Dropshipping in the Tea Industry

Wikipedia: Drop shipping
Last Updated: Aug. 3, 2017
A shipping warehouse, Photo used under Pixabay license.
Dropshipping, sometimes written drop-shipping or drop shipping, is a business practice in which a seller initiates the shipment of goods directly from a manufacturer or wholesaler to the customer. In doing so, the retailer avoids stocking and shipping inventory. As a business practice, dropshipping has its pros and cons, both for the company and the customer.

However, dropshipping of tea itself tends to be frowned upon because it usually takes the form of a retailer acting as a sales agent for a company that itself sells tea retail, usually at lower prices.

Here we explain how the benefits of dropshipping are primarily short-term, and as a business model in the tea industry, dropshipping tends to limit the growth of a company and lead to a poor experience for the customer. All of the biggest and most successful tea companies, as well as the most successful small companies, carry their own inventory. Dropshipping as a business model for selling tea, is on its way out for the world of tea, although it remains useful for retailers in other niches, and for tea companies selling isolated items that are bulkier and more expensive than the tea itself.

Pros and cons for the retailer

Dropshipping often makes the most sense for large, heavy, and expensive items that are only ordered occasionally, such as an electric teakettle. Photo © Your Best Digs, CC BY 2.0.

Advantages

By avoiding handling any goods, a seller is able to avoid expending the effort and resources associated with sourcing, stocking, and shipping inventory. This makes it very easy to start and operate a business. Essentially all that is needed is the time to create and manage a website and staff any phone-based ordering system (if the company has it at all), establish the relationship with a wholesaler, select a catalogue of teas, and the business can launch with minimal cost.

The benefits of dropshipping are often greater for large, bulky items, items with a high price tag, and items that are infrequently ordered. As tea is relatively small and lightweight, and ideally ordered regularly, the benefits are minimal for the tea itself, but can be greater for supplemental items, such as high-end electric tea kettles, that might not easily fit into a tea company's standard shipping practices. It makes sense to ship such items separately,

Disadvantages

One downside of this setup is a loss of control over sourcing, stocking, and shipping. When relying on a dropshipper, the business relies on supplier to resolve problems and complaints with shipping, and must act as an intermediary between customer and wholesaler. In addition, the business is fully at the mercy of their supplier in terms of choices and potential changes in their catalogue, stock, prices, and the quality of their products.

Many companies, like teakruthi, pictured here, have their brand name and logo, and website printed on their packaging. This custom branding of packaging is less commonly available from wholesalers. Photo of Teakruthi Box / Packaging by Alex Zorach, © Alex Zorach, CC BY-SA 4.0
Branding can sometimes be more of a challenge, depending on what options for packaging the wholesaler provides. The lack of control over these factors also means that the business cannot benefit from economy of scale or become more efficient as their sales volume grows; their cost of shipping is typically flat, and for large businesses will be much higher than if they had their own inventory.

Because customers tend to group together multiple teas in one shipment, a tea company relying on a dropshipping model typically must choose a single supplier. They do not have the option (and advantages that come with it) of sourcing teas from multiple companies, and direct sourcing, something attractive to customers, is typically out of the question. Contrast this with companies that carry their own stock; these companies can use multiple wholesalers and can also combine wholesalers with direct sourcing from tea estates. Relying on a single supplier also presents the problem that if a company wants to change suppliers, they must change every tea in their catalogue. This is likely to upset or alienate customers, if suddenly the flavor and quality of all blends change at once.

Companies based on a dropshipping model also are limited in the degree to which they can sell their own custom blends. Some wholesalers do automate the blending process and sell custom blends made on demand, but not all wholesalers offer this feature, and there is never any potential for including unique or local ingredients.

Lastly, the low barrier to entry for dropshippers can itself be a downside; it means any business built on a dropshipping model will be competing against countless other similar businesses. This high level of competition drives down profit margins for anyone who doesn't have an exceptional or outstanding approach to sales and marketing.

Pros and cons for the wholesaler

Advantages

Wholesalers benefit from dropshipping clients by expanding their sales. Because the difficulties of changing dropshipping suppliers are greater than those faced by of a tea company that stocks and ships their own products, wholesalers can also expect dropshipping clients to be more loyal.

Disadvantages

Because the dropshipping model is weaker and less flexible overall, businesses based on this model are less likely to ever break into the top tier of tea companies both in terms of sales volume and national reputation. This limits the potential for growth in sales from a particular client, and increases the likelihood that that client's sales will drop off or go out of business.

In order to accept dropshipping clients, a wholesaler typically needs to build additional systems and procedures, including an ability to handle customer service complaints arriving from clients, and the capacity to rebrand the products they are shipping, hiding all evidence or mention of their own company. This additional infrastructure can be costly, and is not necessarily worth the investment for all wholesalers.

Lastly, the wholesaler has the advantage that whenever they dropship a private label product on behalf of a client, they are not benefiting directly from building their own brand. A wholesaler with a thriving array of dropshipping clients will be earning a lot of money, but the customers of those different clients will typically see a bunch of unrelated brands. This can keep the wholesaler from making it big on the national stage, hindering their long-term growth prospects.
Public Domain Photo.

Pros and cons for customers

Dropshipping is a business model that primarily benefits the retailer and wholesalers engaged in the arrangement. The customer typically does not benefit. A customer buying from a retailer that sells through dropshipping typically is buying a product that could be obtained from another company for cheaper, so they are getting an inferior product.

The entire setup is also likely not very transparent to the customer.

In some rare cases, the customer may be getting some unique extra value from the purchase, such as a website that is organized in a way more intuitive to them, or customs blend not available elsewhere, but these are the exception, not the norm. The customer may also have a tough time resolving concerns or complaints when anything goes wrong with their order.

References and Further Reading


1. Rob Snell, The Pros and Cons of Drop Shipping, Practical Ecommerce, originally published on Web Marketing Today, Feb 21, 2012.


2. George Rodriguez, Advantages and Disadvantages of Drop Shipping, PowerHomeBiz.com, Mar 19, 2016.


3. Richard Lazazzera, Make, Manufacture, Wholesale or Dropship: The Pros and Cons of Each Model, Shopify Blogs, Retrieved Jul 24, 2017.



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