Pu-erh Tea Business

A brief description of how pu-erh tea business works in China. Following options separated by the strategy concepts how to make a money out of the puer tea.

1.Investment

2.Development

3.Production

4.Branding

5.Trade

6. Tea for “Mianzi”

 

1.Investment

Commonly known concept of investing into the pu-erh tea is to buy , store and resell later. This type of making money on puerh tea has many variations.

Individual vendors – usually purchase directly from the tea factory or their agencies for wholesale prices. Sometimes vendors or agencies are working together and buy a whole batch produced from the particular factory which allows them to keep control on the price of this product. Since no one else has that tea, they can make an agreement for selling price suitable their needs. One of the smart tricks is to put the particular tea on Taobao ( which many tea drinkers mistakenly refer as the price guide ) for much higher price so having a space for negotiations with customer or get wholesale buyers interested ( since there is a space for their margin as well ). More in Choosing Tea Vendor.

Big companies – purchase particular full batch which they promote to their customers. Since no one else possesses this tea, it gives them full control of the selling price. The big advertising costs are usually involved. The other concept ,we have witnessed , is using puerh tea as shares. The company offers to shareholders a puerh tea cake instead of the “piece of paper”. That strategy is based on sort of security that if company bankrupt , the shareholders are not going to be left behind with useless paper but have some tea which has some value ( and if aged sometime , it also has an additional value ) . To get a shareholders even more interested, they offer to buy those pu-erh tea cakes (if clean stored) back for the reevaluated price.

Zhong Cha
Annual presentation of Zhong Cha Tea company at the Xiong Da Tea market in Kunming.

Of course this is set mostly being profitable for the company, so the buying such a “pu-erh shares” means overpaying actual value of the tea  (the difference is the money the company needs as the investment ) , and when buying back , of course the evaluation is made in favor of the buyer ( the company ). Yet , we have found this as an interesting way how to do the pu-erh tea business.

2.Development

This comes from various investors and in many cases even from people who are / weren’t involved in tea business directly at the first place ( like case of Lao Ban Zhang for example ) , yet using the opportunity to make a money. They search for less developed areas which have some tea trees with potential but sold for very cheap compare to existing prices on market , because not being known / promoted. Investor will rent the place / tea garden , invest into the processing area if needed , contract the tea farmers and promote the area when product is made. The contract consists many conditions which one of them is that farmers are not allowed to sell the tea to other people or sell it for set price set by investor.

puerh development
New establishment of the pu-erh tea business in small village.

We have witnessed one of those on last trip to Mang Fei. The general effect is that the price of the tea from that place going up from 2 to 4 times more than it was before investor showed up there. With the right marketing and catching the momentum of booming pu-erh business / demand , things can turn the way as in mentioned Lao Ban Zhang or Bing Dao. Many places trying to follow up that model, although not is extreme way , yet success is there.

3. Production

Tea factories or smaller producers are investing into the storage in different areas or provinces. Shifting the tea from dry to wet or back to adjust the aging. This brings the expenses up, yet it helps to generate some good pieces of sheng puerh. Many factories are also started focusing on the production of shu puerh, especially recently.

There is also bigger effort from the big tea factories aiming on end customer / consumer directly with retail prices by improving the packaging , investing into the marketing and opening sales department which didn’t exist before. In the past there was no need, because sales went well in wholesale platform, but given the economy situation, the strategy had to be changed. One of the obvious example is the making VIP pu-erh products. Tea from the very expensive place like Lao Ban Zhang or Bing Dao. Which , in my opinion , is not much as targeting rich customers but more for the prestige , therefore marketing.

The tea factories raising the prices of their aged pu-erh every year despite the economy slowing in order to keep the investors happy and get new ones interested. For them this strategy is crucial. should they slow down or even stop with price increase , that would have a catastrophic consequences. No investor would be interested any more.

4.Branding

Is the concept what we do and highly recommend to our wholesale customers , instead of purchasing and promoting other producers tea. Simply sourcing the tea from small tea farms , blending, pressing and wrapping with your very own label. The advantage is the have full control of the product and , these days , also minimize the costs ( if know where to buy of course ) .

Very good example of branding is Da Yi tea company which aside of their branded tea shops also approach to customers via modern way created by coffee culture. One of their tea shops  / tea restaurants in Kunming.

Apart of the traditional brewed tea , ice-tea with tea cocktails also offer products like a shu puerh ice-cream or shu puer brewed in espresso machine.

See short video on Instagram here  (correction to the video: The pressure is being built up in the chamber for 40s but no tea is being brewed at that stage yet , as I assumed when recording the video )

5.Trade

Sounds like very simple concept and yes , it is. Many tea vendors located on wholesale tea market do not bother much with quality of the pu-erh tea and treat it as an item to resell with some , even small , margin. I’ve been in present couple of times when a tea vendor was purchasing a ” no name puerh tea ” from the wholesale supplier only buy sniffing on of the cakes.

Sitting at the big tea table, drinking some decent Gu Shu , smoking Yunnan cigarette and smelling the 20 CNY tea cake for any dis-comfortable odor. As I was told, and makes a sense , this kind of tea no need to be drunk in order to make a sale. Purchasing few boxes which was shipped directly to the vendor’s shop for the resell with the story printed on the wrapper ( the name of the place of production ) which doesn’t really match to the content inside. More in “fake tea” article in our blog.

5.Tea for “Mianzi”

The pu-erh tea in China is also very suitable gift. As in other , usually western , countries is awkward when gift has a visible price tag , in China in certain cases is a “must”.

To give a “Mianzi” ( face )  means something like show respect or appreciation and pu-erh tea is the right choice thanks to it’s variety of prices available. How does it work? Lets say you have a boss , manager or any other higher ranking person in your work and you want to make a good relation or get a promotion etc. You can buy some branded tea which price is know on official sources like internet or branded shops. Your boss might be curious how much you want that promotion 😉 That could be too expensive for you , so other smart way is to bring him / her to your friend’s tea shop and drink some tea suitable to your pocket, see which matches the taste and then buy it right there. But the price at that moment will be much higher ,so you can give your boss a very big “mianzi”. Later your friend will send you some money back to match the original price.

As I’ve heard on tea market , this technique was used in the past by some officials who were disposing the state’s money for buying some gifts. Simply purchasing overpriced tea and getting some “cash back” . Please note : I’ve never witnessed such a transaction in person but heard this many times from different sources involved in tea business.

 

Please also note that this is not a static article but dynamic one , we do update it time of the time with new information! 

 

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