by Peter Keen
August 31, 2021
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Dropshipping: lower capital, lower overhead, ease of setup.
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Dropshipping: lower capital, lower overhead, ease of setup. Photo credit Mohamed Hassan on Pixabay
In 2020, at the peak Christmas selling season many tea sellers listed the single main feature of their products as “out of stock.” That reflected the disruption of supply chains, escalation of shipping shortages, costs and delays, the impact of Covid on producers, drought, and export/import safety restrictions.
Some of the problems will ease post-Covid – whenever that turn out to be – but many seem likely to remain and create uncertainty and risk for tea sellers. Retailers have two assets on which to build their business: their inventory of teas and reliability and responsiveness in enhancing the customer experience. Both are undermined by the current instability of the global tea industry supply chains.
The inventory issue is not just a matter of having goods in stock but the right goods for the right customers at the right time at the right cost to the seller and right price to the customer. There are many market niches: organic, herbal, Japanese, single estate, etc.
There are three main options for tea sellers to manage inventory:
This is the true specialty tea business and the natural customer shopping point for organic Wakoucha, single trunk oolongs, Drunken Concubine Zui Gue, yellow tea, Hei Ya black bud, Gyokuru Sasa Hime and Gyokuru Cha Meijin, Colombia Andean Moonlight white, and many other gourmet, rare and crafted teas. Most of these sites will include a description of the farmer and stress their long relationship. Margins here are high and the small volumes and light weight of tea make stocking and order fulfilment easier to manage.
However…. This all demands expert knowledge, on-the-ground contacts, and focus. It can run up against the bureaucracy of export licenses, inspection certificates, and customs clearances. And, of course, with a narrow inventory base, where some teas are grown in football field-sized gardens with quality and yield highly dependent on weather patterns, the uncertainties in matching supply to demand are challenging. This is a framework for building a medium-sized online business but expensive to establish and limited in scale.
Many of the online direct buyers are the conscience of the industry. They build long-term commitments to farmers and communities, place sustainability as a core priority, and take active steps to support tea workers, including refusing to deal with the many growers who use child labor, and help growers both find a market and adopt bio-management practices. Rakkasan is just one example. It seeks out “hidden gems” in war-torn post-conflict regions, to help restore economic growth and community rebuilding
Wholesalers offer a catalog of teas and multiple options in additional services, such as private label branding, packaging, label printing, and timely information on availability. They may add product descriptions and images that help enhance the seller’s website and provide test samples of new items. Contract arrangements include minimum order quantities, volume discounts, etc. They may add product descriptions and images that help enhance the seller’s website and provide test samples of new items.
There are a wide range of wholesalers, in terms of size, geographic location suited to servicing regional, or transnational needs. Catalogs may be broad and focused on the items with an extensive customer familiarity and appeal or they limit them to categories, such as herbal and flavored teas. The larger and longest-established firms have their own gardens, inspection centers, and processing factories, together with relationships with producers, brokers, and even smaller wholesalers who they buy tea from on a special case basis.
The quality ranges widely, too. The best are very good indeed in products, services, and contracting. A challenge for retailers is to find the ones that can help them differentiate themselves in attracting and retaining customers. Some treat their use of one or multiple wholesalers as transactional, a simple way to stock the shop. The current trend in the full service wholesalers and dropshipping market is to proclaim the ease of using their services and imply they remove the need for customer effort. Here are two typical instances: “It takes minutes to launch a store” and “Anyone, anywhere can start a business.” The many reports and recommendations on tea warehousing stress the importance of a relationship with both parties putting in the effort to go beyond order taking. The minute to launch claim minimizes the downside: new competitors can use their minute and many of the same wholesalers offer very much the same inventory and loss of identity to an online search for lowest price.
New platforms are emerging that extend the business-building opportunities. For instance, Shopify is a widely used e-commerce development site with close to 1,500 apps for e-commerce, half of them free. The site-building software is complemented by Oberlo, a comprehensive search capability for locating products and wholesale suppliers. Shopify links to AliExpress, part of Alibaba, the giant China firm that is larger in sales than Amazon and taking it on in the effort to expand international markets. Similarly, leading tea brands and retailers are using their scale and buying power in sourcing teas in bulk to enter the wholesaling business. A problem here is that they often compete with their own customers and offer lower prices.
The strength of wholesaling is that it is proven and reliable and the core of most industries’ supply chains. Over the past ten years, the excessive chain of intermediaries and their added cost, delays and complexities that marked the tea industry for centuries have been reduced: auctions, brokers, distributors, grower associations, blenders, distributors, shippers, and financers. The best are state-of-good-practice in just-in-time streamlining of logistics. Today, careful planning can ensure the retailer is partnered or supported by reliable wholesalers.
“Today” should perhaps be replaced by “Yesterday” and certainly is not likely to be applicable to tomorrow. Just-in-time processes have had to move to just-in-case: just in case there’s more drought in Yunnan, j-i-c the shipping shortage and cost escalation continues, j-i-c the business failures of large firms owning – and now selling off – gardens, and j-i-c Covid is not a concentrated or isolated short-term event.
It’s unclear how well most wholesalers will handle these uncertainties. Retailers clearly need to keep track of their capabilities and adaptation. It’s back to basics: getting the right products to the buyer reliably and efficiently. When even Walmart, which built its dominance on supply chain basics, is experiencing widespread supply chain disruptions, most of the tea industry is not well-positioned. If the basics are not impeccable handled by suppliers, then the extra services, apps and features are of peripheral impact.
Wholesalers have no contact with their clients’ customers. Dropshipping takes over many functions that directly affect customers. It offers retailers an inventory-free option: no cost of working capital investment, risk of out of stock or unsold goods. In effect they become an online storefront where as one dropshipper claims “We handle everything in our full service production facility.”
The “everything” is built on a simple core process: a customer places an order and the shipping cycle is immediately begun, eliminating the substantial complexity of fulfilment. The retailer purchases the goods from a manufacturer or wholesaler that is part of the dropshipper’s eco-complex and it is delivered directly to the customer. The retailer is paid by the customer without having to tie up working capital, reversing the standard wholesaler process, where the seller pays for the goods it stocks and markets and recovers its costs when customers purchases them. With dropshipping, the customer pays and only then does the retailer incur the costs of product and fulfilment.
Here’s a quick list of the other main advantages, many of which have hidden negatives. Most analysts and experienced tea sellers are iffy and even negative about dropshipping:
Overall, the consensus among expert analysts and case studies is that dropshipping is best for small and start up casual sellers and scales poorly, but that may be too narrow a perspective. Many of the negatives reflect amateurism – the home-based dropshipping doesn’t require much effort or management. The main shift for success is that marketing and customer relationship building are even more vital, as they should be. There are many signals that FBA or the Shopify-Oberlo-AliExpress and leading wholesalers are creating dropshipping platforms that exploit their technology, operational excellence, and relationship building skills to raise full service standards to a new high. Dropshipping is not a business type but a fulfilment method.
Coming back to the issues of planning when you can’t predict, the best wholesale-dropper services reduce uncertainty and risk for retailers. They add flexibility and a host of extras that may include label printing, private labeling, up to the minute information on product demand, and alerts to shortages. They can specialize and ensure that only the best suppliers are included in their service reach.
The core issue is getting the inventory right, with dropshipping digital inventory. The competitive game has changed from selling tea to managing the selling to maximize the customer experience. There is no barriers to entry in sourcing almost all teas. Using Amazon as a convenient metric; it lists over a thousand matchas, several hundred Wuyi oolongs and Vietnam teas and six hundred Earl Grey loose leaf teas. These range from the excellent to the mediocre and are hard to differentiate. Nepalese teas remain hard to locate in tea stores, but buyers have around a 150 on Amazon.
Tea sellers can’t afford to be under- or overstocked. They need to make an in-depth assessment of the capabilities of their current suppliers, many of which are traditional wholesalers and of their adaptability to all the supply challenges of this competitive, turbulent, and disruptive environment.
This brief review does not endorse specific companies, but here are a few worth browsing, both to help retailers and growth-focused online sellers get a sense of the options, stimulate ideas, and rate their current sourcing and the trends they can exploit: Empire Tea, GreenDropShip, Alibaba/AliExpress, Shopify, Amazon FBA, and Mark T. Wendell.
by Peter Keen
August 31, 2021
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