Thomas & Lipton sells black tea directly to customers by weighing and packaging it according to a unified standard, eliminating the need for customers to weigh it on-site. In addition, Thomas & Lipton uses blending techniques to mix black tea from different origins into mixed types, further enhancing product standardization. Thomas has also invested in tea gardens and built tea factories on the famous black tea-producing island of Ceylon, introducing tea-making machines to reduce the cost of producing black tea. He has successfully established the Lipton brand's tea business globally based on Ceylon. After the Lipton brand entered the Chinese market in 1992, it once occupied the largest share of the Chinese bagged tea market.
Although China is the world's largest producer of tea, due to the lack of large-scale upstream tea production and its long-term existence in an extremely fragmented market structure, compared to the world's largest tea brand, Lipton, there are no Chinese tea brands that can compete with Lipton. Pu-erh tea is similar to liquor and has high investment and collection value. In recent years, a large number of brand teas have emerged continuously. Can Chinese Pu-erh tea emerge as a new 'Lipton' in the Chinese tea industry?
Classification of Pu'er tea
Pu-erh tea is made from the leaves produced by Yunnan big-leaf tea trees within the geographical protection area. After being dried, the tea undergoes a specific processing technique to produce a tea soup with an orange-yellow color, a long-lasting aroma, and a rich taste. Research has shown that Pu-erh tea possesses a variety of pharmacological health benefits, including weight loss, promoting digestion, cardiovascular health, antioxidation, and preventing diabetes.
According to different processing techniques, Pu-erh tea can be broadly divided into two categories: raw tea and ripe tea.Ripe tea refers to refined tea that has undergone microbial fermentation, while raw tea is a product that has not been fermented. In appearance, ripe tea is dark red in color, while raw tea is dark green. Ripe tea has a mild taste after fermentation, with a lingering aftertaste, whereas raw tea has a stronger bitter and astringent flavor, and a rich aroma. Since ripe tea goes through an additional fermentation process compared to raw tea, it is often more expensive given the same raw materials.
According to the different types of tea trees, the value of Pu-erh tea also varies. Pu-erh tea can be divided into ancient tree tea, wild-growing tea, and terrace tea.Ancient tree tea refers to the leaves picked from ancient tea trees that are over 100 years old, while wild tea is picked from uncultivated wild tea trees. Terrace tea is made from leaves picked from artificially cultivated tea gardens, which have a shorter lifespan and less nutrition than ancient tea trees. Due to the logging by local residents in Yunnan in the early years, the existing ancient tea trees are now very rare, making their price much higher than that of wild and terrace tea.
According to the origin, Pu-erh tea can be roughly divided into three grades.Tea from the three villages of Laobanzhang, Iceland, and Xigui is the most expensive. The procurement price of ancient tea trees can reach tens of thousands of yuan per kilogram. Next in price are those from the famous mountainous areas of Brown Mountain, Nanmu Mountain, andJingmai MountainThe tea waiting to be brewed is finally from three famous producing areas: Lincang City, Pu'er City, and Xishuangbanna Autonomous Region.
Pu-erh tea is different from black and green tea. In suitable dry and light-protected environments, the longer Pu-erh tea is stored, the more fragrant it becomes. Often, it has no expiration date, which is also an important basis for the investment and collection value of Pu-erh tea. In recent years, Pu-erh tea that has been stored for over fifty years often fetches high prices of millions at auctions, attracting the attention of many investors and collectors.
Image source: Internet
Market scale of Chinese Pu-erh tea
The Chinese Pu-erh tea market grew from 9.4 billion yuan in 2016 to 18.5 billion yuan in 2021, with a compound annual growth rate of 14.5%. It is expected that the market size will reach 311 billion yuan in 2026, with a compound annual growth rate of 10.9%. Among them, raw tea accounts for a higher proportion, with the market size growing from 7.2 billion yuan in 2016 to 13.5 billion yuan in 2021, a compound annual growth rate of 13.4%. The proportion of ripe tea is relatively low, growing from 2.2 billion yuan in 2016 to 5 billion yuan in 2021, a compound annual growth rate of 17.8%.
Market scale of Chinese Pu-erh tea, 2016-2026E
Source: Analysis by Frost & Sullivan
Pu'er tea industry chain
The Pu-erh tea industry chain is mainly divided into three parts: upstream is the raw material supplier, midstream consists of tea processing factories or brand manufacturers, and downstream includes sales channels.
Raw material suppliers mainly include suppliers of rough tea and other auxiliary materials such as aged tangerine peel. The upstream rough tea suppliers mainly include tea farmers, tea plantations, and tea cooperatives. Tea cooperatives are formed by several tea plantations that combine together to uniformly carry out the preliminary processing of freshly picked tea leaves, which are then sold to midstream tea processing factories. Fresh tea leaves can be processed into rough tea by the preliminary processing of tea cooperatives or by midstream tea processing factories. Due to the often high output and large sales scale of tea cooperatives, they tend to have stronger bargaining power.
Tea processing factories or brand manufacturers in the midstream sector purchase fresh tea from tea plantations or cooperatives, or rough tea that has undergone preliminary processing. After a series of refining processes at the factory, the rough tea is packaged into finished tea products, which are ultimately sold through downstream distribution channels. Since high-quality Pu-erh tea produced from ancient tea trees often has limited production, Pu-erh tea processing factories often establish long-term cooperative relationships with upstream plantations and cooperatives to obtain priority procurement rights for high-quality tea. In addition, processing factories or brand manufacturers also invest in their own tea planting bases to ensure their raw material supply.
The downstream sales channels include offline distribution stores, brand-owned stores, supermarkets, tobacco and liquor stores, and online e-commerce platforms. Similar to other tea sales channels, the sales of Pu-erh tea are mainly through distributors. Currently, with the penetration of e-commerce platforms, various Pu-erh tea brands are also selling online through direct-operated stores.
China's tea market scale
As the epidemic is gradually under control, market confidence in the Chinese tea industry has gradually recovered. By the end of 2020, there were approximately 1.5 million tea companies in China. The market scale of the Chinese tea industry grew from 351.8 billion yuan in 2016 to 522.1 billion yuan in 2021, with a compound annual growth rate of 8.2%. It is expected that the market will grow to 733 billion yuan by 2026, with a compound annual growth rate of 7.0%.
The tea industry can be divided into tea products, ready-to-drink teas, and instant teas according to product type. Among them, tea products account for the highest proportion, increasing from 214.8 billion yuan in 2016 to 304.9 billion yuan in 2021. Ready-to-drink teas have grown the fastest, from 63.5 billion yuan in 2016 to 133.4 billion yuan in 2021, with a compound average annual growth rate of 16%. Instant teas account for the smallest proportion and have also seen the slowest growth, increasing from 73.5 billion yuan in 2016 to 83.8 billion yuan in 2021, with a compound average annual growth rate of 2.7%.
China Tea Market Size, 2016-2026E
Source: Analysis by Frost & Sullivan
Driving factors of the Chinese tea market
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Gradually awakening health consciousness
After experiencing the COVID-19 pandemic, people have gained a deeper understanding of the fragility of life and gradually awakened their health consciousness. Multiple research reports indicate that tea contains a variety of effective antioxidants, as well as minerals such as potassium, manganese, magnesium, and calcium. Pu-erh tea can lower blood lipids and aid in weight loss, while oolong tea is effective in preventing high cholesterol levels and type 2 diabetes. Therefore, with the improvement of health consciousness and the expansion of consumer groups, demand for tea will increase.
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Promotion of social media and e-commerce platforms
Social media and e-commerce platforms have opened up new growth opportunities for China's tea market. Social media have not only further enhanced the awareness of tea among existing tea enthusiasts but also attracted many young people who were previously unfamiliar with tea to join the traditional Chinese culture of drinking tea. In addition, convenient e-commerce platforms have made the circulation and purchase of tea easier.
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Technological innovation and standardized production
The technological innovation in the tea industry has greatly enhanced the ability to control product quality. The standardized processes in the production process have ensured that the product quality of tea remains consistent over time. In the past history of China's tea industry, due to the extremely dispersed producers, it was difficult to unify their production processes. Moreover, since the taste of tea varies each year, it was challenging to achieve product quality standardization. Currently, major tea factories have almost achieved consistency in the quality of their products through tea blending technology, greatly ensuring industrial standardization.
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favorable policies
The Chinese government has continuously introduced fiscal subsidy policies for the tea industry. In addition, in Yunnan Province, local governments have made the tea industry a major industry in poverty alleviation efforts, guiding local poor people to plant tea trees to escape poverty. Policy support is also a major driving force for China's tea industry.
Future development trend of Chinese tea
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Migrating online channels
Currently, the main sales channel for tea is still offline dealer stores. As the layout of Chinese tea brands on e-commerce platforms gradually improves, selling directly to consumers through direct operation can not only reduce the dealer linkages and increase profit margins, but also help tea brands break free from geographical restrictions through e-commerce platforms to expand their sales scope.
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The development of new-style tea drinks
With consumers' increasing demand for diverse tea beverages, new-style teas will continue to introduce a variety of products in the future. Brands such as Xicha and Naxue often use real tea as the base for their teas and have also launched tea bags for consumers to choose from, indirectly promoting consumers' awareness and love for traditional Chinese teas. In addition, Chinese-style tea shops like Chali and Cha'er are gradually entering the consumer's view. These offline stores that mainly offer pure tea have broken the perception of traditional tea shops, allowing more young consumers to come into contact with tea culture and further promoting tea consumption.
Image source: Internet
Enlightenment from Lipton's Successful Path for Chinese Tea Enterprises
Looking back at the brand development history of Lipton, Lipton has ensured the standardization of its tea product quality through large-scale production and blending technology. At that time, there were many tea brands in the UK, including well-known ones such as Sichuan Ning and Fournamason. One of the main reasons why Lipton was able to quickly increase production volume was its assurance of product quality stability.
Similar to other types of tea in China, the current marketing of Pu-erh tea overemphasizes the origin's advantages to hype up high-priced teas while neglecting the brand itself. Consumers often hear about famous producing areas such as 'Boss Zhang', 'Iceland', or 'Xigui', but it is often difficult to perceive the brand. Additionally, Pu-erh tea brands also emphasize the scarcity of their teas during marketing, while ignoring the mass consumer market. Most Pu-erh tea factories also produce terrace tea products through artificial cultivation, but due to marketing guidance, ancient tree tea from famous producing areas has been hyped up to sky-high prices, making it difficult for consumer-grade terrace tea to gain consumers' trust. The mass consumer market for Pu-erh tea still requires a lot of market education, as high-end Pu-erh tea can only support a small portion of the market.
Overall, the Pu-erh tea industry in China currently has some brands that are well-known to the public, such as Dayi Tea, which has a high market share. Moreover, in terms of investment in tea base construction and standardized production, the leading Pu-erh tea brands are constantly learning from each other's experiences.Apart from the initial hype around high-priced Pu-erh teas, many brands have gradually realized the importance of developing mass-market products. For example, the popular green tangerine Pu-erh tea in recent years combines green tangerines with Pu-erh tea. It tastes sweet and mellow when consumed, with a unique floral fragrance and aged aroma. It is moderately priced and very suitable for entry-level Pu-erh tea consumers.
Compared to the entire tea industry in China, Pu-erh tea has a higher market concentration and is more likely to be the first to develop its own tea brand. The popular speculation about the collection value of Pu-erh tea may be an entry ticket to gaining recognition for the Pu-erh tea category, but for brand building that is truly aimed at the general public, Pu-erh tea manufacturers still need to continue their efforts.
