There was basically no change in craftsmanship or cultivation, and tea farmers, in order to increase output, used illegal pesticides and privately reduced or altered processes. This made the already unstable tea quality even worse. What's more, some passed off wild tea as proper tea varieties and used old tea and broken tea in place of new tea, bringing a negative impact on tea consumption. Simply put, your product isn't good anymore and the price is high, so we consumers are unwilling to buy it.”
Costs rise year by year while tea consumption declines
Fujian tea merchant Mr. Wu rented a storefront on Kangle Street five years ago. The annual rent at the time was 36,000 yuan. In 2013, the tea market was sluggish, and many of his fellow townsmen in the tea city, unable to bear the high rents, were forced to withdraw. But because his rent was almost half that of the tea city, he held on until the end of 2014. However, the landlord recently told him that the rent would have to go up, otherwise it would be rented to someone else.
“Now it's gone up to 45,000 yuan, which is a bit high for me. In 2014, after deducting rent, utilities, and living expenses, I basically made no money. In 2015 it went up another 9,000 yuan. If this year is the same as last year, I'll have to consider doing another line of work.” Mr. Wu said that because the tea he sells is all grown by his own family, and during the good business years a few years ago he contracted new tea mountains, he has to hire people to pick and roast tea every busy farming season. “Labor costs are very high where we are, which has pushed up the cost of the tea quite a bit. When I used to pick and roast the tea myself, labor costs weren't really counted, but now I hire people every year, and that cost gets counted into the tea, so the tea price is a bit higher than before.”
Mr. An, a tea merchant from Anxi, Fujian, has been especially anxious lately. “The rent went up twice last year, rising to 70,000 yuan a year, and this year it's going up another 30%. The tea business is so hard to do now. If the rent goes up, I really won't be able to keep going. Since coming to the tea city to start a business in 2008, I've settled down in Taiyuan and made something of a name for myself in tea. When business was good, I didn't say anything when they raised the rent, but now business is truly bad. If my family weren't in Taiyuan, I'd want to withdraw and quit. The only option now is to find another place and open a new shop, and ideally everyone could move there together and make a relatively stable tea wholesale market.”
Under the collective protest of the tea merchants, Modern Tea City delayed the rent increase, but the fact that tea operating costs are rising is indisputable. It is understood that in recent years, at large tea markets such as the Fangcun Tea Wholesale Market in Guangdong and the Maliandao Tea Wholesale Market in Beijing, shop rents have kept climbing, causing some shops to collapse under the burden and withdraw one after another. Last November, a rent increase at the Fangcun Tea Market in Guangdong, the largest tea wholesale market in the country, even caused merchants to stage a collective strike in protest.
Turning to the mass market; online shops find a new path
Compared with the instability of the physical tea market, online tea shops are doing brisk business.
An online tea shop based in Xiamen, Fujian, recently pushed a low-price strategy that sent its Tieguanyin sales climbing steeply. Last December its transactions reached 34,578 items, one jin per item, 48 yuan per jin, with a total of 253,809 reviews, of which 251,145 were positive, a positive rating of nearly 99%.
The shop's staff said they were originally a small tea wholesaler too. The boss is from Fuzhou and has been in the tea business for more than ten years. Selling tea online was the boss's son's idea. They buy tea from local tea farmers, have it packaged, calculate the total cost, add 5 to 8 yuan on top of that, then take photos and sell it online. After two years of operation, the physical store has basically become a warehouse, online sales have become the main channel, and annual profit has reached more than 3 million yuan.
As for selling tea through online shops, many tea merchants dismiss it. “Tea is a special commodity. You can't judge good from bad just by looking at it, and different people have different tastes, so people need to taste and choose in person. If you sell online, it's fine if everyone is satisfied with the flavor, but if someone isn't satisfied, that will ruin your brand.” said Mr. Zhang of Maliandao Tea City in Taiyuan. Mr. Zhang's view is quite representative among some tea merchants in our city. Most of them believe that online tea is rather chaotic in both price and quality, and not easy to do.
However, some industry insiders believe that the reason some tea merchants are unwilling to take the online route is not that online sales make it inconvenient for people to taste, but mainly that prices are transparent, which leads to relatively thin profits. “Tea merchants have gotten used to the rich profits brought by hyping tea in previous years, earning several hundred or even over a thousand yuan per jin of tea. They have a psychological resistance to increasingly transparent prices. If they sell online, earning a few dozen yuan per jin of tea is very difficult, let alone hundreds or thousands of yuan.” pointed out a person in charge at the Taiyuan Tea Association.
Professor Li of the Marketing major at Shanxi University of Finance and Economics believes that the market has its own adjustment mechanism. When goods become unsalable, it forces producers to improve craftsmanship, raise production efficiency, or change production methods, and makes sellers change their business thinking and sales methods. “In the internet age, you must run a business with internet thinking. Any commercial behavior that sticks stubbornly to old ways is equivalent to slow suicide. No matter how the market changes, everyone should find ways to respond actively and take the initiative to meet new changes and challenges, otherwise they will be eliminated by the market.”