The August 2018 Operational Case Study deals with Thomas Fine Teas, a producer of premium tea for wholesale and retail in the fictional country of Deeland. As with any CIMA case study, it’s always a good idea to familiarise yourself with some of the key trends and facts pertaining to the industry within which the pre-seen company operates. However, navigating an entire industry on your own from scratch can be disorientating and intimidating! That’s why VIVA has prepared a full real-world Industry Analysis for the August 2018 Operational Case Study, to save you the trouble of compiling all the key facts and figures by yourself. You can access the Full Industry Analysis either on its own or as part of one of our Case Study Packs here. The full industry analysis includes both a HD video lesson of approximately 1 hour, and the accompanying powerpoint presentation. Below, we offer you just a few key highlights from the Full Industry Analysis.

 

Some Key Figures

We start by taking a look at some per capita tea consumption trends in the UK over the last decade. It’s a good idea to get a sense of real world trends in the industry, as it can assist in anticipating some of the potential challenges that companies will face in the coming years – and so help you to prepare for some of the issues that might arise on exam day. We focus below on the UK in particular because the economy of Deeland appears to share various characteristics in common with the UK. Despite the fact that the UK remains one of the biggest consumers of tea globally in terms of per capita consumption, the chart below reveals that tea consumption is in decline in the UK (we see similar patterns emerging in other European nations). As you can see, at the same time as tea has been in decline, coffee consumption has been increasing at a comparable rate. This is perhaps indicative of the fact that coffee constitutes generic competition for tea, and for some people, it’s a case of one beverage or the other. Coffee therefore constitutes a potential threat as it gains popularity. If these trends continue and are replicated elsewhere, then tea may well lose its standing as the “second most consumed beverage in the world” in the coming years.

 

 

The next chart offers a breakdown of average weekly household expenditure on tea by age group in 2017. Unsurprisingly perhaps, the younger demographics (less than 30 and 30 to 49) have the lowest expenditure. This reflects broader industry trends that indicate that young people are rapidly losing interest in tea when compared to previous generations, especially in nations with traditionally high per capita tea consumption like Ireland and the UK. Coffee appears to be the hot beverage of choice amongst these age groups, underlining again the fact that it may be an either/or choice for many consumers. This is certainly a key consideration for real world tea companies going forward: how can they win back those younger consumers? After all, their future revenues to a large extent depend upon doing so.

 

 

Some jargon and product types

This is an industry filled with exotic foreign terms and technical jargon. The variety of regions and suppliers makes for a bewildering array of tea types. Here we introduce just a couple of key terms and tea types.

 

Firstly, there is the term “cultivar”, which you are very likely to come across at some point while you are navigating this industry. Most generally, a cultivar can be defined as a plant variety that has been produced in cultivation by selective breeding. As the World of Tea (worldoftea.org) explains, ‘simply put, varieties are found naturally in the world, but once we propagate them for their variance, they become cultivars.’ So you can have cultivars for many different kinds of plants, not just tea. Tea cultivars tend to be identified with specific regions and countries. However, all tea cultivars are ultimately different varieties of the same tea plant genus – camellia sinensis – from which all commercial teas are derived.

 

There are several different kinds of tea product, some of those differences being based on cultivars; others based on growing techniques; and still others based on unique production methods and/or preparation. For example, “Matcha” tea is unique in two aspects of farming and processing: the green tea plants for matcha are shade-grown for about three weeks before harvest, and then the stems and veins are removed in processing. The powdered form of Matcha is consumed differently from tea leaves or tea bags, and is dissolved in a liquid, typically water or milk.

 

Supply and Procurement

China has captured the majority of the global growth (largely in line with population growth) in demand in the last 10 years. The majority of other exporting countries have remained flat, with the exception of India, which still lags well behind China. However, labour costs in China have been rising steadily in recent years, so we may say India and other countries regaining ground in the coming years and tea importers shifting more of their procurement to these nations – or perhaps even turning to more domestic or regional suppliers.

 

 

Harvesting of tea is performed either manually with hand-picking, or through various mechanised means. Picking is done by hand when a higher quality tea is needed, or where labour costs are not prohibitive. Tea flushes (the top two leaves of the tea plant plus the bud) and leaves can also be picked by machine, though there will be more broken leaves and partial flushes, thereby reducing the quality of the tea. However, it has also been shown that machine plucking in correctly timed harvesting periods can produce good leaves for the production of high quality teas. As we’ll see in the full industry anlaysis, this raises some interesting potential ethical questions…

This article is a snippet of what's available as part of our market-leading Case Study Packs. The packs includes over four hours of pre-seen and industry analysis, mock exams weighted in accordance with official exams, exam simulators, financial ratio analysis and much more. Follow this link here to discover more.

 

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