The Price of Transparency

Zongjun · 0:06

Hello and welcome to the Specialty Matcha Podcast. My name is Ryan. This is my co-founder Zongjun, who also goes by Sam. Hello. Hello. And we're the cofounders of Sanko Matcha Products. Yeah, we'll launch this podcast to discuss our learning journey and matcha, share startup stories and interview experts. And today's episode, actually, Ryan just called me and send me a big list of things that he felt very inspired today and tell me to not read it super carefully. So I follow his advice and didn't read it super carefully. So what?

Ryan · 0:35

What was it, Ryan? So it's the price of transparency. I don't know, it's actually. So I live in France and I'm slowly learning French. I was walking to French class and these ideas just kind of hit me. So I quickly took some notes and I was like, I'm like, so curious what your reaction is to some of these ideas sound. So I didn't want you to get too much contacts because I didn't want to kind of prime you to think the same way that I was. Well, I mean, like we, we've been advocating for transparency on label, on the tea, on the cultivar, on the terroir, on everything, all kinds of information that the people can gather about the product that

Ryan · 1:13

they sell to consumers. But you know, along the way, we talked to a lot of these brand owners across different countries and we also heard some pushbacks from them, mainly from a field brand owners in particular. You know, they don't actually know each other, but they, you know, all brought up this very interesting point is that like, how can they feel safe to share all this information up to everybody after being through all these difficult, these difficulties and turmoils of sourcing, because sourcing is particularly hard today. And they're just not that many farmers to source farm. Like once you discovered, you

Ryan · 1:53

know, some farmers that are, you know, underdiscovered, you know, if you share that piece of information, like people will flood like that house in probably a few days. We heard some. Is it nowadays? We heard some stories of farmers in Wazuka where people, because in, in Japan, you have to put your address on your website.

Ryan · 2:15

It's sort of your business profile and information. And apparently all of these, these foreigners go up to people's door in like middle of the countryside, knock on it and like ask, can I buy like one metric ton of matcha, please?

Ryan · 2:32

So it's a, you know, so I thought it was really interesting investigation to talk about like what is the price of transparency? And it was actually very personally motivated. I even this morning and, and yesterday night, I was in the process of sourcing or talking from someone that we want to source Tencha from.

Ryan · 2:50

And it is just unbelievably difficult pulling information out of the people, at least the particular person that I was talking to. And like, they were like, what's your budget? And I said, you know, it really depends, right? You know, we're happy to pay 100 to $200 a kilo for like really good Yabukita.

Ryan · 3:08

And, you know, if you have nicer, higher end cultivars like Okumidori or Asahi, you know, we'll pay up to five, six, $700.00 a kilo. And if it's competition grade, maybe we'll pay even more in terms of wholesale prices.

Ryan · 3:22

But like, I need to know what you have before you can give, before I can give you my budget. And there is this long back and forth of like, like, we're both trying to pull information from each other. And it got me thinking, wow, you know what? There's a real knowledge asymmetry here for new players, right?

Ryan · 3:38

Like if people don't really divulge a lot of information very quickly, and if you don't know what the market rates are for conventionally grown saemidori, you're not going to have like what I would call schmuck insurance.

Ryan · 3:52

You're going to get duped into paying way more for something than it is worth because you don't understand what all the rates are from different producers. So like this is true for brand sourcing matcha and tencha, but it's also true for consumer sourcing Matcha.

Ryan · 4:09

And I realize that that's actually a huge change that's occurring right now in the industry. If you know that you're specifically want organic Okumidori from Wazuka, but you can probably find 5 or 6 different companies sourcing from different places in Wazuka selling it. And then you can start doing some some of your own price comparison and you can learn, OK, what is the market range? Am I paying $20.00 for a tin all the way up through $60.00 through a tin?

Ryan · 4:38

Is the $60.00 one differentiated in any way that what would cause me to spend the extra money? Maybe it was hand picked. Maybe they were using really high quality organic fertilizer. Maybe it was shaded longer, Maybe they were using tana shading, kanreisha versus the shading, the mechanisms that directly cover the plant, which generally lead to lower quality compared to the tana shaded.

Ryan · 5:07

And then you can Start learning all of these things and then you can start being able to do some price justification. But ultimately what's going on now is that consumers are doing a lot more price arbitrage and ultimately the consumers are doing and what all of us should be doing, even brand owners who are sourcing, is getting the knowledge and context to understand, am I getting a good deal?

Zongjun · 5:31

Yeah, it's it's pretty difficult because like actually there are three parties in this whole discussion, right? Like that, that that will be directly impact by a transparent label. You have the farmers who frequently do not want to be discovered, do not want to be bothered. You have all these brand owners or these sources who do not necessarily want their source to be discovered by other people or competitors.

Zongjun · 5:59

And you have, you know, all these consumers who want to know more about the product that they are paying a very hefty price for. So it's, it's very tricky that you know, like ultimately it's really just the consumers who are getting the end benefit of having a transparent label.

Zongjun · 6:20

And also like price is really not a good quality reference anymore for now because the price is so volatile. Like every quarter you're seeing a price increase. So it's not really a reliable reference anymore for consumers.

Ryan · 6:35

So it's really a terrible time really to learn or set up the linkage between price and, you know, attributes for tea, for matcha that they drink. Well, what you really need to do is separate price volatility from drivers of price or price drivers. Like if a tea is handpicked, that is a price driver because there is a direct, you can draw a straight line from labor cost to a higher price.

Ryan · 7:03

And now with the craziness of the market, right, like you have all of these price volatilities which are actually just like supply and demand and the market readjusting to meet that supply and demand. And you know what happens is that price changes. So even across the board, you know, you, you, your mental model needs to be relative to the moment, but not necessarily relative comparing prices to last year or the year before, because and then you have all of this like general market volatility.

Ryan · 7:34

But the mental model of understanding the price drivers, it's the same model. You just have to readapt it for these new market prices. But you can still know pretty fundamentally that if it's shaded longer, it's probably going to cost more. If they use better fertilizer, it's probably going to cost more.

Ryan · 7:51

Hand picked costs more. Certain cultivars that are lower yield and harder to grow like Asahi, that's probably going to cost more. Different shading styles like Tana or Honzu shaded, which are more labor intensive and like higher infrastructure capital cost also going to cost more.

Ryan · 8:07

And it's like having this framework in mind so that you can like start comparing products to make sure like you're not buying like machine harvested tea from a very high yield cultivar. You know that's auto harvested in Kagoshima for 60 dollars. It can like that is different.

Zongjun · 8:23

On the label if that information is on the label. If the information is even on the label, clearly the price of transparency is too high for a lot of those people. It's pretty interesting that, you know, if you especially us end up talking to all these brand owners and farmers, they really do not have a lot of, I don't know how to say how to frame, but the demand or the impetus of sharing more information. It's really the consumers who are benefiting from all these informations and consumers have very, very little ways to pull this information from all these brands or all these farmers. So how, how, how can we like

Ryan · 9:03

pull or push all these people in sharing more information? So what's interesting is you're starting to see more and more companies be much more transparent about whether Matcha has grown. And then you have a bunch of people who are not for very good reason, you know, worried about supply issues. But what's super interesting is that like even a company like Kettle, if you use them as an example, I feel like they've gotten significantly more transparent in the past year, even about who they're sourcing from the chashis that they're working with, the farms, the farmers that they're working with.

Ryan · 9:38

You know, they were real pioneers in leading the transparency of this whole specialty matcha movement. But even even within the past year, it feels like a noticeable uptick. And I think they can, and this is just me speculating, I have no insider information, is that they just have such good relationships with these people and these farmers and these chashis are at such Max capacity. There is no price to that transparency, because they are not.

Zongjun · 10:02

They're afraid, yeah. They're not afraid of sharing all this information because they know that even if people end up getting the suppliers information, they wouldn't be able to get it. Yes, exactly. And maybe this wasn't the case, you know, two or three years ago. But I mean, that's the problem, you know, the these people who are not as established, you know, over the course of a decade and who probably have really deep references of people who have worked with them, who recommend them internally. And you can build sort of all of this social and political capital within the Japanese matcha industry. Like if you don't have that

Zongjun · 10:38

social and political capital, you know, your supply is not guaranteed. And there's a really high price to pay for a lack of transparency or for transparency to make it transparent. But there's also an educational component. So that's another cost of transparency. You know, if we give all of this data, all of these labels, you know, on the packaging, you have to understand what they mean, which means you have to invest a lot more in consumer education. Now you got to defend yourself when it changes every year, people are going to ask why was it shaded less this year or that year or why did the blend

Zongjun · 11:14

components change from this particular blend from year to year and what was going on, blah, blah, blah, right? And you know, The thing is like true specialty is understanding the objective attributes of a product's production that lead to a certain flavor profile outcome.

Zongjun · 11:32

So everything that's on the label where we can make our own quality assessment should be predictive and can be attributed to what causes flavor profile variations. So it's a double sided sword because to an uneducated market it's just blah, blah, blah, right?

Zongjun · 11:49

It's just a bunch of technical terms with weird vocabulary that they don't understand. And when it's different, it just makes people worry. But to a market that does know those differences, it's actually really meaningful information because they can start pricing it against other people's products who share a similar level of detail and decide is my money better spent on this matcha versus that matcha.

Zongjun · 12:14

So there's also the price of educating and the price of alienating and a lot of people who just don't want that level of detail. So I think what we've seen is a large number of companies who aren't focused on transparency.

Zongjun · 12:28

If you look at the product itself, the powder that's in the can or in the sack in the bag, there's actually, there's a really interesting corollary to this is that if you work in the beer or liquor industry, large companies like Anheuser Busch, InBev or Pinella Ricard or any of the big or Diageo who owns, you know, many different alcohol brands, everyone refers to the product inside the bottle as the liquid.

Zongjun · 12:55

It's the liquid. We're doing liquid improvements, we're doing liquid innovation. And it's specifically referring to the actual product itself, which we should start doing within matcha, right? Like matcha, it's, it's the powder, the powder that's inside.

Zongjun · 13:09

And so many brands are basically now built on layering on all of these intangible assets. So maybe it's brand associations, maybe it's connection with tea ceremony, maybe it's about how organic it is. Maybe it's about like the spirituality of having a mindful ritual every morning and you layer in all these intangible messaging to that may or may not reflect the actual powder that they're selling. But an extreme example, would this be like share a Coke, taste the feeling, right?

Ryan · 13:39

They're just selling bottles of sugar water with caramel coloring and flavoring, right? It's all built on these intangibles. So I think a lot of macho brands have found really strong moats in brand building, regardless of the quality and the actual price of the powder that they're sourcing. Feels like a marketing.

Zongjun · 13:59

Feels like a marketing propaganda. I mean, it almost is. I mean, that's one way that you can do value. I mean, the problem with the matcha industry is that there's so little value creation that anyone can do. Coke is an interesting example, Ryan. On one hand, you know, like you can read the formulation table and know exactly all the components that goes into every bottle.

Zongjun · 14:23

But on the other hand, Coke also has regional flavor variations because of the sugar suppliers. And they're not necessarily sharing that piece of information. But you do see the Coke fan base, you know, trying to buy imported Mexican Coke into the States because they use cane sugar there versus corn syrup. And like, if you relate that back to Matcha, you know, all these larger companies, they don't necessarily tell you exactly what's inside the can.

Zongjun · 14:52

And, you know, even if it's the same price or a higher price every year for the same product with the same product name, you can still taste the, you know, variations year by year. And you know, they you don't necessarily can construct a mental model of what went wrong or what went right.

Zongjun · 15:12

And if you to kind of take it back to some of the smaller companies who are sharing a lot of information, you still cannot really construct a very correct mental model of like what exactly these flavors related to what.

Zongjun · 15:26

So how you know how like I feel like there are a lot more that people can do to educate consumers on the linkage between the attributes that you are sharing on the label versus what you can end up tasting. And I think it's very hard because like as you said that you know, every year because of whatever reasons like climate or availability of labored people end up shading the tea for more days or less days.

Zongjun · 15:57

And that's not necessarily a choice that people made to rate a better product. Sometimes it's just a reality and sharing those information to consumers, you know, like you almost begging for the wrong questions or doubts.

Ryan · 16:13

It's true. I mean that's a huge price of transparency actually because when there is natural variation, the natural question is why did it taste better or worse this year And like a huge part of the value chain doesn't have a lot of control over the process like you said.

Ryan · 16:29

So some of it like literally be because the tea factory is too full. There was no volume that was processable today. We had to wait till tomorrow or it was raining a little bit too much earlier last night. Everything's too wet. We need to wait one day.

Ryan · 16:46

And we had to make the decision that it was worth not picking on a rainy day versus having it be a little bit after the optimal window for for harvesting that particular cultivar when it was, you know, quote UN quote ripe or like, you know, perfect timing in terms of the leaf's maturity. So that's that's you're begging for the wrong questions. It's a huge cost to this transparency if you really are very specific about what's actually changing the flavor from year to year, which is ultimately what should matter because flavor is absolutely king. It is like market data has shown over and over that flavor in the sensory experience of product is

Ryan · 17:24

the number one predictor of repeat purchase. Put another way, if you don't like the way it tastes, you're probably not going to buy it again and you're definitely not going to buy it again. If you have 100 other choices, which is what we have in this very fragmented market.

Ryan · 17:41

Not only do you have 100 other choices, but it's very easy to discover them online through social media and even through using like these new. You know, the AI agents are really good for actually just for using it for product search I found and for price comparison, right?

Ryan · 17:59

It can do all of those comparisons. You can say find me every Okumidori from Ujitawara that you can find that is under $40, right? This type of prompt can save someone an hour of looking things up. So these price comparisons are getting significantly easier and makes consumers better, right?

Ryan · 18:18

It all the way it floods back. How do I know if I'm getting a good deal, which is what, you know, consumers and you know, people like us who are trying to supply the product are also constantly asking ourselves. But one thing is very certain as consumers are getting more educated and they're getting having the right frameworks to ask the right questions and this very knowledge rich environment will create winners and losers among the existing matcha brands.

Ryan · 18:47

Now. So you know, there is tremendous cost to educating your consumer, but if you don't and your consumer gets educated somewhere else, not only are you not educating them about what to look for, someone else is and then you know, it's a form of narrative.

Ryan · 19:02

It's a form of of power when you're the one who's like providing useful information people, especially with regards to saving money and with in regards to something that you put in your body that you consume. It's, you know, these types of sharing, these types of knowledge just are very impactful and you have a lot of advantages if you're the one who your consumers are getting that information from. Yeah, true, true.

Zongjun · 19:28

But also, I I actually agree more on, you know, the first part of your argument, Ryan, taste is king. Information doesn't necessarily equal to good product. You can share a lot of information about a product that, you know, it might still taste like crap.

Zongjun · 19:45

This happens to a lot of craft beers and natural wine that I consumed in the past. You know, like you end up learning a lot about that vintage and that, you know, farm, but it's not a good product. It doesn't taste good and maybe your and you end up learning all the wrong taste reference about all the information you just learned, which can also be the case.

Ryan · 20:07

Yeah, no, absolutely understanding the drivers that cause flavor. And I want to record a future episode called something along the lines of why reference standards are so important. And that's actually what the matcha industry is missing. I keep sharing the story because it was so impactful to me as we tasted Okumidori from Wazuka.

Ryan · 20:28

Same cultivar, same growing region, same processing facility, same everything. The only difference was the use of fertilizer and pesticides. Those were so different teas that it blew my mind. I had no clue how much fertilizer was impacting, how bitter it was, how umami it was, and how just how different like. It helps.

Ryan · 20:52

More organic farming what that does and not feel most flavors. I'm sorry, right. I was saying the, the texture, the mouthfeel of the same tea fertilized and unfertilized, it's shocking. And also like we tried to melt some of these potential and it performs so different inside the mill. The end powder is like very visibly different from each other.

Ryan · 21:18

Very coarse, organic, much is very difficult to mill well. Yeah, very fibrous. Yeah, much more fibrous, which makes sense. You know, without the use of pesticides and fertilizer, you have less umami. You have less nitrogen. That's, you know, nutrients for the plants, and it has to protect itself from bugs.

Ryan · 21:36

You don't have this magical, you know, chemical deterrent. You have to make your own. You got to be a Hardy, hardier, sturdier plant. Yeah. So that happens physically, but it also probably happens chemically, which results in different flavors.

Ryan · 21:50

I was repacking a bag of tencha that we recently acquired from a place called Fukuchiyama in Japan, and I was reading the information that we end up getting shared from the farmer and he shared all the fertilizer ingredients that he used for that tea, which was very interesting.

Ryan · 22:11

I feel like that should really be a default information on the package in the future. That really makes a huge difference on the end flavor. Pulp, yeah, or even if it's reductive like synthetic versus natural, cuz there's some really good natural fertilizing practices too, even to create non organic tea. Understanding doesn't come from synthetic chemicals, which we actually we don't have a huge problem with so long as it's done very responsibly.

Zongjun · 22:38

I mean, you know, the fact that, you know, fermentation and chemistry can get you very nitrogen rich soil is is you know, it's a magic of modern modern world. And if it makes tea taste better and it takes the work down on Japanese farmers, probably worth it.

Zongjun · 22:55

It's a really win, win situation when it's done well. Yeah. And actually we even recently read some research that was actually being done in China about nitrogen fixing bacteria. And he was a PhD student doing some inoculation in the soil to promote a certain type of bacteria. I think it was a bacteria.

Ryan · 23:13

Maybe it was some kind of yeast? Or bacteria. Bacteria that produces nitrogen naturally, so kind of self fertilizes and replenishes. So maybe even we'll see technology like that and get rolled out into the future as well as in Japan to make it even more sustainable and even more natural. But still, you know, going back to like us trying to buy tencha or us trying to source matcha.

Ryan · 23:36

Like if you understand what the market rates are for labels that the industry trades on, like for example in a label the industry trades on is first or second harvest 1 might be organic or non organic or the may be cultivars, right?

Ryan · 23:51

If you learn all of a sudden that your favorite blend Gokumukashi is 70% Yabukita and 30% saemidori, both of which are incredibly high yielding cultivars that generate a lot of tea per plant. And if you're paying $50.00 for that for a 20 gram can, you're almost certainly overpaying compared to what the market rates are for those components.

Ryan · 24:13

And again, you need some form of schmuck insurance. And part of that is transparency and understanding what the market rates are for things to do price comparisons. Because right now we're at the early, early, early baby days of this specialty industry and people are asking these questions and brands are slowly releasing this information so that everyone can make better choices.

Ryan · 24:36

But there's prices to be paid. There's prices to be paid by the consumer, which typically means paying less. I guess there's secondary consequences, I should say that the consumers are paying less. It can hurt the people sourcing it, or it can help the people sourcing it.

Zongjun · 24:50

And then there's the farmers as well. So it's actually a pretty complex system when you work through What are the implications of transparency? Yeah. But again, Ryan, like you talk about, you know, like a can of matcha that's made-up of 70% Yabukita and 30% saemidori. And obviously consumers knowing that piece of information, you know with some knowledge and experience will be able to have a pretty good mental model of what that kind of matcha actually worth.

Zongjun · 25:19

But the problem is like, why would these brands share that piece of information? If like they don't decide to share the information, consumer will never know what exactly isn't that can. So it's really a dilemma, I feel like. And if like brands do decide to share some information, it usually would imply that it's a indicator of good quality. That's why they decided to share that piece of information. Or at least that's how, you know, consumers usually perceived from all these, you know, brand marketing strategy. You know, I think the ones that they do pay a very low price because their supply is

Zongjun · 25:56

guaranteed and their customer base is relatively well educated and they've already paid the price in educating them and they're fulfilling. They've literally created new demand. Specialty matcha is a new type of demand. It's a consumer wanting a new thing that actually really didn't ever exist in the matcha industry until very recently. Are you getting single cultivar, single estate, single origin products that have this level of transformation? It's actually an entirely new market in a lot of ways. But since that market is there, it is a group of consumers to tap into.

Ryan · 26:31

And you know, there's a really interesting thing, right? Like if you learn the factors that impact matcha equality and they're on the label, you know, cultivar, region, day shaded, we can think of brands like Ooika that share this level of transparency. And if the impact on much equality is baked into the price, right, like you're paying more for certain cultivars than others or for certain processing methodologies than others, then if you know these quality factors, then you can infer what that product should be worth.

Ryan · 27:02

So then your whole pricing matrix has to be logically consistent and justified. And if you do sell a Yabukita for $50 a can there better be something phenomenal or very interesting about it to warrant that type of increase or that price deviation? I'll say.

Zongjun · 27:22

But that's just giving more information over to the consumer, which I think, you know, that's what those consumers want. And you saw this, you know, start from a very niche industry in something like coffee in the early 2000s with the so-called 3rd wave coffee movement and all this new level of transparency. And I think it was dismissed.

Zongjun · 27:40

I was a child at the time, but from what you read, you know, it was relatively dismissed by a lot of people, still is. But that's grown from a very niche cult movement to now, I think it's a $20 billion industry with people who spend all this time and energy and take pleasure and learning all of these facts and enjoying the experiences that these products give them. And because taste matters most, the smartest consumers will start arming themselves with knowledge because no one wants to pay more money for a worse product. And the only way you cannot do that now is if you are able to make your own quality judgements

Ryan · 28:19

yourself. Especially I think this is going to be doubly compounded by this matcha boom because everything's getting way more expensive. Every single can of matcha that you buy is a bet. And it's a bet that it's worth the 60 bucks that you spent for like how good that that product is going to taste. And a lot of these new products and existing products are just not going to deliver on everyone's mental model for their price to quality ratio.

Ryan · 28:47

And then you're like, oh whoa, I need to learn a little bit more. So I stopped buying things that are disgusting and I need to go to company that are willing to share this information with me. That is true. Even Yabukita can taste vastly different from different regions, from Uji to Yame to even, you know, Kagoshima, depending on the type of tana, the type of fertilizer, the type of processing method, you know, like one day you might actually earn the status of, you know, coffee. Arabica, like people talking about this is Arabica bean. This is Arabica bean.

Zongjun · 29:20

It's not robust, but even arabica can taste very different from different regions. At some point I feel like it's almost sounds like the ceremonial grade tech that people use it to label matcha in the coffee world. Like people keep talking about this being is Arabica, but you know, you can still have good arabica and bad arabica.

Zongjun · 29:38

And I feel like that will become the case for Yabukita one day very soon, even though right now it's like the equivalent for a mass market, mass produced matcha. Well, saying it's Arabica because, like saying it's Camellia sinensis, yeah. Yeah.

Zongjun · 29:54

Well, it's, you know, we're not even talking about coffee cultivars at that point. Even the fact that someone says that basically says we're not specialty. Anyone specialty would say we're using bourbon, we're using geisha, we're using, you know, whatever.

Ryan · 30:09

I forget the number SL28, I think. Yeah, but I mean like mainly people were comparing to like Robusta, which is another mass market being, but even Robusta has their own cultivar variations as well. So yeah, it's, it's, it's interesting how people perceive different products based on the information they learned from what period of the time they end up exposing to, to the culture, I think.

Ryan · 30:36

It's a real opportunity for a lot more interesting storytelling now if everyone is more transparent. That's content marketing, it's educating. It's content marketing, and it's teaching people what makes this delicious. Why does it taste that way?

Ryan · 30:50

Why did the farmer make that decision? That's way more interesting content marketing than matcha versus coffee or something like your morning ritual, right? Like everyone's using and abusing the same content marketing and it makes sense, right?

Zongjun · 31:04

Matcha is a new category. People are introducing it to consumers that haven't even heard of matcha. You know, all over the world, there needs to be a natural progression to these things. But in markets where it's more sophisticated, it just doesn't fly.

Zongjun · 31:17

Like for example, I I saw that MTCH did a like a a drop of Kirari 31 cultivar grown in Gokusho, which is incredibly unusual combination of things. Kirari 31 was a very new cultivar and having it grown in Gokusho. Uji, I think there's only one farmer that grows it.

Zongjun · 31:37

Maybe there's two and I only know. But people mainly use it for like hunta like like Wakota or or green tea processing like they don't necessarily use it for matcha. But everyone, you know, in the the lines that they attracted by selling this Matcha Kirari 31 from Gokusho Uji were insane. Like, like if you think Thailand is sort of the top of the mountain right now in terms of consumer education and awareness, right?

Zongjun · 32:07

Like, they clearly knew what all those meant and we're ready to pay up for it. And they really cared about not only pay up, but wait for it, like their time and money and the effort of being able to access it, right? Like that wouldn't happen in New York, right?

Ryan · 32:23

The market just isn't there. So everyone's in these different stages. But how does New York get there more? How does Los Angeles get there? Well, they get there through this type of content marketing, right? It's a huge opportunity.

Ryan · 32:36

That's like, I guess, a benefit of transparency, not the price of transparency as you get these people with these much deeper, much more complex and sophisticated preferences that have much more nuanced understanding of what's driving flavor, what's driving scarcity and what's driving quality and making better decisions. And, you know, I think it will make the industry respect consumers a little more.

Ryan · 33:00

If you look at like, the average person who is trying to show off the fact that they consume matcha on Instagram, right? And you're a Japanese tea farmer. There's a lack of seriousness, we'll say, in a lot of this content. But you know, when you see like 100 Thai people line up in the hot sun to buy Kirari 31 from Gokusho, it sends a very different message about the level of sophistication that people have in appreciating the product that they put their blood, sweat and tears into.

Zongjun · 33:30

So Ryan, we keep talking about, you know, the price or the benefits for consumers to have a better access to all these transparent information. What about the brand owners? How can they be benefit from this kind of practice or what should they care like or if they should care about it at?

Ryan · 33:49

All yeah, that's like so traditionally within T sourcing, you keep your sources pretty well protected. We're in an interesting dilemma as we source tencha. You know, for sometimes I feel really guilty about the thought of buying tencha from someone that I know someone else could find just as easily and sell it to another business.

Ryan · 34:10

And I just add 30%. I think there's this huge part in the back of my brain thinking, wow, you can get such a better deal if you just found this person yourself. So it's like really difficult. Like, is that how we want to build our business? Like which sources do we secret or not secret? Like it's interesting intention.

Zongjun · 34:28

Yeah, but that's not necessarily the case, right? Because, you know, you have all the this like very weird and legacy practice of consumer, not consumer client prioritization. Like frequently, you know what, we can end up buying from a supplier because we know them earlier.

Zongjun · 34:48

It's not the case for other people who are late comers. Even if they end up knowing the information or the the the supplier, they wouldn't be able to buy it because they're they're getting deprioritized. Yeah, I mean, that's true, but the price of transparency is 0 then, but where the price of transparency is high, like if we know they're sitting on a lot of material, then we're just being completely cut around.

Ryan · 35:12

So, you know, it's, you know, it's important business mode for a lot of people. And there's a really interesting tension there meant even if your coach sort of loosely transparent, for example, it's, there's enough like, you know, what we would call like PPI personally identifiable information, you can start to do some pattern matching and you don't need to say very much. And actually, a lot of guests that have come on the podcast that talk about some of the farmers that they source from, I've gotten private messages from people saying I know exactly who they source from after after very little information actually.

Ryan · 35:47

Yeah. Like, for example, if you have a hand picked, tana, Asahi from Gokou, that's from a husband and wife team, it basically implies a single family. You didn't say their name, but anyone who knows, knows exactly who you're talking about. Or if not from a husband and wife company, like there's only I think, one or two other candidates. Yeah, it's really, it really narrows it down. Or even something like a newer cultivar like Tenmyo from Ujitawara, right?

Ryan · 36:17

There's just not that many people growing Tenmyo and it's like pretty easy to track down who who you're talk, who you're sourcing from. Even with that level of like lack of transparency, I would say, which, you know, it leads you up to the question is what is actually the job of a lot of these matcha brand owners, right?

Ryan · 36:37

Because we're all like sourcing from the same very small pond of producers that can produce things that are exportable, that taste good. But there's just not that many farmers that are discoverable and everyone that has been discovered is discovered. And you realize the more you dig into this industry is what you end up really paying for is just someone else's label, right? Like the powder inside, right?

Ryan · 37:02

Like especially for people who, let's say you source from Ooika, for example, there's a lot of companies that source from Ooika tea Farms and farm in Wazuka and you can look at their price and then you can just go to ooika.com or whatever their website is and you can see what the price markup is, right? It's not very difficult for brand owners or consumers or in the information age that we live in AI to realize. Oh wow I literally just parted with an extra $20.00 for someone else to put a label on this product. So yeah, what that is that is this very true. But but then did this really adds into the argument of like, why should brand sharing all

Zongjun · 37:44

this information? Like maybe there are some other reasons why this brand is selling more expensive for the same tea. Like could be the logistic, could be the extra tax that he or she end up paying for the country that that company or that brand is set up in.

Zongjun · 38:02

Could be really just the price that that brand end up getting quote from the supplier because the supplier doesn't quote the same price for everybody. So then it's really not a good argument for brands to share all these information knowing that you know they are getting the same tea from other brands.

Ryan · 38:22

Absolutely. And I think part of it is that the, the value, the circle of agency within the value chain of a matcha brand owner is relatively narrow, right? So their job is to discover tea that tastes good, right? They need to spend marketing, right?

Ryan · 38:41

Their cost of customer acquisition is typically not 0, right? So even finding you some consumer that would like this thing costs money. They got to curate the selection, which typically means traveling to Japan and buying a lot of other samples that don't taste good, right? Then they got to take all the great videos, they got to take the great photos.

Ryan · 38:59

They have to warehouse the product. They have to figure out how to import, export it, and then they're trying to find you the best and cheapest rate on shipping, right. So there's a lot of value add that is being done to justify that extra $20.

Ryan · 39:13

And you're right, it doesn't make sense for these people. The cost of transparency is too high. It's just a stupid business decision, which is why we don't see it. And in that case, you know, it really understandable why they don't do that.

Ryan · 39:27

But my and then it it from a purely idealistic world. My complaint about the way that this industry is structured now. And by the way, I think these matcha companies are heroes, right? The reason that this matcha boom exists is because of all of these matcha companies, right getting founded. And I'm sure they were bootstrapping some of them for years, losing money until they finally found their audience and like help build this global demand for matcha. Really, we should everyone should be super thankful and bowing down to all of these much of brand owners, right? We shouldn't just think of the

Ryan · 40:06

the farmers as the victims to this. Matcha boom. I think the real victims are actually the Matcha brand owners themselves who aren't able to get supply or are not able to get reliable supply or think that they're ordering something. And then 50 kilograms arrives and it's a lower quality tea. And then they reach back out to their Japanese producer and say, hey, this doesn't taste like the sample. And they're told, oh, that will cost $50 extra per kilo right after the fact, right?

Ryan · 40:37

Like there's some. Craziness going on. They're the real heroes of this industry. But my complaint about, and this is not of a single company, but of the whole structure, is that it's a model that relies on information scarcity. You don't share much about the product. You only selectively educate people on things that have nothing, where you don't have to pay a price, right, The price of transparency.

Ryan · 41:02

And it's, you know it, consumers aren't better for it. But that's all slowly starting to change, right? Knowledge is traveling at speeds faster than we can even probably comprehend. More people know more about matcha today than they ever have in human history.

Ryan · 41:22

Like, that's like, wild. It's incomprehensible, probably for any single person in this entire system. And everyone is getting smarter, everyone is getting more savvy. Everyone is arming themselves with knowledge, especially for people who are driving what we'll call compound growth.

Ryan · 41:41

Every new matcha consumer it's going to end up liking the product isn't just buying it once, they might be buying it once every two weeks for the rest of their life. Think about how that compounds as we move from country to country, region to region of people who are developing the habit and the love of drinking this beverage.

Ryan · 42:00

So consumers are changing themselves and you have to ask yourself, what does the competitive moat for matcha look like in five years now that everyone's getting much better educations on what's driving saving price? The genie is kind of already out of the bottle in terms of the knowledge that you need to ask the right questions to understand what factors drive quality and therefore how these products are priced. So what do brand owners need to do now to be resilient in five years and give them a strong business mode when consumers are forming preferences off of very different sets of information than its organic ceremonial

Zongjun · 42:40

grade, blah blah blah? Yeah, it's, it's very unclear. And I feel like that the only way out is to figure out ways to add more value into the product, not just marketing, but more education, fresh milling or even blending or even like some other ways of, you know, adding processing into the end product.

Zongjun · 43:05

I feel like that's really the only way out. If you look at how people are doing in coffee and wine, it's the consumer mental model of a good and bad product will be more and more clear in the future. And if you are just keep recycling the same information, people are going to get bored. And the only way to kind of a bring in freshness into the consumer cohorts mind is to figure out new ways of adding value.

Ryan · 43:33

Absolutely. I think the single greatest opportunity within matcha in the next 5 to 10 years is not literally marketing and repackage someone else's product, it's actually participating in that products creation. Imagine if the coffee industry with just people buying like roasted coffee beans and reselling them on right. It would be an extremely boring industry. Now it's incredibly important within matcha because the demand for matcha didn't warrant the creation of people adding value on top of the system.

Ryan · 44:06

There weren't, if you go back 5/10/15 years, people were worried, Oh no, are there even going to be enough people that want to drink matcha to support the producers that are already doing it? Right now we have the opposite problem. And the biggest opportunity is the fact that all of the flavor creation of these blended products are controlled by old Japanese men that do not know the preferences of a teenager in Saudi Arabia or a lawyer in Los Angeles or someone working in tech in Hong Kong, right?

Ryan · 44:37

Consumers are just so different and it's so outside of your experience. If you're a four formulator for strawberry yogurt sitting in New York City and you're white and you've only ever known American food, could you possibly be able to create something that a young millennial consumer in Vietnam would like? Like, probably not.

Ryan · 44:59

So like we need to get people closer. We need to get the value add and these product transformations that are driving these flavor profile outcomes closer to the consumer from people, people who actually know and understand what these people want because everything is predicated now on.

Ryan · 45:18

We need to tell you that this product is good. And people ask what is the difference between a high and low quality matcha? They need to be asking a very different question. What flavors do I like in the matches that I've had that I want to spend my hard earned money on? And that's what I think is the shift that's going to happen with this proliferation of knowledge and choice throughout this value chain that it's not going the the the business moats the way you could build a sustainable business in the last 10 years looks very different than it will in the next 10 years because of all of this

Ryan · 45:54

information change. I think that's just the reality. And the people that don't adopt at the times will either remain small businesses or get out competed by companies that are adding value, creating better products, listening to their customers and doing some optimizations and developing new products for them, understanding new ways that people use it, etcetera. And new blends that people like, new cultivars that people will like, like bring them through this rich journey. And this can happen in incredibly sophisticated ways with, you know, master class type, you know, workshops where you really get into the weeds.

Ryan · 46:29

But it can also happen in ways that are a little more silent consumer that's not so interested in knowing the details, but can certainly taste the difference between a matcha company A and matcha Company B. And they like matcha Company B.

Ryan · 46:43

Maybe they don't know why, but that's they're going to vote with their dollars on the thing that they enjoy more. And it's probably matcha Company B that has localized their product and understand what the preferences of their consumers are versus someone just reselling a product that is optimized for Japanese tea ceremony practitioners in Japan.

Zongjun · 47:01

So I guess the real question is what is the price of not being transparent in the next 10 years? You know, there's really a lot of pros and cons in sharing information or be more transparent for both a producer or a brand point of view or from a consumer's point of view.

Zongjun · 47:20

Because, you know, like the information can be misleading and it can be even purposefully designed to hide something in the product. And by the end of the day, you know, the product, the taste of the product is the king.

Zongjun · 47:32

And it doesn't necessarily correlates with how much information you end up sharing about the product and. Although for like a lot of these producers to get like the agency and like literally like consumer preference data, I feel like you need to have a group of specialty consumers first that can tell you useful and objective information about what people in that group of people like, right?

Zongjun · 48:00

Like it's like way more impactful learning that someone you know likes okumidori cultivar or asahi cultivar than it is learning that they like ceremonial great matcha. Yeah, that's true. You know, like they what they really like is okumidori or asahi cultivar with fertilizer.

Zongjun · 48:21

That's true. Without fertilizers, you know, asahi cultivar tastes very, very different, I tell you. Spoken from experience, Yep. Yep, Yep, we recently tried. Yeah. So or you end up sharing the type of fertilizer you end up using on the label, but you don't necessarily always get that piece of information from farmers. So you really need to get the farmers on the same page too for all of these, which can also be very, very tricky because for what we have known about all these politics with all these farmers, like in different regions, they all the farmers work together pretty frequently on processing on, you know, cultivations and packaging

Zongjun · 49:05

frequently that they will be all gathering in one potential farm or in front of the tencha oven and telling each other, you know, what can be optimized for this year's batch. But one thing that they do hold a great secret is fertilizer recipe. That's one thing that they do not share with each other. You have the price of transparency for all the farmers who are competing with each other in the national tea competition is probably the difference between a winning tea and a not with.

Ryan · 49:35

I bet they all taste pretty good, all these competition teas, and the difference is probably really in the subtleties. But it's a great point and maybe that information will be available, maybe it won't be. But without this group of well educated consumers that are able to articulate what they like in objective terms, then all of these matcha brand owners, it makes it much more difficult to make any changes about what they should source, how they should blend, what flavors that they should create.

Ryan · 50:03

So it's I think it's really important in an industry that we can add value to because we don't want a bunch of consumers that are basically schmucks, right? Consumers saying that I love ceremonial grade matcha, right? Like anyone in the industry is going to look down on that person versus if they say I am like super into zairai matcha right now. I love zairai matcha.

Ryan · 50:27

I like tasted one from this Wazuka farmer that has 100 year old plants and they're all Uji lineage zairai, not Shizuoka lineage zairai. And I'm really all into that. The way they that person would be viewed and the way they're ability to articulate their preferences in objective terms, you know they're going to get very different like levels of how seriously they're taken and giving you useful information about what they like and dislike.

Zongjun · 50:55

True, true, true. And as more consumers in the market starting to move into that direction, I feel like that it will be a very, it will be a very critical thing that branches learned from their consumers, what they like or dislike. And having a shared vocabulary will be very beneficial for communications for that matter.

Ryan · 51:17

Oh yeah. No, exactly. It's it's it's a really interesting market right now. There's some people that I want to invite on the show. They're brand owners of tea house called Artifact in Paris. They were, I believe they had the first commercial usu.

Ryan · 51:31

So that just arrived and I was talking with them and like they work directly with their coffee shops and other tea shops that they supply to their fresh milling matcha. And what's super interesting about them is I don't think they're super engaged in social media.

Ryan · 51:46

So like every time I talk with them and like, you know, I'm referencing other brands that, you know, most people in the industry have heard of like they like they did, they weren't aware of it. So they're kind of unplugged from all this online toxicity and from a lot of these like probably way better for them. I'm a little bit reless actually. But you know, talking with them, they, you know, they're, they're not even thinking about all of this debate because I, you know, I don't think they're exposed to this on my world nastiness. They're like, yeah, you know, we're, we're talking with all these coffee companies,

Ryan · 52:20

understanding what flavors they want to express understanding all of these. They have like 8 different cultivars right now that they're blending specifically to meet the people, right? They have the agency of the milling. They're able to source these products and they're actively making things better, further, further market and educating any client that walks in or any of their clients clients in terms of AB to B about what makes their products specifically special.

Zongjun · 52:45

It's I think you're going to find a lot of like minded people like that and I find what they're doing, it's so deeply inspiring. That's what the industry. Really needs and and that's really the magic of agency, Ryan. I feel like you can really make a difference from your own power, from your own power reach. That's really different from people without that and just being absolutely helpless in many situations. How do I frame this?

Zongjun · 53:12

And they're helpless, not because they don't want to help or they don't want to make a difference, because they cannot. And the availability of these agencies are incredibly rare at the moment. Ishi-usus or blending machines, all of these are very large and expensive equipment.

Zongjun · 53:31

And they also have a wait list. So I think solving that problem in the future will really help, you know, a lot of these brands to be able to get out from this turmoil, this quagmire. Well, actually, and I think a lot of them are imaginary too.

Ryan · 53:47

Something that we touched on on one of my favorite episodes we ever did, The Authenticity Trap is that, you know, it's very easy to tell yourself, Oh, there's people who dedicate their entire life to tea blending and who am I to even try to tea blend, right? Because like, it's like, it's just ridiculous. It's like trying to become a sushi master. Like there's really like very specific steps, like you can't just automatically call yourself a black belt in karate, right? It's like a very similar level of like, I guess it's, you'd have to be very bold to make these kind of declarations. But what's interesting is, you

Ryan · 54:22

know, I don't think just to use the nice folks over artifacts as a as a wonderful case study, an example, you know, there's a like logical inconsistency there. And they're like, yeah, yeah, I because we were roughly talking about this and like, yeah, tea, tea blenders in Japan are great, but they have no idea what these consumers in France like.

Ryan · 54:42

And like, it's just so dead obvious, right? So like we also fall into our own mental traps restricting our own agency. And it's really not rocket science. And also the product speaks itself. It's, it's actually like, it's probably a little bit difficult to, to, to kind of use this framework. If we're talking about like tea ceremony, which you do have a very specific framework of doing things and you are getting judged by a very, very complicated matrix. But for things is like, you know, sushi or for things like, you know, martial arts for that matter, like if you can end up creating a, you know, a market

Ryan · 55:25

winning product or if you can beat your competitor or your your counterpart, you, you are the better one. It's yeah. It's like in a fight, yeah. It looks like Bruce Lee created this new martial art called Jeet Kune Do and he just kicked ass in the Chinese martial art community. Like all of these generational, you know, like martial art practitioners from other schools are just worse in front of him. I feel like it the same kind of like identical argument can be placed in, you know, the art of creating matcha. If you end up creating a better tasting product, you are the winner, right?

Zongjun · 56:07

No matter how you do it, you end up creating something that tastes good. And I think that should be the only judgment matrix for this matter. Yeah, that's interesting. It's like, you know, who did you impress? Are you impressing the people who are actually drinking it? Or did you impress the 10 judges who are old Japanese men who 300 matches that day or 10 just that day? You know, like which one do you care more about impressing? And you know, they build different type of capital. One builds social and and status and symbolic capital. You know, if you win AT competition, which then might lead to, you know, economic

Zongjun · 56:45

capital through recognition and more sales. Or do you just care about creating something that people want who are outside of that group of people? I think people in this industry have too much respect to be on. I mean, there's a lot of people who don't have enough.

Zongjun · 56:58

Let's let's make that very clear within the match of industry. But there's a lot of people I think that actually have too much respect and they don't realize that they're not playing, you know? So like, quote, UN quote, in the arena, in the boxing ring, it's a street fight.

Ryan · 57:16

Oh yeah. You're not doing it like all that really matters and the rules that should matter is am I creating something and delivering something to the consumer that they actually want, not the fact that I won this, that or this other thing. Why in the world we care about the people? Like, if you really think about it, you really zoom out the absurdity that is going on just in general with a lot of all competitions for that matter.

Ryan · 57:43

It's like the Oscars, right? Like, the movies that win the Oscars happen to meet the preferences of a very sophisticated subculture, but they're not the movies that do best at the box office, that inspire people to become better people, like all the superhero movies do, or at the very least, at least entertain people. So, you know, those have a much larger impact on the broader stage.

Ryan · 58:06

Like, you can take a content creator like Mr. Beast and criticize him all day for this, that or the other thing. But the reality is people just like what he makes, like, what are you like how you can judge him on all of these other criteria. But like he brings so much pleasure to people's day all over the world who watch that content, which honestly, I think is a much more difficult thing to do, building and growing new audiences rather than competing in the same audience and in the same traditional system that has existed forever. It's hopeless.

Ryan · 58:39

You can't do anything. There's no agency that you have as an outsider from Japan to even try. So we got to fight and find our own path and our own consumers that, you know, have their own relationships with these products built on a very different set of axes.

Zongjun · 58:53

And if we don't tell them what those axes are and if they're not even aware of what to ask for to get good product, someone saying I want ujicha or I like ceremonial matcha doesn't tell us anything really, because those terms are virtually meaningless from an origin or from a quality classification perspective. So a lot of ways this goes back to what you were talking about before in the episode that we recorded new culture creation and that the price of the price of this transparency, one of the benefits of it is this new culture creation. I mean, that's the price that we all have to pay to create our new culture.

Zongjun · 59:28

That's no longer, you know, you know, a few million tea ceremony practitioners in Japan. It's represents the diversity in all all humankind and all of the countries that now love and enjoy matcha and are incorporated into their lives every day. I think that's a much.

Zongjun · 59:44

That's true. And also the, I guess the interesting thing about this new culture creation is not new culture creation, but new cultures creation is plural. It's, you know, compare making the comparison of Oscar versus, you know, all these box box house movies is almost like, you know, like they can all exist within this framework.

Zongjun · 1:00:08

You can have 10,000 different subculture groups exist in their own bubbles in different countries doing very interesting things that they found interesting or great, which is kind of a future that I really like to see, but there's no longer one. Judgement Matrix.

Zongjun · 1:00:24

There are many. Each individual culture and their community can very sustainably support their own culture or their own taste. Absolutely. I think that will be a very healthy future. Much more healthy the people that create like Texas Chainsaw Massacre too, right? Still need actors and studios and film cameras and the agency to make this very nice sub drama horror movie. And so do the people who make like a French melodrama. You have all of these like really contrasting different like subcultures and new cultures that form that. When you look across these cultures, there's probably a lot of cross cultural judgment, but

Zongjun · 1:01:08

at least they can exist because they have the agency and the tools and the equipment and the knowledge to do so and the distribution channels. Now the ultimate, you know, the awareness and distribution that's solved through the Internet that you don't need to rely on old world systems for someone to know that your product exists and how to get it to them. We're really close to a world of seeing like something much more similar to the specialty coffee movement where you have real roast like roasters all around the world having their own interpretation, their own point of view, their own sourcing philosophy, and their own set of

Zongjun · 1:01:42

sophisticated consumers that they can educate on different aspects of what makes coffee interesting and deliver products that they love. And we're very close to having that world be for Matcha. I think we're like 1020 years away from seeing what could be a flourishing culture of people adding value on top of the system, creating better things that people like, building very successful businesses in all of these different markets, not just re selling a Japanese product, so to speak. We're getting there, We're getting there. Did you say 10 to 20 years?

Ryan · 1:02:17

Because that's how our new cultivar gets registered. Maybe I'd love if we could have our hand in some of that. That'd be super cool. I think it's a great place to stop. If you enjoyed this episode, please consider sharing it to Friend and we'll see you in the next one. Thanks.

Zongjun · 1:02:31

See you in the future.