Chinese tea industry has the largest output and fourth biggest output value worldwide, but with little recognition because of its low industry concentration, small-sized enterprises, myriad but not world-renowned tea brands and fierce homogeneous competition. As a leading tea-producing country in the world, China still has much to improve in the development of its tea industry.
Chinese tea products are by no means inferior to any tea brand including Lipton. And along with a rising brand awareness and closer attention to clients' needs, Chinese tea industry is embracing more opportunities.
I. Overview of Tea Industry
1) Global Tea Industry
Tea, as a farm crop, is more subject to geographical and natural environment. Worldwide, more than 60 countries produce tea. According to the statistics form the Food and Agricultural Organization (FAO), global tea planting area totaled around 2.90M hectares by the end of 2008, and is growing at an annual rate of 3.0%. In 2008, the total production of tea stood at 3.75M within global reach, about 80.0% of which was produced by five countries -- India, China, Kenya, Sri Lanka and Vietnam.
At present, black tea accounts for a 70.0% or so market share of all kinds of tea in the world. Its output is expected to increase annually by 1.9% worldwide to 3.10M tons per year in 2017 according to FAO forecast. In the meanwhile, green tea is likely to enjoy a more rapid annual output growth rate of 4.5% to 1.57M tons per year.
2) Chinese Tea Industry
As a cradle of tea, China began tea planting and production 3000 years ago. There are four main production areas in China: South China, Southwest China, south of Yangtze River and north of Yangtze River. Chinese tea is well-known for its rich variety, including the "top ten Chinese tea types", among which green tea plays a dominant role. In fact, 80.0% of the green tea worldwide is produced in China.
As of the end of 2008, Chinese tea planting area totaled at 25.00M acres with an aggregate output reaching 1.20M tons, both ranking first in the world.
II. Investment Analysis of Tea Industry
Tea production is an industry with steady but slow growth. According to the Report of the Study and investment consultation of Chinese Tea Industry from www.ocn.com.cn, China is likely to see an aggregate tea output value of RMB70B by 2015 due to its huge market and unique geographical advantages. However, Chinese tea enterprises, in spite of their bright prospects, have never been an easy sale to investors, and have got relatively little investment in recent years.
We think investors' major concerns are as follows:
1. China's tea industry has low industry concentration with more than 70,000 enterprises. According to the statistics on top 100 domestic tea enterprises from China Tea Marketing Association in 2008, those enterprises only accounted for 46.2% of domestic tea sales volume in 2007.
2. China's rich tea variety is both a blessing and curse, and tea production and consumption vary from region to region.
3. Chinese enterprises widely focus more on producing "quality tea" in stead of building "prestigious tea brands." As a consequence, clients know what famous tea types are, but have no idea which tea brand is best. This has also worsened homogeneous competition and led to low-value-added products. In addition, Chinese tea enterprises generally have poor awareness of modernized operation and brand building.
III. Success Stories in Tea Industry and Analysis
1) Lipton
UK-registered Lipton is out of question the most successful enterprise in marketing and selling tea with an annual sales volume equaling to the total output value of its Chinese peers. And its parent company, Unilever, is the world's largest food and cosmetics company with 70-plus years of history.
The secret to Lipton's success lies in its brand operation and channel management. Lipton tea was marketed as fast-moving consumer goods, highlighting convenience and economy. More importantly, tapping into consumer demands also added to its success. Tea can come in as both commodities and raw material. There are hot tea and icy tea, black tea and green tea. By launching different kinds of tea drinks, Lipton has met more demands and at the same time stimulated market demand.
2) Twinings
London-based Twinings is another famed tea enterprise with a history of 300 years, providing a rich variety of tea products.
We think the key factors contributing to the success of Lipton and Twinings are as follows:
1. Different kinds of tea products are developed to satisfy varying needs, such as tea, tea drinks and functional tea beverage.
2. Different packages are designed to meet the demand of various occasions.
3. Healthcare function of tea drinks is highlighted.
4. Tea drink is positioned as fast-moving consumer goods.
Ⅳ Opportunities for Chinese Tea Industry
As a top tea-producing country, China enjoys some advantages in tea quality and output. In addition, tea is an inherently healthy drink, and Chinese green tea, in particular, is renowned for such functions as "revitalizing your body and mind, relieving summer heat and quenching thirst". It can also help fight cancer and cardiovascular diseases. All these merits, plus thousands of years of Chinese tea culture, have laid an essential foundation for the development of Chinese tea industry.
Merely focusing on brand building is not enough to break the market bottleneck, since tea planting heavily depends on geographical conditions. For example, west lake dragon well green tea, an elite of the tea family, is only found in the West Lake District in Hangzhou, and the output is limited. Whenever we speak of this kind of tea, Shifeng Mountain dragon well green tea is the first to cross our mind, but it is not available for huge supply nationwide. Other average tea types are even less likely to expand market through brand building because there are too many similar products.
Different from Lipton's active market expansion, Chinese tea enterprises only passively accept and satisfy market needs. "Producing quality tea" can only fit in a traditional consumer market, where the growth of market room and sales price growth is slow and limited. Moreover, a lack of brand which tends to result in cut-throat homogeneous competition also restricts the development of Chinese tea enterprises at present.
Tea industry, especially green tea industry, has huge development potential, but the opportunities only favor those quality-oriented, brand-focusing and demand-caring enterprises.
(Translated by Lisa Zhang)
