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(1)Taiwanese Tea On-line Shop Chaguan in Russia. 國立政治大學科技管理與智慧財研究所碩士論文. 指導教授：溫肇東博士. E-commerce: Taiwanese tea on-line shop Chaguan in Russia. 研究生： Lukasheva Nataliya 中華民國一零六年一月 i.

(2) Taiwanese Tea On-line Shop Chaguan in Russia. Acknowledgments. I would like to thank Dr. Chao-Tung Wen, professor of Graduate Institute of Technology, Innovation and Intellectual Property Management for his encouragement, guidance and support. Thanks to all professors of Graduate Institute of Technology, Innovation and Intellectual Property Management for giving me a wider vision of business, innovation, technology, and life in general.. Thanks to all my friends and classmates, especially Penny and Blanka, for their inspiration, support and valuable suggestions. Special thanks to my dearest friend Elena for her greatest support and objective critical thinking, without this research could not been actualized. I am also thankful to my friends – Chinwei, Lenah, Talia, Erez and Lidia for being there for me every time I needed.. Most of all, I am thankful to my Mom and Dad, my Family for all the encouragement and belief in my studies in Taiwan. Without their support and love, this work and my Master education would never become possible.. Finally, I would like to dedicate the present research to my Mom and Dad, whose life and love for their children inspired all my accomplishments and beginning.. ii.

(3) Taiwanese Tea On-line Shop Chaguan in Russia. Abstract. E-commerce is a business that is on the rise today and the internet’s vast potential has made it easier for organizations to reach out to a larger pool of the people. Cultural exchange between different, alien, distant cultures makes this kind of business even more exciting and attractive.. The main purpose of this research is to try to understand the nature of Russian e-commerce market, especially in the beverage, tea area. To find the main factors of success and failure in this industry. To find the background and factors of interest and success for a seemingly alien novel product from a foreign distant culture.. The purpose of this research is to understand factors that led two successful players in the tea and coffee e-commerce business in Russia. By identifying their know-hows and basic approaches and techniques it should be easier to build a new more up-to-date project. On the other hand, their mistakes might be a lesson that should not be repeated.. Through the case-study approach author tried to project the possible model of development on the new tea business. The idea behind Chaguan project is to offer unique and new product. Very important part of the value proposition is educational information about tea. Chaguan project will have its website and social networks presence.. Customers will be offered a decent range of tea, from good quality tea to aged expensive tea that can be only purchased through special order. Label special order should make the fact of purchasing more meaningful.. iii.

(4) Taiwanese Tea On-line Shop Chaguan in Russia. Table of Contents Acknowledgments ................................................................................................................. ii Abstract ............................................................................................................................... iii List of Figures ........................................................................................................................ v List of Tables ........................................................................................................................ vi Acronyms ............................................................................................................................ vii Chapter 1: Introduction ......................................................................................................... 1 1.1. Research motivation and background .................................................................................................................... 2 1.2. Research questions ......................................................................................................................................................... 5 1.3. Research flow .................................................................................................................................................................... 6. Chapter 2: E-commerce ......................................................................................................... 7 2.1. Introduction....................................................................................................................................................................... 8 2.2. E-commerce definition, components and fundamentals ................................................................................ 9 2.3. Kinds of E-commerce and principles of work................................................................................................... 14 2.4. Benefits of E-Commerce ............................................................................................................................................ 17 2.5 Summary ........................................................................................................................................................................... 18. Chapter 3: Russian market ................................................................................................... 20 3.1 Internet penetration in Russia ................................................................................................................................. 21 3.2 Internet penetration in Regions .............................................................................................................................. 24 3.3 Russian Е-commerce Industry Introduction (including food and beverage e-commerce) ...................................................................................................................................................................................................... 26 3.5 Tea market in Russia (off-line and on-line market) ........................................................................................ 35 3.6 Summary ........................................................................................................................................................................... 40. Chapter 4: Russian on-line shops case-studies...................................................................... 42 4.1 RealChinaTea .................................................................................................................................................................. 44 4.2 Torrefacto ......................................................................................................................................................................... 52 4.3 Summary ........................................................................................................................................................................... 59. Chapter 5: Taiwanese tea on-line shop model ...................................................................... 62 5.1 What company does ..................................................................................................................................................... 63 5.3 Future development of the project ........................................................................................................................ 75. Chapter 6: Conclusion .......................................................................................................... 77 Scope and Limitations of this Research ................................................................................ 81 References .......................................................................................................................... 82 Appendix............................................................................................................................. 85. iv.

(5) Taiwanese Tea On-line Shop Chaguan in Russia. List of Figures Figure 1.1 Merchant's wife drinking tea by Boris Kustodiev (1923)..............................................3 Figure 2.1 Number of Internet users worldwide .............................................................................8 Figure 2.2 EDI and value added networks ......................................................................................9 Figure 3.1 Internet penetration in Russia (16 years old and older), 2008-2015............................21 Figure 3.2 International comparison: Internet user engagement across Europe ...........................22 Figure 3.3 Mobile Internet penetration in Russia, 2013-2015 ......................................................23 Figure 3.4 Types of internet use by age in 2015 ...........................................................................24 Figure 3.5 Internet penetration in Regions of Russia....................................................................25 Figure 3.6 Internet penetration according to the city size .............................................................26 Figure 3.7 Russian e-commerce market growth forecast ..............................................................28 Figure 3.8 Online payment methods in Russia, ............................................................................31 Figure 3.9 B2C e-commerce sales in Russia from 2011 to 2016 ..................................................33 Figure 3.10 Russian e-commerce by shares ..................................................................................34 Figure 3.11 Tea import dynamics in Russia from 2001 to 2015 (thousand tones) .......................38 Figure 4.1 The Business model canvas .........................................................................................44 Figure 5.1 Use of payment services in Russia ..............................................................................69 Figure 5.2 Use of non-cash payment services in Russia ...............................................................70. v.

(6) Taiwanese Tea On-line Shop Chaguan in Russia. List of Tables Table 3.1 E-commerce market in Russia in numbers ....................................................................27 Table 3.2 Yandex Wordstat data on “Green tea” key words in numbers ......................................40. vi.

(7) Taiwanese Tea On-line Shop Chaguan in Russia. Acronyms Electronic Data Interchange (EDI) Electronic Commerce (E-commerce/EC) Organization for Economic Cooperation and Development (OECD) The International Organization for Standardization (ISO) The United Nations Commission on International Trade Law (UNCITRAL) The International Chamber of Commerce (ICC) PDAs (Personal Digital Assistance) Certification Authority (CA) Business to Business (B2B) Business to Consumer (B2C) Consumer to Consumer (C2C) Consumer to Business (C2B) Research and Development (R&D) Gesellschaft für Konsumforschung (GfK) Public Opinion Foundation (FOM) Brazil, Russia, India and China (BRIC) User Experience Design (UX, UXD, UED or XD) Commonwealth of Independent States (CIS) Content Management System (CMS). vii.

(8) Taiwanese Tea On-line Shop Chaguan in Russia. Chapter 1: Introduction. 1.

(9) Taiwanese Tea On-line Shop Chaguan in Russia This research represents analysis of Russian e-commerce market, to be more specific, its beverage, tea share, its potentials and threats.. 1.1. Research motivation and background It's very difficult to undervalue popularity of e-commerce now a day, especially in such big and developing market as Russian, were consumers are open to new experiments and experiences.. In addition, being a part of Eurasian culture, I've always been interested in the Chinese speaking region. For my bachelor degree is majored in Chinese history, where I learnt about Taiwan for the first time in my life. In my senior years I had a chance to visit the island and to get to know the local culture better. Of course one of the hallmarks of Taiwan was its Wulong Tea.. Tea drinking is important and intrinsic ritual to Russian culture. Traditional Russian ceremony has existed for 300 years. During cold winters and carefree summers Russians would spend time drinking tea and chatting.. Russians have been drinking tea ever since Russia and China established proper trade and diplomatic ties in the mid-17th century. First step of the traditional Russian tea ceremony is to light the firewood and wait for the water in the samovar (sort of a big, traditional kettle) to boil. Once the water is sufficiently hot, the samovar is brought to the table and placed by the teapot. The Russian tea ceremony differs from the Japanese and Chinese in that the brew from the teapot is first placed in the teacups and then diluted with hot water from the samovar.. 2.

(10) Taiwanese Tea On-line Shop Chaguan in Russia. Figure 1.1 Merchant's wife drinking tea by Boris Kustodiev (1923). In the late 1950 Russians switched entirely to staple black tea from India and Sri Lanka. That tea was not as great, but it came in wholesome leaves and was often fresh and non-blended.. The post-perestroika Russia was flooded with bagged teas that promised convenience and vast flavour variety. People quickly got used to low quality convenience. In recent years, thanks to a growing interest in the Oriental culture, high quality green tea has started to gain a solid presence in cafes and households throughout the country. People in Russia are aware of some aspects of Chinese cultures, including tea drinking. It is a sort of exotic ritual of the mysteries East with its own enigmatic philosophy. Many Russians like to romanticize distant alien culture and thus become even more interested in it. Chinese culture has been very popular in Russia lately. 3.

(11) Taiwanese Tea On-line Shop Chaguan in Russia Keeping all that in mind I decided to use this unique chance and connect two cultures together in a tea ceremony, so to speak. Ecommerce turned out to be a very convenient and handy way to do it. As long as business environment in Russian Federation is rather ambiguous and some times even unpredictable, ecommerce seems to be the low risk endeavour.. The World Wide Web’s vast potential has made it easier for entrepreneurs to reach out to a larger number of the people. With the virtual Internet world, there are less barriers, as with the real life markets, especially in Russia. People can just come to the website, buy items and the only responsibility to get the items delivered to the correct destination and on time. Ecommerce business operates on the Internet platform and today one can get far more customers than by running an actual shop. Of course I’ve never run an actual shop in my life, so I’ve judged that compared to running an actual shop, the expenses involved with running an ecommerce business is pretty low. With the virtual store there is no need to rent a place, hire employees and also pay up for any peripheral costs such as electricity, water, etc.. Moreover, last year I had an opportunity to study the basics of graphic design, so I also see the Chaguan project as a chance to apply my newly obtained graphic design skills. It’s an exciting and moving creative process that immensely contributes to the brand identity and the project success. Especially keeping I mind that some preoperational processes and analysis for a business plan and a design project have lots in common, like thinking about the target audience and channels to reach them. That’s how the idea to create Chaguan project came into being. Me and my friends majoring in sinology decided to bring good quality tea to the Russian market, along with creating educational content about the topic. The purpose of the project not just to bring tea to Russia, but to create an. 4.

(12) Taiwanese Tea On-line Shop Chaguan in Russia educational portal, that would promote this important tradition of Taiwanese culture in Russia. To offer Russian consumer unique content from the exotic culture.. 1.2. Research questions . What is the business situation for tea e-commerce in Russia?. . What can be learnt from existing successful on-line tea shops models?. . How to make a tea e-commerce business in Russia unique and successful?. The main purpose of this research is to try to understand the nature of Russian e-commerce market, especially in the beverage, tea area. To find the main factors of success and failure in this industry. To find the background and factors of interest and success for a seemingly alien novel product from a foreign distant culture.. The purpose of this research is to understand factors that led two successful players in the tea and coffee e-commerce business in Russia. By identifying their know-hows and and basic approaches and techniques it should be easier to build a new more up-to-date project. On the other hand, their mistakes might be a lesson, that should not be repeated.. More over, a new, modified and improved model of an on-line tea shop can constitute the uniqueness of new Chaguan project. Internet is a very fast evolving and flexible platform suitable for new experiments. Russian tea market has got great potential and space for different kinds of consumers and businesses. An educational, esthetical appealing and UX friendly platform with a valuable interesting product should really fit and match tastes of curious and educated Russians.. 5.

(13) Taiwanese Tea On-line Shop Chaguan in Russia. 1.3. Research flow This research paper is based on qualitative methodology. The methods include data collection, organisation, and further implementation of business analytical tools to find answers for the research questions.. The thesis is structured as following: The Chapter 2 introduces the basics of e-commerce, it’s brief history, structure and intrinsic classification. It offers Internet statistics and e-commerce history of development, followed by the description of e-commerce principles of work. The chapter 2 also contains overview of the benefits of the e-commerce in the 21st century on global scale and its main revenue models.. The Chapter 3 is dedicated to quick but sufficient overview of Russian e-commerce market, Internet presence and penetration in the country and its regions, description of e-commerce segments and Internet value chain. It ends with the description of Russian off-line and on-line tea market, with it potential and threats.. The Chapter 4 is devoted to a schematic study cases of the two successful on-line beverage shops, in the tea and coffee sectors. These two models could provide experience and insight for Chaguan project development.. The Chapter 5 presents the description of Chaguan project conducted in accordance with the Canvas Model structure. It represents the projects brand identity, uniqueness and general approach.. The Chapter 6 aims to sum up the main points of the previous findings and to provide a brief summary of the research as well as organic limitations.. Each chapter provides a short conclusion with the main findings and lessons in the end. 6.

(14) Taiwanese Tea On-line Shop Chaguan in Russia. Chapter 2: E-commerce. 7.

(15) Taiwanese Tea On-line Shop Chaguan in Russia. 2.1. Introduction The global Internet audience continues to grow rapidly, with the worldwide base of broadband Internet users (including fixed and wireless) in the 3 billion range as of year 2015.. Statistics gives information on the total number of worldwide internet users growing dramatically from 2000 to 2015.. Figure 2.1 Number of Internet users worldwide from http://www.statista.com/statistics/273018/number-of-internet-users-worldwide/ This vast base of high speed Internet users encourages businesses to innovate in order to offer a wider range of online services. Various online sectors are growing rapidly including the sale of entertainment products, event tickets, travel, apparel and consumer electronics. Even groceries have finally moved into the fast lane, as online grocery sales are growing quickly in the U.S. and other countries thanks to a growing list of same-day delivery options. All that falls under the definition of E-commerce.. 8.

(16) Taiwanese Tea On-line Shop Chaguan in Russia E-commerce is usually defined as the purchase and sale of goods and/or services via electronic channels such as the Internet. The technology was first introduced in the 1960s through application of an electronic data interchange (EDI) on value-added networks (VANs).. EDI and Value-Added Networks. Figure 2.2 EDI and value added networks from http://www.web-books.com/eLibrary/NC/B0/B66/127MB66.html. 2.2. E-commerce definition, components and fundamentals There is a wide range of definitions for the term E-commerce, given by the big organizations, governments, multinational corporations that play a leading role in international economic activities.. 9.

(17) Taiwanese Tea On-line Shop Chaguan in Russia Here are the basic definitions given by various international organisations:. The Organization for Economic Cooperation and Development (OECD):. E-commerce is an electronic transaction which is the sale or purchase of goods or services between businesses, households, individuals, governments and other public or private organizations, conducted over computer mediated networks1.. The International Organization for Standardization (IOS):. E-commerce the general term for the exchange of information and requirements between companies, or between companies and their customers.. The United Nations Commission on International Trade Law (UNCITRAL):. E-commerce is a function that adopts Electronic Data Interchange (EDI) and other communication modes to improve international trade.. The International Chamber of Commerce (ICC):. E-commerce is a tool to digitalize all phases of trading activities in the entire trade process.. Summary: In short there are several basic elements that constitute the term E-commerce. That’s how several leading transnational corporations define the e-commerce elements:. IBM: E-commerce = information technology + web + business;. Intel: E-commerce = electronic market + electronic trade + electronic service;. HP: E-commerce is to accomplish commercial business by electronic means. 1. https://stats.oecd.org/glossary/detail.asp?ID=4721. 10.

(18) Taiwanese Tea On-line Shop Chaguan in Russia One can make a conclusion that e-commerce is the process by which people use electronic means to do business or to do other economic activities. It is the process whereby traditional trade is carried out by electronic methods. The electronic methods refer to electronic technologies, tools, equipment and systems, including telephone, telegram, television, facsimile, e-mail, electronic data interchange, computer, the communication network, credit card, electronic money and the Internet etc.2. In other words business nowadays use Internet for four main purposes: Presenting information, Selling products, Distributing digital products and Acquiring goods and services3.. I. Presenting information. Purpose of a Web site for any company is to can tell consumers about itself, its products, and its activities. It can also conveniently inform customers about the status of orders or account balances. For that reason, the information should always be current, complete, and accurate. Customers should be able to find and navigate the site, which should be able to accommodate them during high-use periods.. II. Selling Products. Selling goods over the Internet is very important nowadays, because it enables a business to enlarge its customer base by reaching buyers outside its geographical area. A company selling products online should attract customers to its site, make the buying process simple, assure customers that the site is secure, and provide helpful information.. 2 3. definitions are taken from Zheng Qin, E-Commerce Strategy (2014th Edition): p. 2-4 http://www.web-books.com/eLibrary/NC/B0/B66/127MB66.html. 11.

(19) Taiwanese Tea On-line Shop Chaguan in Russia III. Distributing Digital Products. Some companies use the Internet to sell and deliver digital products, i.e. subscriptions to online news services, software products and upgrades, and music and video products. In this case the speed of delivering the products is crucial.. IV. Acquiring Goods and Services. Online shopping saves time, speeds up delivery, reduces administrative costs, and fosters better communications between a company and its suppliers. Most importantly, it cuts the costs of purchased products because it’s now feasible for buyers to request competitive bids and do comparative shopping.. Components and fundamentals of E-Commerce:. I. Networks:. Internet, Intranet and Extranet. The Internet is the foundation of e-commerce and the carrier of commercial business information. The Intranet is the platform on which enterprises carry out their internal affairs, and the Extranet is the link between enterprises and users to carry out commercial activities. E-commerce customer – Customer is a consumer. Consumers get access to information and purchase goods by connecting the Internet with browsers, set-top boxes, PDAs (Personal Digital Assistance),Visual TV, etc.. II. Certification Authority:. The Certification Authority (CA) is an authority recognized by law to be responsible for issuing and managing digital certificates, to facilitate parties involved in online sales to identify each other. 12.

(20) Taiwanese Tea On-line Shop Chaguan in Russia III. Distribution Centre:. The centre is in charge of sending goods that cannot be delivered on line to consumers and keeping track of goods flow.. IV. E-bank:. It realizes traditional banking business like settlement, and provides both sellers and buyers with real-time services 24 hours per day.. V. Commercial Administration:. It mainly consists of commercial management departments, tax departments, customs, foreign trade and economic management departments etc.. Components IV, V and VI can be outsourced.. 13.

(21) Taiwanese Tea On-line Shop Chaguan in Russia. 2.3. Kinds of E-commerce and principles of work The same as in the traditional commerce, there are four main categories of E-commerce: B2B, B2C, C2C and C2B B2B (Business to Business) — this kind of model involves companies doing business with each other. In other words B2B are generally larger companies that are supplying a service or merchandise to other businesses. A large market has developed for business software or services that can easily be digitally downloaded or conducted online. Example of B2B: manufacturers selling to distributors and wholesalers selling to retailers. B2C (Business to Consumer) — is a model where businesses selling goods or services to the general public through shopping cart software, without needing any human interaction. This is what most people think of when they hear "e-commerce." The most well-known example of this model is Amazon. It is also the model to build the Taiwanese tea on-line shop/mass-media platform in Russia.. B2C represents the vast majority of Ecommerce web sites online. It is often based on its real world counterpart or local store. Any business that sells directly to its customers online falls into this business model.. As a matter of fact, the B2C E-commerce business model is one of the oldest on line. One of the first companies to open an online store was Pizza Hut.. Nowadays in Russia many stores start from the online version and only later in case of success create the real world version of it. C2C (Consumer to Consumer) — this model takes place within online classified ads, forums or marketplaces where individuals can buy and sell their goods. Examples of this include Craigslist, eBay and Etsy. As the social networking evolves this model gets more and more 14.

(22) Taiwanese Tea On-line Shop Chaguan in Russia popular. In more recent years the blogging phenomenon has incorporated this business model well. The development of online communities with specific niche interests can gain huge followings.. The C2C E-commerce business model has its origins out in the real world of News Paper classifieds. C2B (Consumer to Business) — In C2B e-commerce, consumers post a project with a set budget online, and companies bid on the project. The consumer reviews the bids and selects the company. Elance is an example of this model.. There is also another possible mixture of the following kinds of E-commerce. These are the basic E-commerce business models that can be used in combination.. Merchant E-commerce Business Model. The merchant E-commerce model is the online version of a local store, but the great majority are solely online.. They accept online payment methods and ship the merchandise to the customer, or they use a 3rd party online shipping and warehousing service. These companies keep goods at warehouses and ship them directly to the customer on the behalf of the online store.. Advertising E-commerce Business Model. The advertising E-commerce model is based on the old days daily newspapers and monthly magazines. The business collects revenue either by renting a small space on the webpages or getting paid for every click on the ad.. 15.

(23) Taiwanese Tea On-line Shop Chaguan in Russia Google AdSense4 is the best example of this model.. Of course advertising should always be targeted directly at the readers to compliment the websites content, many advertising companies are good at doing this job.. Affiliate E-commerce Business Model. The affiliate E-commerce model is based on commission sales. A businessman does not have to buy the product to resell, and not involved in the handling or shipping. All of this is done by the parent company. One simply redirect the customer from his/her own website to the product on the parent company’s website and if they make a purchase he/she earns a commission.. Amazon is the best known example of a parent company. They were, in fact, the first company to use this method of selling, allowing anyone to sell and get commission through Amazons merchandise.. In more recent years the affiliate E-commerce business model has been used with astounding success.. Brokerage E-commerce Business Model. The Brokerage E-commerce model is a website that brings two parties together to conduct business. The most well known example of this model would be online auctions like Ebay. However, it is not limited to online auctions, Online Real estate, business brokers, boat brokers etc. also use this method. They generally collect a fee for their service which can be worked out with a percentage base or a set fee.. 4. https://www.google.com/adsense/start/. 16.

(24) Taiwanese Tea On-line Shop Chaguan in Russia. Information Ecommerce Business Model. The Information E-commerce model is based largely around specialized information on a particular subject. These websites can attract a large number of people interested in a given specific field of knowledge and use E-commerce business models, other than their specialized information, to create revenue.. Subscription E-commerce Business Model. In the Subscription E-commerce model customers pay a set fee on a monthly or yearly basis to get access to the products or services of the company. Some good examples of this model are online newspapers or magazines, adult websites, and Internet service providers.. 2.4. Benefits of E-Commerce In general, the benefits of E-commerce are mainly reflected in the main three aspects.. Making traditional business activities better, more efficient and more economical. Before the invention of electronic technology, business had existed and developed for thousands of years. Even though a business activity could be carried out without electronic technology, however, with the new technologies, business activities become better, more efficient and more convenient.. Higher efficiency is shown in the following areas:. 1. Better management information.. Management process is being executed better and faster when sales data is reported and analysed. This leads to more efficient production, inventory and distribution, marketing and sales, better financial planning and more effective R&D and product development.. 17.

(25) Taiwanese Tea On-line Shop Chaguan in Russia 2. Better integration of suppliers and vendors.. This action gives companies a better understanding of the business needs and encourages a higher quality of product and service delivery. The process can be more efficient, accelerate the interactions, and lead to a faster market response capability.. 3. Better channel partnership.. With the help of the new technologies a business can have the right products available at the right time and price, thus it can sell the products in the most efficient way. E-commerce processes allow companies to provide faster information about product availability, changes in the product, pricing and the company’s promotional policy.. 4. Lower transaction costs.. Internet-based transactions systems cost much less in the long run because they reduce the need for a large organizational system.. 5. Better market understanding.. E-commerce business can automatically gather information about customers and their buying behaviour. There is a wide range of statistical tools to do this kind of analysis. The data is captured along with the transaction, thereby creating a new mechanism for predicting market trends or targeting repeated or related sales. Loyal customers can receive loyalty discounts.. 2.5 Summary E-commerce, that came into being several decades ago, is certainly a business model of the 21st century. It has potential to make our lives more convenient and markets more diverse. In our modern world of technology, e-commerce is becoming a very significant option for many. 18.

(26) Taiwanese Tea On-line Shop Chaguan in Russia businesses as there are lots of companies that are interested in developing their online stores, or for start-ups that begin from internet to reduce the initial cost.. Today, E-commerce has revolutionized the way companies are doing business. Now, consumers can purchase almost anything online 24/7 and get an ultimate shopping experience.. There is an impressive and long list of benefits of e-commerce for entrepreneurs as well as for consumers. It’s easy and convenient, customers can get all the description and details from an online product catalogue. In addition to branding and creating relationships with customers, online retail is also being driven by traffic that comes from search engines. Customers can easily follow a link in the search engine results and land up on an ecommerce website that they never heard of. With the on-line retail it’s easy to decrease the cost of inventory and can save operational costs. One of the best advantages, is e-commerce retailers can easily keep an eye on consumers’ buying habits and tailor the offer to consumers’ requirements, which can improve the ongoing relationship with customer and create long-lasting relationships with the 24/7 service. Using online statistics and analytics, if used smartly, can be very helpful for a business development.. E-commerce also offers an opportunity to expand business across the boarders and not to focus on a market within a country. Presence on-line, especially in social media let businesses to boost their brand awareness in the market. Along with offering vast educational information on the product offered in the on-line shop.. 19.

(27) Taiwanese Tea On-line Shop Chaguan in Russia. Chapter 3: Russian market. 20.

(28) Taiwanese Tea On-line Shop Chaguan in Russia. 3.1 Internet penetration in Russia According to statistical data in the winter of 2015, 62% of the adult population, or 72.3 million people, were connected on a monthly basis, according to the Gesellschaft für Konsumforschung (GfK). Of them, 59.9 million people used the Internet daily. During the year, Russia gained 6 million new Internet users. The daily Internet users grew even more significantly with 6.7 million new users who access the Internet every day5.. Internet penetration in Russia (16 years old and older), 2008-2015. Figure 3.1 Internet penetration in Russia (16 years old and older), 2008-2015 from http://www.gfk.com/fileadmin/user_upload/dyna_content/RU/Documents/Press_Releases/2016/I nternet_Usage_Russia_2015.pdf The Internet became popular in Russia much later than in advanced European countries, with a mere 10% of the adult population connected in 2003 and just 20% in 2007.. Today, Russia still lags behind most other European countries in terms of penetration, with about half of the adult population connected. However the country is catching up quickly, with the. 5. http://www.ewdn.com/e-commerce/insights.pdf. 21.

(29) Taiwanese Tea On-line Shop Chaguan in Russia average annual growth of the Internet users exceeding 10% over the last few years. In September 2011, Russia overtook Germany as the market with the largest number of unique Internet users in Europe.. Specialists state that if growth continues at its current rate, it will take Russia less than a decade to reach the current levels of Europe's most connected countries.. Russia, which lagged far behind most other European countries in terms of Internet penetration in the recent past (with a 37% penetration rate in 2010), has been catching up rapidly over the past few years. In late 2015, according to a GfK poll, Internet penetration exceeded 70%, with 84 million Russians aged 16 or more — up 4 million in one year — declaring that they use the Internet.. Figure 3.2 International comparison: Internet user engagement across Europe from GfK GfK attributes much of the growth to mobile connectivity. According to the survey, mobile Internet access in Russia more than doubled during the year. By the end of 2015, 37.5% of users 16 and older went online by way of their phone and 19.5% from tablets. In 2014, the same research found that 17.6% of users were connecting on mobile phones and 8.4% by tablets,. 22.

(30) Taiwanese Tea On-line Shop Chaguan in Russia displaying a major climb from 2014 to the end of 2015. Access to Wi-Fi and mobile application packages from the major telecom operators contributed to the mobile rise in Russia.. Mobile internet penetration (16 year old and older), 2013-2015. Figure 3.3 Mobile Internet penetration in Russia, 2013-2015 from GfK Today in Russia there are approximately 50 million users accessing the Internet from mobile devices, which is 42% of the adult population in Russia. The older population drove a strong portion of the Internet growth because 97% of younger users were already online. The younger users (16-29) drove more of the mobile activity. 70% of this age group goes online through their phones and and 35% on tablets.. 23.

(31) Taiwanese Tea On-line Shop Chaguan in Russia. Figure 3.4 Types of internet use by age in 2015 from GfK Russians in bigger cities and primarily Moscow are more practiced Internet users. The Internet penetration in Moscow exceeds the country average and has a significantly higher mobile and tablet uses than other areas. Russians from places with smaller populations are less practiced Internet users but the regions are slowly catching up with larger cities thanks in large part to mobile accessibility.. 3.2 Internet penetration in Regions Internet penetration in Russia is still uneven. There is a two-fold difference in the per cent of Internet users on a monthly basis between the capitals, Moscow and St. Petersburg which have over 77% Internet penetration, compared to only 50% in Russian small towns villages, or an average 58% in the Volga federal district, according to a FOM report from Q3 2014.. 24.

(32) Taiwanese Tea On-line Shop Chaguan in Russia Among the key factors explaining these regional contrasts are differences in the standard of living, purchasing power and development of broadband and wireless Internet access, as well as computer and Internet literacy.. The differences between regions by usage intensity are even more profound. Internet penetration and usage intensity are interconnected: the higher the per cent of Internet users, the higher the level of Internet activity and vice versa.. As of Q3 2014, just 11% of Russian Internet users lived in Moscow, 4% in St. Petersburg and 12% in other cities with more than 1 million inhabitants, while 21% lived in rural areas. Almost three quarters of all Russian Internet users live in the European part of Russia.. Figure 3.5 Internet penetration in Regions of Russia from http://russiansearchmarketing.com/facts-figures-russian-internet-growth-and-development/. As expected, Moscow and St. Petersburg (main cities in Russia) have the highest Internet penetration by a significant margin. Elsewhere the Internet penetration is still increasing as more people gain Internet access and start relying on it to solve their everyday needs. Generally, areas outside of Moscow and St. Petersburg are driving significant growth in a number of major industries.. 25.

(33) Taiwanese Tea On-line Shop Chaguan in Russia. Figure 3.6 Internet penetration according to the city size from http://www.gfk.com/fileadmin/user_upload/dyna_content/RU/Documents/Press_Releases/2016/I nternet_Usage_Russia_2015.pdf All these data should be taken into consideration when operating logistics and delivery planning.. 3.3 Russian Е-commerce Industry Introduction (including food and beverage e-commerce) Russia has got a very unique geographical and cultural position on the world map. It’s part European, it’s part Asian, but above all it’s Russia.. More than 143.7 million people live in Russia, which makes it the 9th biggest country in the world. Slightly more than 45% of all Russian people are between 25 and 54 years old. In early 2014, 59% of the adult population (69 million people) had access to the Internet, making Russia Europe’s number one in terms of Internet users.. 26.

(34) Taiwanese Tea On-line Shop Chaguan in Russia COUNTRY. RUSSIA. Population. 143.7 million people. - % internet users. 59%. Online sales. €10.4 billion (2013). Online stores worth mentioning:. Ozon, Ulmart, KupiVIP. Table 3.1 E-commerce market in Russia in numbers from http://ecommercenews.eu/ecommerce-per-country/ecommerce-russia/ The e-commerce market in Russia. With 160 million small packages and parcels sent to online consumers in 2015, up 10% from the previous year, Russia’s domestic online retail market grew in real terms. It also grew in roubles, reaching some 650 billion (+16%), with an average order value amounting to some 4,050 roubles (up from 3,750 roubles in 2014), according to Data Insight. According to East-West Digital News, the Russian ecommerce sector could grow to 35 billion to 50 billion euros by the end of this decade and exceed 75 billion euros in ten years.. 27.

(35) Taiwanese Tea On-line Shop Chaguan in Russia. Figure 3.7 Russian e-commerce market growth forecast from https://www.ecommerceworldwide.com/AcuCustom/Sitename/DAM/002/e-retail_Russia.pdf Given the rouble’s sharp depreciation (from 38.5 rub. per dollar in 2014 to 62 rub. per dollar in 2015 on average), the picture looks darker in dollars: market size fell to $10.5 billion for physical goods, down 28% from 2014. These numbers do not include cross-border orders, deliveries of ready meals as well as corporate, C2C, MLM and group purchases. The fastestgrowing categories were sporting goods and leisure items, pet goods, children’s goods, clothing and footwear, as well as groceries. Meanwhile, electronic devices, home appliances, cosmetics and perfumes were less in demand than during the previous year.. It has been well-publicised that the Russian Federation has recently been affected by both international and domestic crisis; situation that caused current pseudo-stagnation of the Russian economy. However, despite these obstacles, the Russian e-commerce market continues to show consistency and growth at impressive double-digit rates, and of course specialists predict this 28.

(36) Taiwanese Tea On-line Shop Chaguan in Russia growth rate to slow down in near future. Never the less long-term expectations for this virtual market are still high, specialists point out that the full potential of Russian e-commerce has not been fulfilled yet6.. Big online stores in Russia.. The biggest on-line store in the Russian e-commerce field is Ulmart.ru. It has got a wide assortment of products: from electronics to items for the home and garden. Its 2013 turnover reached an estimated 42 billion euros, not including VAT or an important fraction of sales via offline. Among the other important players are Ozon, which can be seen as a Russian equivalent of Amazon, KupiVIP (a copycat of Venteprivee.com), group buying platform Biglion, platform Avito and the online properties of the German Otto Group. (see Appendix for diagrams). E-commerce customers in Russia. As long as e-commerce is a relatively new phenomenon in Russia, consumers there generally distrust the safety of online transactions and, in certain cases, the honesty of online retailers. That’s the reason why the most ubiquitous payment method (around 80%) is cash payment on delivery, as far as physical goods are concerned. Bank cards aren’t used very often for purchases even in real stores (even though it depends on the region you are looking at), but online it also represents a low part of total online consumer spending. Of course the situation has been changing.. The most popular local electronic currencies are Yandex Money, Webmoney and the QIWI Wallet. PayPal began serving domestic transactions only in late 2013. 93% of all domestic purchases made online are cash-on-delivery, according to SPSR Express.. 6. Ecommerce worldwide (2015, December 17). Re: E-retail in Russia. [on-line report]. Retrieved from: https://www.ecommerceworldwide.com/AcuCustom/Sitename/DAM/002/eretail_Russia.pdf 29.

(37) Taiwanese Tea On-line Shop Chaguan in Russia Yandex Money payment system was introduced by local searching engine Yandex. It’s a universal payment solution for payments online, that is being accepted by more than 65 000 internet retailers and on-line shops. This payment is used by more than 27% of Russian internet shoppers7. The national bank of Russia, Sberbank, owns 75% of shares and majority ownership in Yandex Money. Yandex Money e-wallet balance can be easily deposited through a bankcard or through a Sberbank’s ATMs. Another successful and popular payment system in Russia is WebMoney. It’s an international settlement system, that offers customers a platform to operate their e-commerce business. Due to it’s convenient use WebMoney has gained over 28 million users all over the world. Web Money guarantees fast and secure online transactions.. QIWI Wallet is another popular payment system; its terminals are available for client selfservice 24/7. QIWI terminals are installed in most big shopping centres and in convenient locations in the streets. The system is being used in 20 countries worldwide, offering a quick, secure method to pay bills, loans and even more. Main QIWI Wallet advantage – users can charge their account with cash without commission at any self-service terminal.. 7. Omelchuk Inna (2015, December 17). Re: We have gone through the main stages of the payment market development. [on-line magazine]. Retrieved from: http://psm7.com/interview/my-proshli-vse-osnovnye-etapy-razvitiya-platezhnogo-rynkaaleksandr-magomedov-yandeks-dengi.html 30.

(38) Taiwanese Tea On-line Shop Chaguan in Russia. Figure 3.8 Online payment methods in Russia, from Payvision. Turnover of the Russian e-commerce market in 2015 reached $32 billion with 80 million online users, which is more than half of the Russia’s population. According to the e-Commerce User Index 2014 published by Markswebb Rank & Report, to date, the most popular items to buy online are airline- and train tickets, clothing, footwear, electronics including mobile phones and computers, cosmetics and personal hygiene products. Cash on delivery remains the most popular payment method for online purchases, however, more and more shoppers switch to other online payment methods such as credit/debit cards. The most active Russian city in terms of online shopping is Moscow – over 80% of the capital’s population make purchases online. Smaller cities stay behind due to a lower level of service of local online shops and relatively smaller amount of Internet users.. Russian online consumers are highly educated and technologically savvy; their social media engagement rates exceed global averages. Personal consumption levels lead the BRIC countries, with 60% of pre-tax income spent on shopping (the highest in Europe) – with disposable income levels supported by low housing payments, socialized healthcare and a flat personal income tax. 31.

(39) Taiwanese Tea On-line Shop Chaguan in Russia of 13%. Top selling online categories are consumer electronics, apparel & accessories, and auto parts.. Cross-border sales account for an estimated 10-15% of total ecommerce sales in Russia, as many consumers find the product selection and prices to be better abroad. Additionally, a history of fraud by domestic sellers gives recognized and reliable foreign brands a leg up in capturing consumer trust and wallet. Import tax and duty de minimums thresholds of 1,000 EUR per private individual per month are globally competitive (but highly regulated and currently under government review).. Several logistical challenges persist in selling into Russia. English proficiency is very low; only 5% of Russians speak English. Payments and marketing have a local flavour, with nearly 70% of online purchases being paid for via cash upon delivery, and search results on Yandex favouring local companies and translated websites. Lastly, 9 time zones, 6.6 million square miles and a notoriously unreliable and slow postal service means use of courier services are a must 8!. 8. Russian Search Marketing (2015, May 19). Facts & Figures: Russian Internet Growth and Development. [on-line report]. Retrieved from: http://russiansearchmarketing.com/facts-figuresrussian-internet-growth-and-development/ 32.

(40) Taiwanese Tea On-line Shop Chaguan in Russia Figure 3.9 B2C e-commerce sales in Russia from 2011 to 2016 from http://www.statista.com/statistics/280929/b2c-e-commerce-sales-in-russia/ Food and beverage e-commerce in Russia. Starting from august 2014 Russia decided to ban $25 billion worth of food imports from the EU, US and other countries. It means that there is still a huge need for import from other countries. This also means that exporters in countries unaffected by the bans have a once-in-a-decade chance to acquire a share of this huge market.. Being seventh-largest market in the world, Russia’s population is growing, and changes in tastes and technology opened up the sector to new suppliers and new ideas. Usually, entering a market of Russia’s size and potential means competition to get the products on the shelves is fierce, but geopolitics have dramatically altered the landscape.. Of course Russians show certain preferences when shopping on-line. Three categories are taking up a significant portion of this online marketplace: consumer electronics (42%), clothing and footwear (13%) and car parts (10%). See the chart below.. 33.

(41) Taiwanese Tea On-line Shop Chaguan in Russia. Figure 3.10 Russian e-commerce by shares from https://www.ecommerceworldwide.com/AcuCustom/Sitename/DAM/002/e-retail_Russia.pdf Food and drink online shopping constitutes only 2% of the overall e-commerce, but the rise of online grocery shopping in Russia is catalyst for the growth of its food sector. Russia has the most internet users in Europe, and this is a serious increase in food e-commerce – a study from Euromonitor estimates that online sales of food and drink in Russia will grow 11% year on year up to 2018.. Online shopping has been unfamiliar territory for many Russians, but the rewards for diving into the sector can be big. One Russian online retailer, Azbuka Vkusa, tripled the size of its warehouse in 2015 to meet online sales demand, and its customers spend four times as much online than they do in store.. While logistics issues can still pose a problem for the home delivery market in the capital and elsewhere, this growth in online sales is another factor driving demand in Russia’s booming food industry.. Russia is one of the largest B2C E-Commerce markets in the world. In 2014, it ranked ninth worldwide, fourth in Europeand second among the BRIC countries in terms of online retail sales, according to yStats.com's findings. Despite the economic crisis, Russia is predicted to see B2C 34.

(42) Taiwanese Tea On-line Shop Chaguan in Russia E-Commerce sales grow at double-digit rates and maintain the mentioned global rankings in the foreseeable future. Though overall retail sales are in a decline and consumer confidence is at an all-time low, the B2C E-Commerce market in Russia still has room for growth due to its untapped potential.. Of course one of the most well-known is Aliexpress. Every day several million Russian shoppers browse Aliepxress.com, and those Russian consumers’ orders result in hundreds of thousands of packages being shipped each day from China to Russia, according to Alibaba Group Holding Ltd. (the parent company of AliExpress)9.. Alibaba says Aliexpress offer a place where Russian consumers, especially those living in smaller cities or towns, can access a vast selection of products at low prices, including many items that they can’t find in their local markets.. After Alibaba rolled out a Russian-language version of AliExpress, ru.aliexpress.com, that accepts the most popular online payment options for Russian shoppers, it became even more accessible for Russians. But most products people buy there are cheep clothes and consumer electronics, Russians are taking food and beverage seriously and need local platform which they could trust to do food and beverage on-line shopping.. 3.5 Tea market in Russia (off-line and on-line market) Tea drinking is a traditional leisure activity for Russians historically and nowadays. Russia was one of the first countries to be introduced to tea in the mid-1600s. The Chinese ambassador to Moscow made a gift of several chests of tea to Tsar Aleksey Mikhaylovich. During this period, Russia was attempting to establish trade with China and tea soon became one of the desired imports. 9. Tong Frank (2015, June 23). Re: Alibaba says its Aliexpress.com is the leading retail site in Russia. [e-commerce intelligence portal]. Retrieved from: https://www.internetretailer.com/2015/06/23/alibaba-says-its-aliexpresscom-leading-retail-siteru 35.

(43) Taiwanese Tea On-line Shop Chaguan in Russia Tea was appealing to the Russian life-style because it was a warm and hearty brew. Russians have always preferred a strong, dark brew, which is sweetened with sugar, jam or honey.. To this day, tea and vodka are the two primary beverages in Russian society. Russia is home to one of the world’s biggest tea market. In fact, the statistics are showing that 94% of all Russians are tea drinkers. The nation is the world’s second biggest tea market and the eighth. 36.

(44) Taiwanese Tea On-line Shop Chaguan in Russia largest coffee market globally10.. According to a presentation at the 2015 World Tea Expo, Russian retail sales of tea totalled $4 billion in 2014. According to the report from the International Coffee Organisation tea makes up two thirds of Russia’s entire hot drinks sector.. Traditionally tea has been an integral part of Russian life since XVII centaury. The figures show that even of economic conditions fail to blunt Russian appetites for this particular beverage. Euromonitor suggests Russia’s tea market will grow at a steady 1% annually for the foreseeable future. Small growth, yes, but this is a well-developed, mature sector that is unlikely to see any major shake ups in the coming years.. Import is the main source of tea commodity in Russia. While domestic production has seen some increases recently, with the first half of 2015 showing recorded production levels of 47.6 thousand tons (14% higher than the same period in 2014), Russia relies on overseas countries to meet its tea needs.. The 2015 saw Russian businesses import a total of 170,5 tons of tea worth $645.7 million. The share of black tea constituted 91.6%, meanwhile the share of green tea was 8.4%. For context, 168,5 tons of various teas were imported in 2014 at a value of $638.5 million. The figures are showing the huge desire for tea amongst Russia’s many millions of consumers.. The share of black and green teas in the market has been stable for a decade, since 2006. The share is 90%to 10%. The green tea is popular, but not as popular as black tea, it has been defined by two factors: the main export comes from Sri-Lanka, Kenya and India (the countries that mostly produce. 10. Sichev Michael (2015, May 10). Re: Review of Russia tea and coffee market. [Online magazine survey]. Retrieved from: http://www.foodmarket.spb.ru/current.php?article=2151 37.

(45) Taiwanese Tea On-line Shop Chaguan in Russia black teas) and also because the green tea share is manly comes from the premium part of the market, high quality, not tea bags packaging11.. Figure 3.11 Tea import dynamics in Russia from 2001 to 2015 (thousand tones) from http://ab-centre.ru/news/rynok-chaya-rossii-v-2001-2016-gg Regarding import, three nations dominate Russian tea imports, accounting for nearly 70% of total volumes shipped. Sri Lanka comes out on top, supplying 29.91% of tea imports, followed by India with 23.52% with Kenya rounding off the big three by shipping 15.57% of total tea imports to Russia in 2015.. Black tea is the most popular variety on the market, as 86% of Russian consumers take their tea this way. Green teas hold a 9% market share while herbal varieties are not very popular. Just 1% of Russians regularly consume herbal teas.. 11. CHIN-RU (2015, June 19). Re: Russia tea market survey. [Online company survey]. Retrieved from: http://chin-ru.com/rynok-chaja-v-rossii/ 38.

(46) Taiwanese Tea On-line Shop Chaguan in Russia While loose tea seems to rule the market, packaged tea and tea bags are seeing their popularity rise. As such, bulk imports of tea are set to rise as domestic brands seek to match demand.. Some chain shops opening tea and coffee shops that sell packaged tea. But the quality of tea sold in those is very low. Those chain shops mainly constitute the 10% share of Russian green tea market.. But the demand for exotic Chinese tea obviously exists in Russia. The Russian has got a great interest for the exotic, products from Asia, to be more specific from China. Russians have always had international tastes – you cannot move in Moscow for sushi restaurants – but now suppliers of more exotic products are seeing Russia as an invaluable market. For example, the first cargo of buffalo meat from India hit the shelves in Russia in March 2015, and South African farmers signed deals at the WorldFood Moscow exhibition directly after the import bans to export ostrich meat to two Russian clients.. Judging from the data gathered through Yandex Wordstat (the analogy for Google Adwords) the popularity of green tea in Russia is enormous and there is great potential for the on-line trade in this area.. Yandex Wordstat shows search query statistics for searches on Yandex that include the words or phrases one entered and other searches made by Internet users. It shows the interest to a given product in the Internet. The acceptable number for Russian regions and Moscow is above 3000-5000 queries. For “green tea” query the result in Yandex Wordstat is 166 286, “Green tea buy” - 11 385, “Milk green tea” - 10 947, “Chinese green tea” - 9 597, “Oolong tea” – 22 511 etc. So there is a solid interest in the product in the Russian market.. 39.

(47) Taiwanese Tea On-line Shop Chaguan in Russia. Table 3.2 Yandex Wordstat data on “Green tea” key words in numbers from Yandex Wordstat Internet, on-line shops that’s how Russian market tries to meet the existing demand in Russia There is a great number of blogs and on-line shops selling authentic Chinese green tea. Google shows up to 5 million search results for “Chinese Tea Shop”. Russian Internet differs a lot from the civilised “western” Internet. One can find lots of one-day online tea shops or tea shops that sell low quality tea products from China. There are also many websites that are organised chaotically and look old and ill-organised. Many of them don’t actually work. So there is a great potential for an online shop platform that provides accurate, cultural and historical information on tea product.. There is, though, a popular online shop website in Russian selling tea from Mainland China. In this work I’ll devote a chapter to analysing the website business model.. 3.6 Summary The domestic e-commerce market in Russia increased from 560 billion roubles in 2014 to 650 roubles in 2015. It now accounts to 2 percent of the total retail industry in Russia, so there is still great growth potential. And while the domestic market is slowing down, cross-border purchases continue to grow rapidly.. 40.

(48) Taiwanese Tea On-line Shop Chaguan in Russia About 160 million small packages and parcels were sent to online consumers in Russia in 2015, which is an increase of 10 percent compared to 2014. The domestic online retail market increased by 16 percent to reach 650 billion roubles or 7.32 billion euros. So everything indicates that e-commerce has been growing rapidly in Russia.. The share of food and drink e-commerce is not that big at the moment and constitutes only 2%, but there is an obvious potential for the growth in this area. There are several indicators for this growth.. First of all, Russia has always traditionally been a tea drinking country and the off-line tea retail figures prove it. Traditionally tea has been an integral part of Russian life since XVII centaury. The figures show that even of economic conditions fail to blunt Russian appetites for this kind of drink.. Secondly, there is a sufficient presence of on-line Chinese tea shops in Russian internet and a great number of blogs devoted to the product. but sadly that can’t fulfil the demand of the market for the low-quality reasons.. Lastly, judging from the data gathered through Yandex Wordstat the popularity of green tea in Russia is enormous and there is great potential for the on-line trade in this area.. 41.

(49) Taiwanese Tea On-line Shop Chaguan in Russia. Chapter 4: Russian on-line shops case-studies. 42.

(50) Taiwanese Tea On-line Shop Chaguan in Russia While working on the concept and approach to the Taiwanese tea on-line shop/mass-media platform in Russia I found in the Internet two following websites. While gathering data for my website I decided to use element of those two successful websites and their business models in my project. I’m going to analyse the process how those websites were created and use their experience in my project.. The websites are: RealChinaTea, Torrefacto. For the analysis of the businesses I used The Business Model Canvas. It is a strategic management and lean startup template for developing new or documenting existing business models. It is a visual chart with elements describing a firm's or product's value proposition, infrastructure, customers, and finances. It was designed to assist firms in aligning their activities by illustrating potential trade-offs.. The Business Model Canvas was initially proposed by Alexander Osterwalder based on his earlier work on Business Model Ontology.Since the release of Osterwalder's work in 2008, new canvases for specific niches have appeared.. 43.

(51) Taiwanese Tea On-line Shop Chaguan in Russia. Figure 4.1 The Business model canvas from Alexander Osterwalder and Yves Pigneur, Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (Feb 1, 2013), 44. 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 pretty much right away after I started it. The probable reason – I did not try to sell my tea, I was 44.

(52) Taiwanese Tea On-line Shop Chaguan in Russia 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.. 12. E-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.epepper.ru/articles/intervyu/grigorij-potemkin-realchinatea-ru-dlya-nas-samoe-slozhnoe-neuderzhat-klienta-a-privlech-novogo.html 45.

(53) Taiwanese Tea On-line Shop Chaguan in Russia 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. 13. Laowaicast (2012, November 12). Re: Gregory Potemkin on Chinese tea. [Online podcast]. Retrieved from: http://laowaicast.ru/2012/11/laowaicast-124/ 46.

(54) Taiwanese Tea On-line Shop Chaguan in Russia 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).. 14. Karpova, Anastasiya (2015, February 2). Re: Tea expansion: how an entrepreneur from Ural conquered Chinese market. [Online newspaper]. Retrieved from: http://www.forbes.ru/svoibiznes/istorii-uspekha/280363-chainaya-ekspansiya-kak-uralskii-biznesmen-pokoryaet-kitaiskiiry 15. Pashyok, Andrey (2013, April 3). Re:. Tea business. [Online newspaper]. Retrieved from: https://mybiz.ru/articles/success_stories/chajnyj-posyltorg/ 47.

(55) Taiwanese Tea On-line Shop Chaguan in Russia 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.. 48.

(56) Taiwanese Tea On-line Shop Chaguan in Russia 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 49.

(57) Taiwanese Tea On-line Shop Chaguan in Russia 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.. 16. Pashyok, Andrey (2013, April 3). Re:. Tea business. [Online newspaper]. Retrieved from: https://mybiz.ru/articles/success_stories/chajnyj-posyltorg/ 50.