Tea is one of the most popular beverages in the world, and the tea industry continues to grow at a steady pace. With rising demand for specialty and premium teas, starting a tea business can be an exciting and potentially lucrative entrepreneurial venture.
However, like any new business, there are many factors to consider before taking the plunge. This guide will walk you through the process of starting your own tea business, providing an overview of the business, steps to get started, and answers to common questions.
Business Overview
Tea has been around for thousands of years and owes its beginnings to the tea plant Camellia Sinensis. Millions of people steep the dried leaves of the tea plant in boiled water to enjoy this popular beverage.
A tea business can come in various forms – maybe you’re thinking of opening a cozy tea shop, launching a wholesale tea brand, or creating a digital store to sell unique blends. Whatever your dream, each path has its own set of challenges and opportunities.
There are several ways to get started in the tea business, from creating creative tea blends and selling them in a retail tea shop or tea room, selling a private label (meaning you sell someone else’s product with your branding), dropshipping a wide variety of existing products from wholesalers, ready-to-drink beverage, or manufacturing custom varieties of teas, tea bag, and/or loose leaf tea products.
No matter what type of tea business you start, you need more than just technical skills and knowledge of teas. Important business capabilities like marketing, operations, finance, and strategic planning are critical for success. Our guide provides a comprehensive overview to set you up for success.
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Industry Summary
Tea is a big deal, both globally and in the U.S. In 2023, the US tea industry is expected to generate approximately $1.2 billion in annual retail sales. It’s a market that continues to grow as more people discover the joys and health benefits of this ancient beverage. The tea production industry includes growers, manufacturers, wholesalers, and retailers of tea and tea products. Major types of tea include black, green, oolong, and white tea. Herbal teas made from leaves, fruits, and herbs are also popular.
Specialty tea sales are the fastest-growing segment, followed by ready-to-drink tea. Most tea is imported, with China, India, Sri Lanka, and Kenya being top suppliers. Large tea companies include Celestial Seasonings, Lipton, Bigelow, and Twinings.
Tea drinkers today are interested in more than just a standard cup of Earl Grey. The demand for organic, sustainably sourced, and unique blends is on the rise. Wellness teas, like those containing herbs or infusions known for health benefits, are gaining traction. Another trend to note is the growth in online tea sales. More people are comfortable buying tea online, which provides an opportunity for businesses that might not have the resources to start a physical storefront right away.
Steps To Start A Tea Business
Step 1: Research the Market
The decision to start a tea business shouldn’t be taken lightly. While the aroma of success can be alluring, the path to making that dream a reality involves many steps. One key component often overlooked is market research. It can be the difference between a thriving business and one that quickly fades away. So, is starting a new tea business a good idea? Let’s explore how market research can answer that question for you.
To begin, take a close look at the tea industry’s landscape. This means diving into industry reports, statistics, and studies. These resources offer a wealth of information on market size, sales volumes, leading companies, and trends. They can also give you insights into the types of tea that are selling well and how people prefer to buy them, whether online or in a physical store.
Once you understand the broader market, it’s time to zoom in on your would-be competitors. Are there many tea shops or businesses in your area? What are they offering, and at what price points? Understanding the competition helps you find your unique selling proposition and what could make your business different and better. It’s not enough to simply match what others are doing; you need to offer something distinct that will make customers choose your tea over others.
Data is great, but it’s not the whole story. To add color and depth to your market research, consider talking to industry insiders like tea wholesalers, distributors, or specialists. They can provide valuable insights into current trends, opportunities, and challenges. These conversations can also offer practical advice on product sourcing and distribution channels that you may not find in published reports.
After all this work, you’ll have a clearer picture of the market’s demand, competitive landscape, and emerging trends. You’ll also have a sense of what products and services would resonate with potential customers and what could set you apart from competitors. With these insights, you can assess the financial feasibility of your business concept. If the indicators are positive and you believe you can offer something truly unique, then starting a tea business might indeed be a good idea.
Step 2: Write a Business Plan
You’ve got a passion for tea, and the market research looks promising. The next step that requires your attention is to write a business plan. Far from being a formality or a tedious exercise, a business plan can serve as a reality check.
A business plan forces you to put your business concept under a microscope. You’ll describe your target market and outline your marketing and operational plans in black and white. The business plan will also have you project income and expenses to estimate the economic viability of your business idea. You’ll estimate costs like rent, utilities, raw materials, and labor, and balance them against projected sales. Crunching these numbers gives you an invaluable insight: the break-even point. Knowing when your business becomes profitable helps you decide whether your venture is feasible or needs recalibration.
Think about it: isn’t it better to know in the planning stage whether your business idea holds water? Imagine pouring your heart, time, and resources into a venture only to find out too late that the numbers don’t add up. A business plan helps you sidestep this painful scenario, offering a financial preview of what’s likely to come.
Related: How to write a business plan
Step 3: Secure Funding
After assessing the market and creating a business plan, your next hurdle is securing the funding to get everything off the ground. Finding the funding can be challenging to start a business, so let’s look at the most common sources for a tea business.
Personal savings: Before exploring outside funding options, assess your personal savings. However, if personal savings aren’t enough to cover startup costs, you’ll need to consider other funding sources.
Bank financing: Banks are a traditional source of small business funding. They offer various loan products, and your personal investment, credit score, and collateral are key factors in their decision-making process. If a bank considers your loan request too risky, they might propose an SBA (Small Business Administration) loan guarantee, which can provide the bank with some level of assurance by backing a portion of the loan amount.
Friends and family: Friends and family members who believe in your vision can also be a potential source of funding. It’s important to treat any loans or investments from friends and family as formal business transactions. That means putting agreements in writing to avoid misunderstandings and protect relationships.
Microloans: These are small loans designed for startups and small businesses. Some microloan programs even offer business training alongside the funding, which can be a valuable bonus.
Angel investors: Angel investors are individuals who provide capital for startups in exchange for ownership equity. They often fund businesses with high growth potential or unique, innovative ideas. For a tea business, this might mean having a novel product or a fresh approach to the market. Keep in mind that accepting angel investment means giving up a portion of your business ownership.
Related: Finding the money to start a business
Step 4: Register the Business
Starting a business involves a lot more than just a passion for tea. There are formal steps to take and papers to file. It might seem overwhelming, but taking it step-by-step makes it manageable. Each state has its unique requirements, but we will go over the general requirements.
Selecting your business structure: The first big decision is the type of business structure that suits your tea business. The options are sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).
- Sole proprietorship: This is often the simplest and most cost-effective way to start a business. It’s just you running the show. While it’s easy to set up, understand that you are personally responsible for all business debts and liabilities.
- General partnership: If you’re going into business with someone else, a general partnership is an option. Similar to the sole proprietorship, each partner shares the profits, losses, and responsibilities.
- Corporation: This is a more complex structure involving shareholders, directors, and officers. It’s a separate entity from you, providing liability protection, but it’s also more expensive to set up and requires following certain corporate formalities.
- Limited Liability Company (LLC): This offers the liability protection advantages of a corporation while maintaining the operational simplicity closer to a sole proprietorship or partnership.
The most common structure for small businesses like a tea shop tends to be either a sole proprietorship or an LLC. These are easier to set up and offer enough flexibility for a small business.
Related: Comparison of business structures
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Related: Finding a domain name for your business
Obtain business licenses and permits: The next step is to obtain necessary business licenses and permits. These vary by state, county, and city, so check with your local government offices. Typically, you’ll need a general business license, seller’s permit, and Employer Identification Number (EIN) to operate.
Specifically for a tea business, if you are manufacturing tea, you will need licensing and approval from your local Health Department. You’ll also need to ensure compliance with the Food and Drug Administration (FDA) packaging and labeling criteria.
Related: State guides for general business licensing
Step 5: Set Up Operations
Setting up operations is the nuts and bolts phase where your business idea transforms into a tangible shop or company. A few of the key areas in the phase include choosing a location, purchasing equipment, and sourcing suppliers.
Location
If you’re planning a physical store, picking the right location is a big deal, so even though it is more expensive, consider places with lots of foot traffic. Maybe it’s near a busy office complex or a shopping district. Make sure there’s ample parking and enough room for seating, inventory, and all the machinery you’ll need. Don’t forget to check that the area is zoned for your kind of business. Some places might be restricted to residential or other non-retail activities. You don’t want to sign a lease only to find out you can’t operate a tea shop there.
Equipment
Depending on your business model, you’ll need various types of equipment to store, brew, and package your teas. This could include kettles for brewing, infusers, and filters for making individual servings, and packaging machinery for sealing and labeling your products if you decide to handle packaging in-house. Be sure to invest in high-quality equipment that can withstand heavy use and help maintain the quality of your tea.
Suppliers
The next consideration is setting up accounts with suppliers.
The quality of your tea and other ingredients will significantly impact your product’s taste and, consequently, your brand’s reputation. Establish relationships with reputable tea suppliers and ingredient providers. It’s crucial to ensure they adhere to high-quality standards to ensure consistency in your products.
Negotiate terms with your suppliers, including price, delivery schedules, and payment terms. Having a clear agreement can help prevent misunderstandings and ensure a steady supply of ingredients.
When it comes to packaging, look for suppliers who provide high-quality materials that align with your brand image. You’ll need to decide whether you will package the tea yourself or use a co-packer. Co-packers handle the packaging process for you, which can save time but may increase costs.
Step 6: Hire Staff
As you start your tea business, you may need to hire employees to help manage various aspects of the operation. Common types of employees for a tea business can include tea makers/brewers, cashiers, and inventory managers. Depending on the scale of your business, you might also need managers or supervisors.
Before you begin hiring, there are several legal requirements you’ll need to fulfill as an employer:
- Obtaining an EIN: An Employer Identification Number (EIN) is a unique nine-digit number assigned by the IRS. It’s used for tax reporting purposes and is required for businesses that will have employees.
- Employment eligibility: Before hiring, you need to verify the employment eligibility of your potential employees. This typically involves completing the I-9 form and verifying the employee’s identity and employment authorization documents.
- State reporting: Each state has different requirements for reporting new hires. Typically, this involves providing information about each new employee to a designated state agency.
- Worker’s compensation: Most states require businesses with employees to carry workers’ compensation insurance. This insurance covers medical costs and lost wages if an employee gets injured or sick due to workplace conditions.
- Labor laws: As an employer, you need to understand and comply with various labor laws. These laws cover areas like minimum wage, overtime, workplace safety, and anti-discrimination provisions.
Understanding these requirements and ensuring compliance is a crucial part of becoming an employer. It helps protect your business legally and provides a safe and fair working environment for your employees.
Related: State guides for hiring your first employee
Step 7: Prepare to Launch!
After laying the groundwork for your tea business, there are several key steps to finalize before you can open your doors to customers. Each business has unique needs, but these are some common areas to focus on:
Business insurance: Protecting your investment with the right insurance is important. This includes property insurance for your physical location, liability insurance in case a customer gets injured in your shop, and product liability insurance if your tea causes harm.
Setting up bookkeeping: Implementing a bookkeeping system is critical for tracking income, expenses, and overall financial health. You may choose to do this yourself using software like Wave Accounting (FREE) or Quickbooks, or hire a professional accountant.
Opening a business business account: A separate bank account for your business helps keep your personal and business finances distinct, simplifying tax time.
Creating a marketing strategy: Develop a comprehensive marketing plan to attract customers. This includes creating a distinctive logo, setting up a professional website, leveraging social media, and engaging in local community events.
Joining Industry Associations: Consider joining associations like the Specialty Tea Institute or the Tea Association of the USA. These organizations offer networking opportunities, industry insights, and professional development resources.
Common Questions When Starting A Tea Business
How much does it cost to start a tea business?
The total costs to start a tea business can vary widely, from $10,000 for a small online operation to over $100,000 for a well-equipped brick-and-mortar store in a prime location.
Business registration: Registering your business, including food safety certification, can cost anywhere from $100 to $1,000, depending on your state and the type of business structure you choose.
Location: The initial deposit for renting a retail space will usually be the first month’s rent plus a security deposit. This can range from $2,000 to $10,000, depending on the area and size of the space. In addition, any remodeling costs will increase costs.
Suppliers: Initial orders for tea leaves, ingredients, and packaging materials might set you back between $1,000 to $5,000. This range varies based on the quality and type of tea you plan to sell.
Equipment: Expect to invest $3,000 to $10,000 in essential equipment like kettles, infusers, and packaging machinery.
Business insurance: The initial premium for general liability insurance could be around $500 to $1,000.
Marketing: Your initial marketing outlay, which could include website development, branding, and advertising, might be in the neighborhood of $1,000 to $5,000.
Employee wages: If you plan to hire staff right away, budget at least $1,500 to $4,000 for initial salaries until revenue starts coming in.
Initial inventory: Your first stock of tea and related products could range between $2,000 to $25,000, depending on your business model and variety of offerings.
How profitable is a tea business?
The profitability of a tea business can vary greatly depending on the size and type of operation. However, we can estimate potential earnings using some industry benchmarks. For example, a modest 800 square foot tea shop bringing in around $300,000 in annual revenue could generate a net profit of $60,000 for the owner.
The revenue estimate of $300,000 is based on an average of 200 transactions per day at an average ticket size of $5, over 300 open days per year. This equates to 60,000 total transactions annually. Expenses to run this tea shop would be around $240,000 per year, including $100,000 for raw materials and inventory, $60,000 in staff wages, $40,000 in occupancy costs like rent and utilities, and $40,000 for marketing, insurance, supplies, and other operating expenses.
With $300,000 in revenue and $240,000 in expenses, this hypothetical tea shop would produce an annual pre-tax profit of $60,000 for the owner. This net profit margin of 20% of revenue is quite healthy for this industry. Of course, actual profitability comes down to factors like location, competition, operating efficiency, and pricing power. But with realistic estimates of revenue and costs, tea shops and specialty tea sellers can generate solid earnings.
What skills are helpful in running a tea business?
Running a tea business requires a diverse set of skills to ensure success. Here are some of the skills that can be helpful:
Passion for tea: A deep interest in and understanding of different types of tea, brewing methods, and the culture surrounding tea is essential. This passion can help you connect with your customers and provide them with a unique tea experience.
Business acumen: Understanding the basics of running a business, including financial management, strategic planning, and operations, is crucial.
Customer service skills: Good customer service is key to any successful business. Being able to interact with customers, understand their needs, and provide excellent service can make a big difference in your business’s success.
Marketing skills: Knowing how to effectively market your business, from social media promotion to in-store displays, is important in attracting and retaining customers.
Networking skills: Building relationships with suppliers and other business owners can provide valuable opportunities for learning and growth.
Knowledge of tea industry trends: Keeping up-to-date with the latest trends and innovations in the tea industry can help you stay competitive and meet customer expectations.
Inventory management skills: Managing your inventory effectively can help prevent waste, reduce costs, and ensure that your customers always have access to their favorite teas.
Leadership skills: If you have employees, strong leadership skills will be necessary. You’ll need to motivate and manage your team effectively to run your business smoothly.
What is the NAICS code for a tea business?
The NAICS code for a tea business is 311920, which also includes coffee roasting.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
