Click the image for details Source: Jinjibo Finance (ID: jinbubo) Author: Shen Shuai Bo Beautiful and successful women often face a certain annoyance: many people, openly or covertly, attribute their success to their looks, underestimating their abilities and efforts. The same applies to companies known for their marketing: people tend to reduce their success to just advertising. For instance, Little Can Tea, recently caught in a whirlwind of public opinion, has been the subject of 99.99% of articles criticizing its ad copy, marketing tactics, and past marketing campaigns. If you have no business ambitions, you can just read for fun. But if you wish to build a mature business thinking framework, I suggest we examine this more closely before jumping to conclusions. Indeed, there are some gray areas in the marketing copy, and I believe the Little Can Tea team has learned a profound lesson. But, did Little Can Tea really achieve 2 billion yuan in just a few years solely through advertising? The answer is: impossible, especially in the extremely ancient tea industry. Let's first look at some basic facts about the Chinese tea market. Here are the data from the Ministry of Agriculture: China's tea production has been increasing year by year, reaching 2.58 million tons in 2017. Now look at China Customs data: in 2017, the export volume was 355,000 tons, meaning roughly 15% of annual production is exported, with the rest sold domestically. In 2017, the export value was $1,609.955 million, averaging $4,533 per ton, or $2.26 per jin (500g). At the 2017 exchange rate (6.8), that's about 15.1 yuan per jin. The basic fact of China's tea exports is that it is sold as a low-value agricultural product, much like cooking oil, with no added value. China's tea is in a stage of severe undervaluation. The root cause is that our tea industry remains in the agricultural era. We need to innovate and upgrade this industry. Before the Ming Dynasty, tea was not a mass-market product. Today's Japanese matcha is closer to the Song Dynasty method of tea production, which was consumed by the aristocracy. Li Qingzhao wrote a line: "After wine, I prefer the bitter of the compressed tea; in dreams, I favor the fragrance of borneol." This compressed tea was also what the aristocracy drank in the Song Dynasty. The popularization of tea came much later.

  • How was black tea born? When Ming Dynasty troops passed through the Wuyi Mountain area in Fujian, the tea stir-fry masters, unaccustomed to such a scene, went out to watch. When they returned, they found the green tea had burnt. The master was in despair, facing heavy losses, so they sought help from a Minnan merchant to sell it cheaply. It turned out that the Minnan people discovered that the British loved the taste of this burnt tea, and also, the burnt tea was less prone to spoilage when shipped from Quanzhou to Britain. So why is black tea called "black tea" and not "red tea"? Because the burnt tea from Wuyi Mountain is dark in color. In Britain, Chinese tea was also for the aristocracy. Britain's intense desire for Chinese tea, porcelain, and silk led to a massive outflow of silver to China. This made the British desperate to escape this unfavorable supply-demand relationship, so they did two things:

  1. They took a group of tea farmers from Fujian to Sri Lanka and India to research large-scale cultivation.

  2. They dumped opium into China. China was historically the world's only tea-producing country, but it was the British who industrialized this agricultural product. Lipton's significance to the modern tea industry is like Ford's to the automobile assembly line. The story begins in 1890, when a 40-year-old Scottish middle-class man, Thomas Lipton, visited the Ceylon tea plantations in Sri Lanka and decided to do something remarkable: how to industrialize, streamline, and brand black tea on a large scale. Note that at that time, only the aristocracy in Britain could afford tea. So in his heart, perhaps like Jack Ma, he had a motto: "Make the world's black tea affordable for all."

In 1892, Lipton began its globalization, first setting up a factory in the US, then opening branches in India, entering the Far East market.

In 1898, Lipton was knighted by the Queen of England. Later, Unilever acquired Lipton.

In 1992, Lipton entered China and quickly defeated all competitors in the homeland of tea, holding the top market share for many years.

  • Where does Lipton's success lie? First, it redefined the unit of tea—the "small bag." Before this, there was no tea bag. It made tea measurable and more convenient to drink, and because of the convenience, the drinking scenarios expanded significantly. It fundamentally solved the drawbacks of traditional tea consumption, such as long brewing time, complex brewing procedures, and difficult tea leaf disposal. Second, a distribution system based on modern channels facilitated consumer purchase, making Lipton ubiquitous. In contrast, traditional Chinese tea's complex packaging limited its distribution channels. Third, it achieved large-scale production in tea factories and standardized cultivation in tea gardens. These three points are the most core, though there are others. For 120 years, China has never had a strong tea brand able to compete with it. The tea industry has a scale of up to 360 billion yuan, but the top 100 Chinese tea companies combined account for less than 5% of the market share. The top ten famous cigarettes and liquors are all brands, but the top ten famous teas are only categories. China actually has many good tea brands, but they cannot break through the scale of 300-400 million yuan. Since the reform and opening up, many strange phenomena have appeared in the Chinese tea market.
  1. The degree of industrialization is very low, and tea is sold at agricultural product prices, so tea farmers cannot make money.
  2. Because most people don't understand tea, there is a lot of passing off inferior goods as superior. (Note: many people who seem to know tea well actually don't.) At the same time, most people lack basic tasting ability.
  3. There is no standard. The Chinese tea system is complex and diverse, and there has never been a unified standard.
  4. There are no real brands. Except for a few brands dominated by a single category, there are basically no strong cross-category brands. The overall pattern is many but not strong.
  5. The thinking of practitioners is very traditional and lacks innovation. To this day, outdated circulation methods like tea markets and tea expos still dominate transactions. I have personally attended several tea expos, and they are always the same.
  • In the market just described, if you were to start a business, what route would you take? I have pondered this before and visited almost all major tea-producing regions.

  1. Establish a brand to create a premium.

  2. Redefine the way tea is consumed.

  3. Create a strong distribution channel.

  4. Create a standard. It sounded good, but later I calculated and realized it wasn't feasible because: it's too capital-intensive. There are too many hidden costs, so many they are frightening. Take Little Can Tea's can for example: if you ask the supply chain, you'll know that from original design to mold creation to mass production, it can't be done without 5 million yuan. So another realistic and harsh condition restricting old players in the Chinese tea industry is that most tea companies are small workshops without capital. For example, in Nanping, Fujian, near Wuyi Mountain, from the high-speed rail station to the foot of the mountain, there are dozens of miles of continuous small factories, mostly family-run individual businesses. In good years, they earn a few million; in bad years, they lose money. They simply lack the strength to challenge international giants. And among China's millions of tea enterprises, 99% are small workshops.

  1. Establish a brand to create a premium. 2. Redefine the way tea is consumed. 3. Create a strong distribution channel. 4. Create a standard. These four points are actually the playbook for FMCG. Only those proficient in FMCG can possibly turn the tea industry around. Lipton's sales in China haven't actually increased much in recent years. The main reason is that tea bags are no longer cool. They are no longer a product that distinguishes social circles. In terms of taste, it's only average, better than plain water. We cannot follow Lipton's path to success to overturn Lipton, because it has already occupied all the advantages and resources in its lane. We need to find a different path. This is what I understand as the starting point of Little Can Tea: defining products with all the top standards of FMCG players. In essence, it's the same as Lipton and Nestlé, just with a different implementation path adapted to the times. Three years ago, when I first saw the Little Can Tea brand, my eyes lit up. But I doubted whether it could succeed. The reason was the same as many people criticize today: it's so expensive, will anyone buy it? The answer later was: yes. I think criticizing it for being expensive is irrational. GUCCI bags and BURBERRY trench coats—which of them is cheap? Whatever exists is reasonable. Little Can Tea's average order value on e-commerce is 1,200 yuan, almost ten times the industry average. Its main users are not actually nouveau riche bosses; the age range is 18-35. (If you don't believe it, before criticizing, you can buy e-commerce data software to check the data.) Offline, it's slightly older, 20-40, which is completely different from what most online articles claim. Whether it's Nestlé's Nespresso redefining coffee, or Japan's Hacci selling honey and related products to the wealthy circle, both succeeded because they captured consumers' real needs, seized the gap in the category, and filled the price gap in the category. Price implies social class. In fact, much of the criticism of Little Can Tea comes from a formulaic summary of its leader's past projects. In a word, they say he's just there to make quick money. In reality, someone who has already made a lot of money may not be very interested in making another sum. Everyone's threshold rises. It wasn't until I discovered Little Can Tea's major move in Huangshan that I saw its true ambition. A person who wants to make quick money would not invest 1.5 billion yuan to build a tea factory. A person who dares to invest 1.5 billion in a factory has ambitions of 15 billion or 150 billion. We have all been fooled by its marketing facade. It chose this track because it found a space where it could strike with a dimensionality reduction, a battlefield where it could realize an even greater ambition. Because tea is one of the few categories that has not yet undergone a generational upgrade. Even if it weren't Little Can Tea, someone else would lead a generational upgrade. In fact, China needs more Little Can Teas, or any tea enterprise that can provide high-quality industrialization solutions. Then, in full market competition, many problems will resolve themselves. At the same time, the Chinese tea market can evolve from the agricultural era to the industrial era. Tea branding is easy to understand. But why can't everyone do branding well? Because industrialization has not yet been achieved. Note that industrialization does not mean bad, and handcraft does not mean good. For example, non-industrialized milk contains many bacteria.
  • What is tea industrialization? The so-called tea industry industrialization is: the transformation of China's tea from traditional agricultural production and processing methods to modern industrial manufacturing and intelligent manufacturing. For a long time, people have viewed Chinese tea from an agricultural perspective, from breeding and cultivation, tea garden management, to initial and refined processing, then to packaging, warehousing, and logistics—all relatively traditional. Industrializing this entire process is the necessary path for generational upgrade. For example, picking. China has about 45 million mu of tea gardens. Every picking season, over 10 million rural laborers go up the mountains to pick tea. Currently, tea pickers are generally older, mostly over 50, and young people are unwilling to do this work, which could lead to a situation in the next 20 years where there are no tea pickers. At the same time, manual picking is highly arbitrary, easily leading to mixed picking of different grades, uneven and unattractive appearance, and unstable processing quality. On the other hand, China's tea gardens are all in the mountainous areas of the central and southern regions, with complex terrain and poor working conditions. Manual picking is labor-intensive and inefficient. Tea Industry 4.0 aims to use AI intelligent technology to develop intelligent tea-picking robots that can accurately identify single buds, one bud and one leaf, and other grades of fresh tea leaves, precisely pick them, and collect and classify them. Another example is canning. Good tea is alive and fresh. But air, light, moisture, external force, and hand contact can silently destroy this activity. Not to mention that most Chinese tea workshops are wholesale sources on 1688, and you can imagine the hygiene level. The industry's first aluminum can online nitrogen filling and sealing process, from canning to nitrogen filling and sealing, to re-weighing and visual inspection to remove products that don't meet national standards, until shrink-wrapping, the entire process is completed by intelligent, fully automatic robotic arms, completely isolating the tea from the effects of air, sunlight, moisture, external force, and hand contact. This single line alone took over 2 years and 6 million yuan. And a modern supply chain. This is an important indicator of whether an industry chain has evolved to maturity. I researched Little Can Tea's supply chain. Changying, which produces aluminum products for Apple; Yutong, which won the Red Dot Award; Dangnali, the official printer for the World Expo; Quanwei, which serves well-known domestic dairy companies like Mengniu, Yili, and Bright; as well as Zhongcheng, Gaotao, Fuyundi, Mettler, Ishida, etc.—all are first-class suppliers. Whether an entity enterprise can achieve supply chain collaboration is a sign of whether it has entered a new era. Little Can Tea is not just making tea; it is reconstructing the tea industry chain. In our column "Changing Prejudices Here", we have analyzed Pinduoduo and Luckin Coffee. Some people have cursed me in the background, but I remain unmoved. Because I believe: if something exists and you think it's unreasonable, the problem is mainly with yourself. Sometimes, we don't understand why people buy ultra-cheap products on Pinduoduo, just as you don't understand why people buy such expensive tea. Many people think Pinduoduo is for cheating the poor, and Little Can Tea is for collecting IQ tax. Essentially, it's the same as you liking to buy MUJI. This is not the point. The point is, I believe what Little Can Tea truly wants to do is become the leading tea brand and define and lead its industrialization standards. With Little Can Tea's ignition, the upgrade and transformation of the tea industry has begun. This is an irreversible trend. In the future, more Little Can Teas will be born, and Little Can Tea is just one path. This is also what many industries should do as China's economy develops to this point. Little Can Tea's greatest value to the tea industry is that it has achieved branding at the market end, industrialization at the processing end, and ecologicalization at the upstream end, driving the entire industry's upgrade. This is not just making tea; it's building the tea industry. If you only interpret it from the perspective of marketing copy, I think you are underestimating Little Can Tea. The core of Little Can Tea's success lies in the reconstruction of its underlying industrial architecture. Marketing is just superficial tricks. Truly smart people will not and should not be blinded by such things, nor should they fall into emotional criticism. Of course, this storm also tells us: for Chinese enterprises to continue, they must be more stable and cannot rely excessively on advertising. New Distribution will hold the 2019 (5th) FMCG + Internet Conference during the Chengdu Spring Sugar and Wine Fair from March 16 to March 18. This conference will focus on the topic of "Breaking the Game" , engaging in in-depth discussions with many brand owners, supply chain service providers, distributors, and retailers. Compared to previous conferences, this summit will be fully upgraded. In addition to the original topics like channel innovation, city distribution logistics, and distributor transformation , it will add multiple parallel forums on new marketing cases, IP + FMCG empowerment, community group buying, and innovative retail . Through three days of ten high-density, high-quality expert sharing sessions, we believe every brand owner and distributor can learn the latest business models, expert insights, and practical methods, finding new tools and methods to break the game in 2019 and return to a high-growth track. -END-