Pu’erh Vendor Mark-Up Followup & Some Clarifications

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Judging from the positive and negative responses in the comments and on facebook to the article published on vendor markup, I clearly hit a certain chord within our small little tea niche. I wanted to post a few quick follow-up thoughts and clarifications.. As some people have mentioned, what is a fair price for a tea is an incredibly complex and personal question that is well beyond the scope of this site. A vendor can provide value through a number of ways many of which have nothing to do with price. They can help by educating or teaching the customer about tea or by allowing the drinker to sample in the store.. It’s also worth mentioning that it’s well within the consumer’s right to search for what they deem a good price to buy their tea. After all, noone should buy a $6000 iphone.

Vendor markup is obviously a very touchy topic, and it’s one that I strongly suspect most vendors, good or bad, would more comfortably hope remains ambiguous.
As Marshaln points out, this sort of comparison isn’t really possible with most oolongs or other teas. The labels of pu’erh make it a market with an odd strain of natural transparency.

Pu'erh & Heicha Wrappers — *Pu’erh & Heicha Wrappers.*

Markup is Normal and OK!

People interpreted the previous article in numerous ways. Some thought it was a witch hunt.. Others interpreted as a demonization or a vendor shame piece for even showcasing markup. If a tea is overly marketed and placed above and beyond the east Asian market it most definitely can rub me the wrong way. That all being said it certainly wasn’t my motive to make markup a thing that only evil tea companies do to take our money.

A markup is absolutely necessary for any serious tea business to have.
Low-markup vendors selling factory tea for about 100% more than CN retail are not only selling at a low mark up but are also acquiring the tea at a reasonable price.
It is also perfectly OK for people to sell the tea for more than 100% markup!!! Let me say it again. Vendors aren’t trying to be your BFF. A markup of 400-500% is normal and can also be perfectly OK. That being said, it’s also well within the consumer’s right to shop around.

One final point.. It was never my attempt to demonize people who markup their tea. There’s often a divide between what the customer thinks of the seller and the actual seller.. In the previous article I highlighted my vendor friend with a very small markup, but the consumer thinking they were making a killing.. If you expect no markup or a markup beneath 100% listed above you don’t really have a good grasp on what it takes to run a successful tea business in our very small niche.

Clarifications on Markup Estimates

A few veteran tea drinkers made the point to me that it’s pretty much impossible to have a healthy tea business selling tea to the west as your sole source of income without marking up your tea by just 100%. It’s a good and most likely reasonable point. My previous estimate of 100% markup for the lowest markup vendors, may actually be unreasonably low.

The fact of the matter is I don’t really know the markup for the majority of any vendor’s teas. The calculations and estimates were done principally through fairly obvious examples of factory tea and excluded wholesale pricing. In today’s modern market, many vendor’s bread and butter is their own private pressings with a bit of shupu mixed in. Without traveling with them it’s pretty much impossible to tell what the true cost of goods sold is for their own produced tea. Rewrapping tea is also a trend in the western market which makes figuring out the CN retail price difficult.

Not Everyone is a Shark

The end-price doesn’t always reflect the markup or the whole tale. The actual markup can be confusing and impossible to know even if you can figure out approximately how far above CN retail a certain tea is.. Take for an instance a Mengku cake that was being pre-sold as $200 or $300 in the store. When I saw this listed on facebook, I immediately recognized the beeng from both taobao and Yunnan Sourcing where it sells for ~$30 and $60 respectively. I then verified it was the same tea with a native Chinese speaker.. I’ve drank the tea before and in my opinion it was a tea that had no business selling for anywhere close to that.

However, that’s only half the story.. The person selling the cake (who normally doesn’t deal with factory tea) revealed that he had paid 1000RMB (~$150) for the cake. Assuming that is accurate, selling the cake for $300 is just a 100% markup and the pre-sold price is actually a very low markup of 33%. This obviously doesn’t make the end price any better for the consumer, but it does change our mental framing. In the end, the consumer who is often trusting the vendor, ends up paying far more for the same product. This highlights point 2 above, and the importance in knowing the market. Sometimes the best of intentions simply aren’t enough.. In order to bring the best price or value to a consumer, being able to know and discern the proper price in the market is equally as important as not marking up the price by 1000%!

The previous article probably would’ve been more accurate if it differentiated vendor markup with % above CN retail.

Comments

9 responses to “Pu’erh Vendor Mark-Up Followup & Some Clarifications”

August 1, 2016

anonymous tea seller

Dear James,
Dear all,

I came across this article and though I might contribute giving some markup figures; but first of all, who am I?
I am a Chinese tea (incl. Pu’er) vendor (I am not Chinese, I sell Chinese tea 🙂 selling both online and in a retail shop somewhere in the Western world.

How do I get the tea I sell?
Traveling in China and sourcing it directly. I purchase most of my pu’er from friends running tea business in China and apply little markup to me (0-20% of their purchase price). They source directly by the producers; so do I for about 30% of the tea I offer.

My markup strategy is similar to at least two other tea shops I know, which are located in different countries. I know other vendors who apply higher markup.

Which is my markup?
Between 2x and 4x the price I payed (incl. shipping and customs duty) plus VAT. I don’t apply margins to laboratory test. I don’t apply any shipment cost to my customers, worldwide. Markup on expensive teas is lower.

Example cheap bing cha:
I payed: 5$ to the producer, 1$ for shipment to my warehouse, 1$ at the custom. 1$ for pesticide check.
I apply 3.5x ratio plus VAT (let’s say 10%): (7$ x 3.5 + 1$) x 1.10 = 28$ is the price my customers pay for it.

Example expensive bing cha:
Same story, but with 2x instead of 3.5x.

Who am I?
Not much of importance. I am pretty unknown, but if any of you spot me I will reveal my identity 🙂

Reply
1. August 1, 2016
  
  Cwyn
  
  I’m a bit curious how long you’ve been in business, and whether the flat rate mark up formula actually works online. A seller can put a price on anything, but the true price is the final sale. People can see a tea listed online and think the selling price is what the tea is “worth,” but they don’t know if the tea actually sells for what the vendor charges.
  
  Personally I don’t find online selling so formulaic. When I buy items to sell, I have to think realistically about the price I need versus the price that will actually sell. If you have to run a sale to sell anything, that suggests a rethink of pricing. I pass up potential inventory all the time because I can’t make enough on a turnaround. I don’t sell tea, but seems to me items vary a lot on an individual basis in terms of how much mark up they can bear. Or else the item sits unsold. Many tea types have a shelf life, and if unsold past that date then the seller has to heavily discount to move it.
  
  Reply
August 9, 2016

tim

100% markup is still very good for a seller in general. Many sellers for other products have to survive with a 30% markup.

Reply
1. August 10, 2016
  
  Garrett
  
  tim, as folks have mentioned across the thread(s) consider the aspects of puerh tea that are different than most retail products like a small western customer base, sourcing a product from one specific regional area of one country, middleman cost for aged tea that was reportedly sourced before western exposure occurred.
  
  I agree. If I am selling office supplies or textbooks (both things I have done), a thirty percent markup is the bee’s knees…100+ markup may not be sustainable in many cases because well…considering office supplies are not sourced from one specific regional area of one country, have a large western customer base, and that people give could care less if this Bic pencil was from the 90’s and stored in some guy’s Hong Kong basement…
  I probs wouldn’t make it as office supply seller with a 100+ markup.
  
  Reply
  1. August 11, 2016
    
    tim
    
    Things you talk about are already priced in before the markup. That doesn’t make sense.
    
    Reply
    1. August 12, 2016
      
      garrett
      
      I make dollars not sense. #goals
      
      Reply
    2. October 6, 2016
      
      garrett
      
      Puns aside. – I also don’t understand your comment, “already priced”? How is tea not already priced when you’re sourcing and making puerh? Someones gotta pay for the leaves, the processing, shipping (etc… production processes).
      
      Reply
    3. October 6, 2016
      
      garrett
      
      Additionally, office supplies and books are priced at a recommended price from the manufacture, perhaps this is what you are getting at when you say “already priced”.
      
      But still Puerh doesn’t fall into someones lap cost free, like my comment above there’s a price to pay for the manufacture of puerh.
      
      Maybe you’re getting at the lack of clarity in the market, there’s no MSRP to a supposed 90’s Hong Kong stored puerh cake.
      
      And that’s where liquidity of puerh I think plays a large part of why a vendor may choose to mark one cake up higher than another.
      
      A 100 percent markup maybe necessary if the cake isn’t gonna sell for 10 years because of some stanky wet storage has to settle (true story bro). If you’re storing this puerh and puerh sales is your livelihood …you have pay for lights to be on, food, rent etc etc living expenses for those ten years. Depending on the other inventory you have and the “flip” of that inventory, you may need that 100 percent markup come ten years in the future.
      For most vendors, I do not think this large markup is “very good” or a steal for the vendor, I think it is necessary. Just as James mentioned in his recent video how the vendor makes their living is something to be aware of. One way I supplement my own collection is by sourcing puerh from individuals who exclusively sell in countries that have a lower cost of living than my own, that way even if their livelihood is the tied to the sale of aged tea I can still capitalize on the fact that they didn’t have charge me thousands of dollars only tens of dollars.
      
      If someone isn’t willing to take this extra step of sourcing in places where markup is economically smaller by default, they shouldn’t be complaining about how large or expensive markup is from vendors in their own ‘Western’ country.
      
      Reply
August 10, 2016

Tyler

I just want to clarify here, the price and markup are not the only factors that matter in selecting a purchasing from a vendor. Knowledge, responsiveness, and amicability also are determining factors for me. I feel it is also realistic to point out that there are different tiers of vendors out there as well, ranging from small curated collections of high quality teas, to mid-range websites that carry over several hundred products.

Personally, I like to shop around for teas that are special sourced, and I pay a higher price. These are the teas that I feel more assured about the source and quality. These are the teas I personally store away for special occasions and long term storage.

I go to mid-range vendors for my everyday and seasonal teas that I drink daily and intend to consume pretty close to within 6 months of purchase.

I would also point out that an increasing number of vendors offer samples. So if you have concerns about quality and pricing, you can always sample a small amount before making a decision.

I point out all these things because, frankly, there are plenty of price points along the internet. If you feel prices are too high, then shop around until you are comfortable with a price point.

And also, I do not speak or read chinese, so taobao and other sources are not suitable for purchasing tea for me. Places like YS and other vendors offer teas in my native language. Paying more seems like an ok deal to me for the service they provide in accessing the market. At least until a different source comes along. But those high-end, boutique vendors or unique single-source companies? I’m always going to go there for my special-teas.

Reply