Businjess plan

Case Study #4 – Spring Tea House 8

MS IN HOSPITALITY MANAGEMENT STUDIES

Case Study #4 – Spring Tea House

RITA SHUNRU ZHANG

MSHMS Foundation #1

Instructor: Willy A. Aroca

Fairleigh Dickinson University

2015-12-08

Introduction

The idea is to open a tea house which provides a unique tea drinking experience. In store, tea service staffs would deliver high quality tea serving, including introducing the different types of tea and different processes of making good teas. The experience in store can give our customers the best taste of tea due to our water purification system, in order to serve the best tea; also, we will provide health snacks or light meals. While they drinking tea and socializing in our tea house, they could slowing down their life tempo and releasing pressure, which also directs them to purchase other products, such as tea leaves and tea sets. In addition, since the modern pace of living is increasing, there is a need of teas to go; therefore, we would also open a tea to-go window. With the measurement of tea leaves and water, we will maintain the good taste of tea.

The idea of opening a tea house was coming up with the increasing demand of tea in Canadian market. More and more tea shops have established, such as Teavana store. The company spent US$620 million to acquire about 300 Teavana stores, there are 59 locations in Canada (Friend, 2013). Canadian’s tea consumption is expected to rise 40% by 2020, according to a government agency report on food trends published by Agriculture and Agri-Food Canada (Friend, 2013). This trend was driven by a soaring interest in health and wellness. “Canadians drink almost 10 billion cups of tea each year (83 litres per person x 4 cups per litre x Canadian population 34,755,634 – those who are 15 and younger 5,644,800). That’s 30 litres (120 cups) more than in 2006 (Food Available in Canada and Canada Population Estimate Statistics Canada) (2014 Canadian Tea Fact Sheet & Trends, 2014)”, according to the data from Tea Associate of Canada, we can see tea market in Canada is growing.

However, the major tea trends in the market place are western tea. Chinese teas has great potential to growth, which needs more advertisements and marketing strategies to increase market awareness. Thus, it can fulfill the needs of health oriented diet, and catch the opportunism on this growing market.

There are six major types of Chinese Tea, see Appendix I & II. The difference are due to: different collecting time (daily or seasonal) of tea leaves, different producing area, different processing methods, and different kinds of tea trees. Different types of tea has different benefit to human body, such as help digestion, reduce fat, and promotes strong bones. See from Appendix III.

Main Decisions on Developing Stage

Where and how to obtain financial resources

· Private investors or Venture capital

· Offer investors partnership and give dividend

Location for the business model

· Near Vancouver city hall, on W Broadway, corner store.

· Reason: having our target customers (higher income, 30 to 65 years old, and interested in health diet), business and quite atmosphere.

Private company vs. Public company

· First five years will stay private, since it would be easier to operate

· During the expansion stage, will consider to go public in order to collect expansion capital

Marketing Strategy

· Pricing

· In store, price are depends on different types of tea

· To-go, price of a cup of tea would be around $3 to $5

· Branding

· Quality is the key of our tea store; therefore, employees will have professional training, and understand the knowledge of teas in order to create a unique experience.

· Product development

· In the first stage of business, we will provide six different types of tea, and each types of tea will have different varieties. We sell tea leaves and provide in store tea service. The water purification system provides water which is good for making teas that the PH is around 7.2 to 7.3 and water hardness are between 20 to 70 mg/l, which is similar as the natural spring water. The water quality can maintain the tea taste. Tea-to-go will have our home-made tea bags, and will have the proportion measurement of tea leaves and water. The snack options would be all health oriented, such as dried fruits, nuts, organic light meals (salads, sandwich, and dessert).

· For the future expansion, tea ice cream or tea slush will be produced in our store.

· Expansion

· We will focus on Vancouver market in the first five years, and will open new stores for the next stage.

· Also, we offer franchise options, which can increase the market shares.

Michael Porter’s Five Forces Model

Threat of new competition

· Industry profitability

The overall profitability of tea industry has improved moderately since 2005 (The Canadian Tea Industry, 2010). Due to the increasing volume of tea drinkers (Friend, 2013), the profitability of tea industry in Canada will increase; thus, the threat of new competition will increase.

· Established brands have high customer loyalty, which will threaten your new brand.

In Vancouver, there are direct competitors, such as O5 Tea, which is a tea bar selling tea leaves and serving tea in store, and there are also some indirect competitors, such as Teavana, David’s Tea, and some coffee stores that also sells teas. However, the awareness of O5 Tea are not strong enough, and Teavana and David’s Tea are targeting people who want tea drinks and do not care much about the quality of tea leaves. Therefore, the loyalty of the existing stores are not high, which could be an opportunity for the new entry of tea business in Vancouver.

Threat of substitute products or services

· Relative price performance of substitute

O5 Tea would be too pricey for some people who interests in tea but do not have much tea knowledge, which will set a berry for potential customers, and the price of David’s tea, Teavana, and other stores selling tea would be much cheaper, costing less than $5 for a cup. This makes our price of the tea leaves is more affordable compare to O5 Tea; therefore, depends on different customer groups, if they have the desire for high quality tea drinks and experience, they will go to O5 Tea; the customer who is only looking for tea drinks and do not care much about the quality would go to David’s Tea or Teavana. And the customers who choice bottle of tea drinks and tea bags are due to the convenience they can have, although the price of this substitute products are much lower, but the tea quality have huge different. The substitute products or service are all depends on the need of customers. What our tea house would do is to satisfy the needs of majority customers in the market place, both who needs tea drinks or tea experience.

· Buyer switching costs

The switching cost for customers would be high if they go to O5 Tea, since what we offer is more affordable, we charge in store customer base on what type of tea they order, and charge them on time base. Besides, the switching cost for customers to purchase a bottle of tea drinks or tea bags from grocery store is low. However, our tea house are not competing with them, since what we offer is different value, the target customers between this substitute products are different from us.

· Number of substitute products available in the market

In Vancouver, there are not many Tea houses; therefore, it would be an opportunity to open a tea house. Also, there are countless bottle of tea drinks and tea bags are easily found in market.

Bargaining power of customers

· Availability of existing substitute products

Due to there are not many substitutes of tea house, customer would have limited choice, and compare the price of our tea-to-go, which is similar as David’s tea.

· Buyer price sensitivity

There are two different types of customer, one group of customers are more not sensitivity of price but focusing on the experience they have. For this group of customer, the tea house need to maintain the high quality of service and tea drinks. Another group of customer who enjoy tea drinks on daily bases, they are more sensitivity of price. This group of customer are target for the tea-to-go drink section; thus, our tea house would maintain the affordable image for the tea-to-go drinks.

Bargaining power of suppliers

· Supplier concentration to firm concentration ratio

Since all our products would be imported from China, and there are countless suppliers of tea leaves; therefore, the concentration ratio is low.

· Supplier competition

The majority suppliers are in Mainland China, and the volume of suppliers are large. The competition between suppliers are high. Hence, the bargaining power of suppliers are low.

Intensity of competitive rivalry

· Sustainable competitive advantage through innovation

The innovation of existing tea stores are low. They do not have any innovation products besides tea sets and new flours of tea. What our tea house can do better is we offer different products to satisfy our customer, and we have product development plan for tea ice cream and tea slush.

· Level of advertising expense

The majority advertisement of existing tea store are on social media. The cost of this type of advertisement are low but efficient since modern days people are highly relying on social media. For our tea house, we can also use this type of advertising method. Furthermore, we can also establish our own tea magazine or our website for more tea culture sharing, and can hold some tea events or make connections of the events of Vancouver. Which can help the brand to create a professional tea image, and increase the market awareness.

Conclusion

Due to the increasing demand of tea drinks, and there are only a few tea houses, which serves good quality of teas. The consumption power is high especially in Vancouver. It would be a great opportunity to open a new tea house that sells good quality tea leaves, tea drinks, health oriented light meals, and good service.

References Friend, D. (2013, Nov 3). Having a cup: Canadian business owners see big growth in tea drinkers. Retrieved from CANADIAN BUSINESS: http://www.canadianbusiness.com/business-news/having-a-cup-canadian-business-owners-see-big-growth-in-tea-drinkers/ The Canadian Tea Industry. (2010, December). Retrieved from Agriculture and Agri-Food Canada: http://www.agr.gc.ca/eng/industry-markets-and-trade/statistics-and-market-information/by-product-sector/processed-food-and-beverages/the-canadian-tea-industry/?id=1298047470064 chinese pastry. (2012, 7 5). Retrieved from TeaGoer: http://teagoer.blogspot.ca/2012/07/blog-post_5.html Major Types of Chinese Tea. (n.d.). Retrieved from Shen-nong: http://www.shen-nong.com/chi/lifestyles/chinese_tea_types.html Tian, H. (2013, 8 2). Introduction of different kinds of tea. Retrieved from People News: http://paper.people.com.cn/smsb/html/2013-08/02/content_1277024.htm titie. (2010, 06 9). Travel Experience. Retrieved from ROODO: http://reader.roodo.com/summer828/archives/12638845.html Chinese Tea And Health Benefits. (2012). Retrieved from the chinese tea shop: http://www.thechineseteashop.com/tea-health.html 2014 Canadian Tea Fact Sheet & Trends. (2014). Retrieved from Tea Association of Canada: http://www.tea.ca/about-us/media-kit/2014-canadian-tea-fact-sheet-trends/

Appendix

I. Tea Processing

II. Six Majors Types of Chinese Tea

Tea is produced in over 20 Chinese provinces. Chinese tea bushes are cultivated in the mountain areas of tropical and subtropical regions or wherever there is proper climate, sufficient humidity, adequate sunshine and fertile soil (Major Types of Chinese Tea, n.d.).

Chinese tea is classified in many ways, e.g., quality, method of preparation or place of production. The main processing methods include fermentation (oxidation), heating, drying and addition of other ingredients like flowers, herbs or fruits. These help to develop the special flavor of the raw tea leaves (Major Types of Chinese Tea, n.d.).

Green tea

Freshly picked leaves only go through heating and drying processes, but do not undergo fermentation. This enables the leaves to keep their original green color and retain most natural substances like polyphenols and chlorophyll contained within the leaves. This kind of tea is produced all over China and is the most popular category of tea. Representative varieties include Dragon Well (Long Jing) 龙井 and Biluochun碧螺春 from Zhejiang and Jiangsu Provinces respectively (Major Types of Chinese Tea, n.d.).

Black tea

The tea leaves are fully fermented giving them to have a strong flavor and dark color. In comparison to other tea categories, its flavor is longer lasting and it has the highest concentration of caffeine. This is most popular form of tea in south Asia and Europe. The taste is mellower and black tea is also easy to stock and maintain the quality of tea leaves. The famous Chinese Black Tea are Lapsang Souchong Black Tea 正山小种, Lichee Black Tea 荔枝红茶, and Yunnan black tea 滇红 (Major Types of Chinese Tea, n.d.).

Oolong tea

The tea leaves are partially fermented, imparting to them the characteristics of both green and black teas. Its taste is more similar to green tea than black tea, but has less a "grassy" flavor than green tea. The three major oolong-tea producing areas are on the southeast coast of China e.g. Fujian, Guangdong and Taiwan. Dongding Oolong冻顶乌龙, Tie Guanyin 铁观音, and Wuyi Rock Tea 武夷岩茶 are some of the famous Oolong tea (Major Types of Chinese Tea, n.d.).

White Tea

Fujian Province are the major producing are of White Tea, the fermentation of white tea is 20% to 30%. Since the processing method are more simple compare to other tea leaves, white tea only need to roasted, thus the white tomentum are still kept on the tea leaves, the color of dry tea leaves looks white. White tea can help calming the body. Baihao Yinzhen白毫银针 and Shoumei寿眉 (Major Types of Chinese Tea, n.d.).

Yellow Tea

Yellow tea is mild fermented tea, the color of tea and tea leaves are yellow, due to the processing method; when the roasted of the tea leaves are not completed, the rest of the water content would oxidize, and thus the tea leaves would become yellow. The fermentation is low, only10% to 20%. It can help digestive and decompose fat. Junshan Yinzhen君山银针 and Huoshan Huangya霍山黄芽 are some of the typical yellow tea. (Major Types of Chinese Tea, n.d.)

Dark or Pu’er tea

The tea leaves have undergone years of fermentation, giving them a unique earthy flavor. Dark tea is 100% fermented tea, the tea leaves are dark, the longer the time it stock, the better it taste. Compare to other kinds of tea, the taste of dark tea are the mellowest, tea leaves was compress into certain shape which is easier to stock for a longer period of time. This variety of tea is usually compressed into different shapes like bricks, discs and bowls (Major Types of Chinese Tea, n.d.).

III. Traditional Chinese Medicine

For reference purposes only, here list some of the benefits of Chinese Teas as commonly recognized in Traditional Chinese Medicine:

Black Tea

Reduce fat, protein and low-density “bad” cholesterol

Rich in fluoride, promotes dental health

Reduce fatigue, stimulating the central nervous system

Promotes strong bones

Enhance blood vessel elasticity and strength

Green Tea

Tea catechins have anti-bacterial and anti-virus properties

Regulates cholesterol and high blood pressure

Bacterial killing properties in the mouth and intestines

Tea catechins and polysaccharides can lower blood sugar

Improves blood flow

White Tea

Can reduce inflammation caused by rheumatoid arthritis

Can control insulin secretion

High source of Vitamin A, can prevent dry eyes and night blindness

Can reduce radiation levels and repair DNA damage

Oolong Tea

Polyphenols prevent tooth decay

High source of Vitamin C, good for the skin

Can reduce skin irritations

Can improve the performance of enzymes that break down fat and increases fat metabolism

Can lower cholesterol

Muscle relaxant in the bronchial tract

Can regulate body temperature

Dark / Pu’Er Tea

Aids digestion and fat break down

Has been used in the treatment of arteriosclerosis, colds, bleeding and hepatitis

High level of Vitamin C which is soluble in water and can be rapidly assimilated by the body

(Chinese Tea And Health Benefits, 2012)