How the English Tea Shop's shared value approach has coupled ethics with profits
EXCLUSIVE: A UK-based independent speciality tea company is calling on the rest of the industry to mirror its focus on ethical sourcing after achieving a 60% annual growth rate in the last seven years.
English Tea Shop was launched in 2010 and has since rapidly entered 50 markets worldwide. The company now sells 350 million tea bags a year, with a range of 100% organic teas available at high-end outlets such as Selfridges, Debenhams and hotels including The Grange, Strand Palace and Wesley.
Operating on the principle of Creating Shared Value (CSV), introduced by the Havard Business School Professor Michael Porter, the firm subscribes to a central premise that the competitiveness of a company and the health of the communities around it are mutually dependent.
In practice, this entails investing heavily in the rural organic tea farmers it directly sources from across the world, including 2,000 farmers in Sri Lanka. In addition to paying well over the Fairtrade minimum price, English Tea Shop recently provided a £50,000 grant to organic Sri Lankan small farming associations, enabling them to increase the yield and value of their crops.
Speaking exclusively to edie, English Tea Shop’s chief executive Suranga Herath highlighted the empowerment gained by farmers thanks to increased bargaining power over tea prices.
Herath explained: “One thing consumers may not realise is the huge impact that switching to organic production can have on farmers for the simple reason that organic produce is higher-quality and healthier, meaning they can command higher prices. In essence, buying organic helps to drive value right down the supply chain.”
As well as the positive social impact, organic production has provided Herath’s company with a distinct competitive advantage, with increasingly high-quality tea enhancing consumer satisfaction. While revenues within the wider tea industry have flatlined in recent years, sales of organic tea have boomed, rising 11.8% to £28m in 2016 alone.
English Tea shop has seen orders for its teas and tisanes surge - last year the brand achieved revenues of £22m, including £8m in the UK. As such, the firm has outlined ambitious plans to double turnover in the UK in five years, with Herath anticipating a minimum 25% growth in the UK this year.
“That shows that something is working,” he said. “Our growth over the last seven years has been amplified by our approach to sustainability. This is our argument: we are growing because of sustainability and they are mixing together. This is not just CSR – this is a win-win situation and those benefits have already been accrued to us, and this is why we are seeing excellent opportunities in the market.”
Rather uniquely, English Tea Shop’s business model empowers its employees to participate in the profitable growth of the company.
An initiative called the Big Game was recently launched to help the 400 individuals at the firm’s Sri Lankan factory to think more entrepreneurially. Through the Big Game, employees are paid a share of the profits every quarter and are encouraged to participate in open book management, ultimately driving employee engagement.
Herath notes that the approach has increased productivity too – there has now been a 30.76% increase in value added per employee since Big Game was introduced.
“It’s difficult to implement initially, but it’s well worth it because when you open your books, nothing is hidden, and that in its self is an audit,” Herath said. “Everyone in the organisation is looking at the metrics out of interest.
“It’s a shared outcome because what I’m interested in is what the producers are interested in. There is very little chance for mistake. There is also a lot of drive and determination. Everybody wants the business to grow because they share the outcome. It’s a great situation to be in.”
Fabric of the business
As mentioned earlier, the English Tea Shop supplies its products to a range of premium brands, including a number of prestigious high street British retailers.
Herath explains that with consumers more discerning than ever about where their products come from, these brands are starting to realise the need to invest in sustainable and ethical sourcing. Consequently, top UK department outlets such as Selfridges and Debenhams have been very enthusiastic to get on board with the CSV approach.
“They really love the business model," Herath added. "It’s been easy in convincing these businesses because they do understand that consumers today want them to include sustainability in their decision-making, from good governance to ethical sourcing and a focus on people. Consumers are very carefully looking at whether businesses are just talking a sustainable game or are walking the sustainability walk.
“If you don’t look at sustainability and allow it to become part of the fabric of your business and try to reach out to all of your stakeholders directly then I don’t think there is a future for your business. It’s a must today, it’s not an option. Millennials are very concerned and they are the ones that will be making the decisions very soon so we all need to up our game in that regard.”
Alternative approaches to ethical sourcing have emerged within the tea sector in recent times, as major players explore new ways to gain credentials as a trusted brand. The industry recently received mainstream media attention following Sainsbury’s decision to switch from Fairtrade to its own in-house tea certification scheme, a move which has faced opposition from shareholders, 40 cross-party MPs and 85,000 online petition signatories.
Sainsbury’s claimed the new strategy would go a step further than the financial support offered through Fairtrade. But critics have warned that the system, which will see Sainsbury’s control a portion of allocated funds that tea farmers currently receive on top of their earnings, could disempower producers and shift the balance of power to buyers.
Herath recognised the benefits of Sainsbury’s tailored model, but suggested that businesses should be looking to build upon, not move away from, the ethical foundations laid by Fairtrade certification.
“As a brand, I understand where Sainsbury’s are coming from, but I don’t fully agree with their approach,” he said. “What we would do is keep the certification and do something on top of that, and really ensuring that we are enriching the lives of these farmers.
“This is why we have adopted CSV, so we are organic, we have Fairtrade among other certifications. Above all, I would encourage creating a shared value approach to ensure that all of your producers’ livelihoods improve and ensuring that your operations have a positive impact on their lives.”
So what lies ahead for the English Tea Shop and its innovative CSV business model? Herath says that the next drive will be to ensure that prices are kept low while its products remain sustainable, insisting that customers can’t be expected to pay anything higher than traditional products.
He said: “How we top up CSV is by making sure that we don’t push customers to pay a premium to use our business model. Sustainability is internal, it’s in our hands. We have to be more productive, we have to be more efficient and we have to find those savings to drive value into the farms, producers and suppliers. That’s a competitive advantage for our brand because we are creating a competitive price, and we are creating much more value.
“I think other brands will be challenged by our business model. Our supply chain is small but it is very complex in the way it is interlinked in the organic tea market. It’s difficult to be open, transparent and ethical but eventually we will get to a situation where companies will be forced to open up their books and be transparent. That’s the way the world is moving.”