Chapter 4: Russian on-line shops case-studies
4.1 RealChinaTea
http://www.realchinatea.ru/
It’s an on-line shop selling tea from China. The only relatively big well-organized on-line shop in the Russian e-commerce market. The strong side of this RealChinaTea project, compared to other players in the market, - decent web design and logical and user friendly structure, even though it’s UX could be improved as well as the quality of the information provided to the customers in Russian.
How the RealChinaTea project was launched.
On-line shop Real China Tea was established in 2010. Before launching the on-line shop it's owner Grigori Potemkin was managing his blog on the Chinese tea. “The blog became popular
telling stories about it. I was writing great amount of content, was taking photos and making videos. Wrote articles and made video materials from different regions and provinces of China, was describing tastes, smells and production technologies…
"
12.
Grigori describes his starting experience as being incredibly interested in the topic he covered in his blog and as a result people started to ask him to send authentic Chinese tea to them. Later he integrated his blog into newly launched on-line shop and started selling tea to the Russian market.To create the website and acquire the produce for the on-line shop Grigori spent around $1000 as a start-up capital. According to the company’s materials, provided online, the main reason for success of the endeavour became the decision to buy tea from the farmers, not from the distributors. According to the entrepreneur this model reduces the procurement price threefold and eliminate the possibility of the shops/dealers using the customer database on their own (stealing the database).
After recording the stable growth in the number of buyers he decided to manage regular tea delivery from China to Russia. He found contacts of a local lady (Mrs. Lin), who he met at the tea market in China and who was managing a small wholesale and retail company. Grigori and Mrs. Lin together decided on the stock (kinds of tea), cooperation model and package design.
“Everything worked like Swiss watch till the moment I found package with the stickers in Russian, but with the logo of other client from Russia. When I asked how it could have happened, Mrs. Lin answered the tea market was free and she could cooperate with any client she felt like.
12E-pepper (2014, October 14). Re: Realchinatea.ru: the hardest thing for us not to keep the old clients, but to attract new ones. [Online newspaper]. Retrieved from:
http://www.e- pepper.ru/articles/intervyu/grigorij-potemkin-realchinatea-ru-dlya-nas-samoe-slozhnoe-ne-uderzhat-klienta-a-privlech-novogo.html
At the moment the RealChinaTea project was generating $20, 000 revenue each month”, says Grigori Potemkin in the interview to Laowaicast crew (famous Russian podcast about China.13
Customer segment:
Customers are mainly young and middle aged people that can afford the high quality but reasonable priced tea and that are interested in foreign cultures. RealChinaTea customers do have access to internet via PC, mobile phones or Tablets and interest in foreign countries and cultures. Apparently they do enjoy travelling abroad and trying new things, because website also offers tea tourist programs.
Customers are interested in high quality foods and drinks.
Value proposition:
When visiting the RrealChinaTea website, one can get hold of interesting, educational stories/articles about tea and also can order the tea of his/her liking. The website states that the tea company is selling is authentic Chinese tea of the best quality. Website also provides wide variety of green, black and Pu-erh teas.
According to Grigori the know-how approach with the website is it structure, that drastically differs from other on-line shops’ structure. The button “buy” or the “basket”, where visitors are processing their purchase is deeply hidden in the framework of the website, “the homepage and
13Laowaicast (2012, November 12). Re: Gregory Potemkin on Chinese tea. [Online podcast].
Retrievedfrom: http://laowaicast.ru/2012/11/laowaicast-124/
the buy button are at least two clicks away”.14 His approach is more based on the education and entertainment principal, rather then the straightforward business concept.
The basic idea is that only a person, who is really interested in tea will buy a rather expensive tea with a slow delivery. The website has new blog/vlog entries every week and what is more important the content is based on a high quality articles about the region.
In a nutshell there are three main value propositions offered by RealChinaTea. The first one, (also it was the starting business model) – retail on-line shop, that delivers tea from China to Russia via postal service. This retail business model provides about 30% of the company’s overall revenue. The average order accounts for $127 (6,000-7,000 RUB), what is equal to the retail price of 700 grams of tea from the RealChinaTea. Every month the company sells around 150 kg of tea. Their average price for 1 kg of tea is $182 (9,300 RUB). The monthly revenue is around $27,500 (1,400,000RUB).
The second, which has become the main business driver (around 2/3 of revenue), - the wholesale business. Grigori ships big batches of tea to the city Ekaterinburg in Russia in containers. In Ekaterinburg the company outsources warehouse. A wholesale order is the order that exceeds 30 kg. Average cost of such order would be $2,000 (cause wholesale prices are considerably lower, than retail prices). The monthly value of shipment is 500-600 kg of tea. According to Grigori tea wholesale market is not very competitive in Russia, cause it has not been fully formed yet, it’s rather free and still developing.15 The average wholesale price for 1 kg of tea is $66. Monthly the company sales about 550 kg of tea. The monthly revenue is around $36,666 (1,870,000RUB).
14Karpova, Anastasiya (2015, February 2). Re: Tea expansion: how an entrepreneur from Ural conquered Chinese market. [Online newspaper]. Retrievedfrom: http://www.forbes.ru/svoi- biznes/istorii-uspekha/280363-chainaya-ekspansiya-kak-uralskii-biznesmen-pokoryaet-kitaiskii-ry
15Pashyok, Andrey (2013, April 3). Re:. Tea business. [Online newspaper]. Retrievedfrom:
https://mybiz.ru/articles/success_stories/chajnyj-posyltorg/
The third business model, that was created a year after the business had been established is tea tourism. It generates 5% of revenue and is more of a hobby for Grigori. He operates that part of his business himself and does not cooperate with tourist companies. To establish this part of the project he spent around $15,000.
Channels to reach customers:
After moving from Russia to Xiamen Grigori launched his blog about his life in China. Among the first blog posts the most popular ones turned out to be about about tea, therefore Grigori decided to expand his blog to a portal called Realchinatea.ru, where he offered the visitors 15 kinds of Chinese tea. While creating his blog he used the following formula for content writing:
he tried to understand his audience and then created content that was within the interest of the audience. Also he posted the material frequently enough to keep the interest of the readers and analysed which topics created the most feedback. Later he organised his content and transferred to the website Realchinatea.ru.
Customer relationship:
Customers have access to interesting, educational stories/articles about tea and also can order the tea of his/her liking. After deciding what kind of tea one wants, he/she can order it.
Purchasing It’s a very important part of the business, that should be operated really smoothly.
After the company gets information about payment the delivery process starts. After two working days the client gets e-mail with notification that the order has been formed. The e-mail includes: specifications of the order, shipping list and the instruction on how to track the order.
Tea is packed into a standard 50 gram packs. If the order exceeds $84 (5,000 RUB) the delivery is free. If the order is under that amount of money, the customer should pay for the delivery.
Customers can track the goods to be delivered on-line. After the customer decided on what he/she wants to purchase the website gives four payment options:
1. Visa card
2. QIWI wallet (Russian popular e-wallet) 3. PayPal
4. Cash payment through a bank
For the retail business RealChinaTea ships orders directly from China (does not operate warehouse in Russia), because, according Grigori, customers prefer to receive tea that has been authentically packaged in china. According to him it creates a certain sentiment that makes the tea buying experience precious.
In order to make a wholesale purchase, one can contact the wholesale manager via phone and agree on the transaction. The website does not offer the wholesale price list, cause those prices are way lower than retail prices.
And of course for the tea tourism, Grigori accepts requests online and forms a group that goes to China to explore local tea farming.
Revenue streams:
The retail business model provides about 30% of the company’s overall revenue. The average order accounts for $127 (6,000-7,000 RUB), what is equal to the retail price of 700 grams of tea from the RealChinaTea. Every month the company sells around 150 kg of tea. Their average price for 1 kg of tea is $182 (9,300 RUB). The monthly revenue is around $27,500 (1,400,000RUB).
The wholesale is the main business driver (around 2/3 of revenue), - the wholesale business.
Grigori ships big batches of tea to the city Ekaterinburg in Russia in containers. In Ekaterinburg
the company outsources warehouse. A wholesale order is the order that exceeds 30 kg. Average cost of such order would be $2,000 (cause wholesale prices are considerably lower, than retail prices). The monthly value of shipment is 500-600 kg of tea. According to Grigori tea wholesale market is not very competitive in Russia, cause it has not been fully formed yet, it’s rather free and still developing.16 The average wholesale price for 1 kg of tea is $66. Monthly the company sales about 550 kg of tea. The monthly revenue is around $36,666 (1,870,000RUB).
Tea tourism generates 5% of revenue and is more of a hobby for Grigori. He operates that part of his business himself and does not cooperate with tourist companies. To establish this part of the project he spent around $15,000.
Key recourses:
Physical resources: tea leaves that is being bought from Chinese farmers directly. Also packaging machines and warehouse.
Human resources: Six employees: CEO Grigori Potemkin, Wholesale manager, Retail manager, Financial director and Manager responsible for logistics and Chinese language part of the business.
Key activities:
Retail, wholesale and tea tourism
Key partners:
Chinese tea farmers are the main key partners for the business. It’s cheaper to purchase tea from the farmers, then from resellers.
16Pashyok, Andrey (2013, April 3). Re:. Tea business. [Online newspaper]. Retrievedfrom:
Chinese delivery services, Chinese mail, tour guides.
For the wholesale business the company outsources a warehouse in Ekaterinburg (fourth-largest city in Russia and the administrative centre of Sverdlovsk Oblast, located in the middle of the Eurasian continent, on the border of Europe and Asia).
Cost structure:
According to Grigori’s experience, that he shared in one of the interviews to a Russian internet business portal Forbes.ru, he spent around $1000 to set up a website and purchase initial inventory. Then he adds that the first clients where the readers of his blog about China.17
For the wholesale business the company outsources a warehouse in Ekaterinburg (fourth-largest city in Russia and the administrative centre of Sverdlovsk Oblast, located in the middle of the Eurasian continent, on the border of Europe and Asia).
Interesting facts about the RealChinaTea project.
The project is being operated from China, and it’s not officially registered, cause in China it’s legal not to register small business. Grigori did not disclose any information about taxes, apparently taxes were being paid as natural entity, which immensely simplifies the process.
For the retail business RealChinaTea ships orders directly from China (does not operate warehouse in Russia), because, according Grigori, customers prefer to receive tea that has been authentically packaged in china. According to him it creates a certain sentiment that makes the tea buying experience precious. Of course in that case they have to rely on the postal service in China, which apparently operates rather efficiently.
17Karpova, Anastasiya (2015, February 2). Re: Tea expansion: how an entrepreneur from Ural conquered Chinese market. [Online newspaper]. Retrievedfrom: http://www.forbes.ru/svoi- biznes/istorii-uspekha/280363-chainaya-ekspansiya-kak-uralskii-biznesmen-pokoryaet-kitaiskii-ry
Grigori summarises that in the course of five years he and his team has managed to create a highly efficient business, that attracts enough clients to be profitable. They also have created a group of loyal clients that are always glad to buy tea from them.18
4.2 Torrefacto
http://www.torrefacto.ru/
The shop is selling coffee to the Russian market. They have very good up-to-date website design, very well organized and UX friendly. Also the strong side of the website - a very interesting unique and clear system of grading different kinds of coffee and degrees of roasting for coffee beans. It’s a great system to organise your product and let customers learn about classification within the product. It helps customer to actually understand what they want and get engaged with the product. This approach also create return purchases.
How the Torrefacto project was launched
The project Torrefacto was started in Moscow in 2011. Before starting the website, it’s owners posted ads on a coffee forum. The uniqueness of the business is that the company provides roasting service to it’s customers. Name of the project actually was chosen because it’s a term, that only coffee lovers are acquainted with. Torrefacto refers to a particular process of roasting coffee beans, common in Spain, France, Portugal, Mexico, Costa Rica, Uruguay and Argentina. The process involves adding a certain amount of sugar during roasting in order to glaze the beans. The glazed beans are then mixed with normal roasted beans. While originally a cheap way of preserving the coffee beans in the 1920s, a suggested reason for continued use of the technique has been maintenance of the aroma and taste of the coffee.
18Pashyok, Andrey (2013, April 3). Re:. Tea business. [Online newspaper]. Retrievedfrom:
The project founders spent around $10,000 (300,000 RUB) to purchase produce, the packaging and to set up a website with the payment system. It took the founders another three months to optimise the prices and work out the schedule of bean roasting. The owners of the business came up with an innovative approach: they first collected orders and only after that would roast coffee beans.
Ilya Savinov was one of the founders of Torrefacto. At the moment he was Director of Business Development at SFT Trading (one of the largest green coffee bean traders in Russia). He had knowledge about countries growing and producing coffee beans as well as was acquainted with the roasting technology. Besides, he turned out to be a tough leader capable of rallying a team and organizing intensive and efficient work. He provided a rapid development to the business.
The second member of the founding team was Alexey Hermann, deputy general director for PR and marketing agency Global Works. He developed the company's web site and ensured its effective promotion and, including in social networks.
The third founder of the Torrefacto became Sergei Tabera, a professional coffee roaster. At the moment he owned a business, that rented out and maintained coffee grinding and roasting machines.
The core business team of the company consists of 6 people. The three founders hired three more employees and outsourced their accounting and logistic services.
Customer segment:
The project Torrefacto was started in Moscow in 2011. Before starting the website, it’s owners posted ads on a coffee forum. The uniqueness of the business is that the company provides roasting service to it’s customers. Name of the project actually was chosen because it’s a term, that only coffee lovers are acquainted with. Torrefacto refers to a particular process
of roasting coffee beans, common in Spain, France, Portugal, Mexico, Costa Rica, Uruguay and Argentina. The process involves adding a certain amount of sugar during roasting in order to glaze the beans. The glazed beans are then mixed with normal roasted beans.
Customers that are interested in high quality foods and drinks.
Value proposition:
The uniqueness of the business is that the company provides roasting and grinding service to it’s customers. The Torrefacto business model let the company deliver to the customers the freshly roasted coffee beans in Moscow.
At the time company was established there were no other distributors of high quality, freshly ground and roasted coffee beans in Moscow at reasonable prices. There were only distributors that would provide roasted coffee in bulk to coffee shops, and it was not freshly roasted.
Moreover, according to the Torrefactor founder Ilya, the roasting technology that was used by the distributors was right, they would roast coffee first and only after that would start looking for clients to buy it.
The Torrefacto they found the best solution: collecting orders first and only after that roasting coffee beans. From the experience they found out that the best time for roasting is end of the week.
As a result the company got clients from Moscow to Vladivostok (from the most western to the most eastern part of Russia).19
When a customer goes to the company’s website he/she can order one or several kinds of coffee (out of 30-40 kinds, offered at the Torrefacto website), order grinding (from the fine to coarse),
19Savinov, Ilya (2014, July 7). Re: Torrefact.ru. [Online journal]. Retrievedfrom:
http://www.moedelo.org/journal/torrefacto/
indicate the weight of package (150 – 450 gr), also can choose the way of payment and delivery.
Each type of coffee beans has got detailed description, the website provides the following information about it: the country where coffee was grown, variety of taste and ways this particular type of coffee can be brewed.
As long as the main purpose of the website to deliver the clients the freshest coffee, they company roasts beans by order, and never stores roasted beans at the factory’s warehouse. As a matter of fact, the company does not have any warehouse. Company rents a small section in a carpet factory in Moscow where every week Russian coffee supplier delivers around 1 metric tonne of green beans every week. At the moment Torrefacto can process 350-400 orders every week, and every Friday roasts 700-800 kg of green beans.
Channels to reach customers:
The project Torrefacto was started in Moscow in 2011. Before starting the website, it’s owners posted ads on a coffee forum. The project used a specialised forum user base to attract customers to the company's website and to kick start the business. The forum's name is Prokofe.ru, it’s users are devoted coffee lovers20. In other words the company wisely used existing specialised platform to create it’s client base. The founders of Torrefacto decided to start their business from reaching people who were interested in a good quality coffee. Now-a-days the project has got a good, clear, UX friendly website, that provides educational and full information about coffee beans.
Name of the project (Torrefacto) actually was chosen because it’s a term, that only coffee lovers are acquainted with. Torrefacto refers to a particular process of roasting coffee beans, common in Spain, France, Portugal, Mexico, Costa Rica, Uruguay and Argentina. The process involves
20 http://prokofe.ru/