Latest / Specialty Matcha Podcast / *Breaking News: Marukyu Koyamaen's Announcement

Transcript

*Breaking News: Marukyu Koyamaen's Announcement · Specialty Matcha Podcast

0:00
Hello and welcome to the Specialty Match podcast.
0:02
My name is Ryan, this is Michael Hassanjun.
0:05
Oh, hello. And we're the Co founders of
0:07
Zanko match product. Yeah, we launched this podcast
0:09
to discuss our learning journey, matcha share start up stories
0:12
and interview experts. And today we are releasing a
0:18
very special edition of this podcast talking about breaking
0:22
news that we saw online recently.
0:25
So one of the major blend house model Q Co MIN is publicly
0:30
apologizing to consumers about they are they will be running
0:35
out, literally running out of selling matcha by the end of the
0:39
year. Yeah, pretty shocking
0:40
announcement. And for the rest of this
0:42
episode, for pronunciation's sake and for for speed and
0:46
efficiency, we're just going to refer to them as MK.
0:50
Especially because my Japanese pronunciation is so poor, save
0:55
embarrassing myself. But you know, it's a pretty
0:57
shocking announcement. I mean, the the announcement is
1:00
literally like, hey, we might run out of matcha.
1:03
And coming from one of the largest, most established
1:06
traditional blend houses, that was pretty shocking and sent
1:09
some waves through the Internet sphere.
1:12
And a lot of people are giving commentary.
1:14
So we start find this like really worthy of like breaking
1:18
news in the match industry and wanted to sort of investigate
1:21
further. Yeah, this is literally like
1:24
Nike posting about, you know, they're running out of shoes to
1:29
be sold, which is kind of crazy to think about.
1:34
Really crazy. So we reached out to a bunch of
1:36
former guests on the show and to source their opinion and to
1:40
gather different perspectives other than our own.
1:42
So we're structuring this podcast sort of as a breaking
1:45
news segment. We're recording this at the very
1:47
last minute before we're publishing it, so the format's
1:50
going to be a little different. We're going to talk about the
1:52
announcement itself and then kind of give some highlights of
1:55
the online commentary that's out there in public.
1:58
And then we asked a bunch of people their opinions who had
2:01
very different perspectives on the industry, including Cole, my
2:05
matcha addiction, who's a matcha influencer and reviewer of what
2:09
he thought. We reached out to Ian from You
2:12
know Me. Both of them are former guests,
2:14
and Ian runs You Know Me, which is the largest marketplace of
2:18
artisanal Japanese tea online and works a lot with small tea
2:22
farmers. So it's a really great
2:24
perspective. And then we reached out to a tea
2:26
farmer, Paw, who is a future guest on an episode that is yet
2:30
to be released, but also runs the blog Tea Nursery, which is a
2:34
fantastic resource, especially if you want to learn more about
2:36
production areas or cultivars. And he's like literally deep in
2:40
the weeds as a tea farmer himself working in Kyoto
2:43
Prefecture. So we source these different
2:45
opinions and we've kind of amalgamated it all together in
2:49
this episode to hopefully give a pretty enriching breakdown of
2:54
not only like, what is this announcement, but what are its
2:56
implications? And why is there not enough tea?
3:01
And what are the bottlenecks to that are that are causing this
3:05
issue? Yeah.
3:06
It's pretty interesting to kind of review different perspective
3:13
coming from different parties because our first thought is
3:17
that, you know, like this will really push consumers to kind of
3:20
explore around to maybe down to more niche, more boutique
3:25
production or producers out there in Japan other than MK.
3:30
But it seems like the situation is much more complex than we
3:33
thought. Much more actually.
3:35
My very first reaction seeing the headline was, wow, that's
3:38
great. Like Matcha's really having its
3:40
moment, you know, seeing a company like them sell out and
3:44
nearly run out of Matcha. I mean, it just shows that this
3:48
movement's really growing. When you read through the online
3:50
discourse, there are actually some pretty negative
3:52
externalities about that and that we're going to touch on in
3:54
the episodes. Like anything, it's really
3:57
complex and it's interesting to see all these different opinions
4:00
and kind of view the same thing from many different
4:03
perspectives. So let's move on to the first
4:06
segment, which is the announcement itself and we're
4:08
going to read off part of it from Instagram itself.
4:12
So the title is apology and announcement regarding quantity
4:15
limit restriction on Mantra products in the current
4:18
situation. So dear customers, due to a
4:21
sharp and continued increase in demand of Mantra products in the
4:24
past few months, the current demand has already over our
4:28
production capacity. This results in extreme low
4:31
stock of all matcha products at this moment.
4:34
It goes on to say that they're doing their absolute best to
4:37
keep up with the demand and that it's only possible for them to
4:40
procure tea once a year. And so there's very little that
4:43
they can do at this point. And therefore they regret that,
4:47
that a quantity limit restriction is now applied on
4:50
all Matcha products to ensure that it can reach as many
4:54
customers as possible while stocks last.
4:57
And it also says here in the middle that there will be a high
5:00
possibility of a complete out of stock before the next harvest
5:05
season arrives. That's crazy.
5:07
And it's even more crazy because the next harvest season, you're
5:11
not immediately making macho when you harvest the tea leaves,
5:14
process it to tensha and then mill it.
5:16
Typically that undergoes a resting period, which is a point
5:19
that paw made. These products sometimes age for
5:23
usually around six months and they get released in the fall,
5:26
but they can also be aged for a year or two to help kind of cut
5:29
off the bitterness because a lot of the bitter and astringent
5:32
catechins degrade faster than the amino acid compounds, which
5:35
are more of mummy. And so it's a way of sort of
5:37
transforming a flavor profile to to mellow it out by aging it
5:41
even more. So it must be very tricky from a
5:44
stock management even keeping older stocks to create a lot of
5:48
these blends that they have. So it's crazy.
5:51
I don't know, Sam, what was your or what was your first reaction
5:54
when reading through the post? Sort of in their own language,
5:59
in the way that they phrase things.
6:00
Yeah, they, it's interesting that they are actually doing
6:05
some measurements of limiting people to buy their tea so that
6:11
they can have enough tea to offer to to to more customers.
6:15
Like I read part of the comic session to that people are
6:19
complaining that, you know, like they go to their physical
6:22
location in Japan and only to learn that they're there isn't
6:29
enough tea for them or the tea that they want to buy is out of
6:33
stock. Like, it's kind of crazy that,
6:37
you know, people running into situations like this where they
6:40
travel so far away from the other side of the world only to
6:43
learn that something's not available anymore.
6:45
That's crazy. And you know, MK is not the only
6:48
company this is happening to. There are a lot of these
6:50
traditional houses that have been out of stock.
6:53
Even MK themselves have had extremely low stocks over the
6:56
past couple of months and now they're basically saying, hey,
6:59
we might run out of tea. So they're, they're not even the
7:02
only people that it's affecting. You know, Sam and, or Zhongjun
7:06
and I were on the phone the day after this came out and, and our
7:09
initial reaction was, hey, this is going to move consumers into
7:13
a state of exploration. The people have built this
7:15
habit. Maybe they found a great value
7:18
with a lot of these products and a lot of these plans.
7:20
It's going to push them into a mode of exploration just like
7:23
you do anytime you don't have access to whatever you've built
7:26
the habit with. And it might benefit the other
7:29
or tea companies that do have much of stocks and might be less
7:33
known. And this might just be a case of
7:35
having like these awareness pockets and sets of matcha
7:39
consumers where it's slightly more winner takes all.
7:43
Like because people are aware of these companies and they have
7:45
great reputations and so many people are aware.
7:48
And a lot of these hype cycles are being driven by platforms
7:52
like Instagram and TikTok, right?
7:54
A lot of the market share goes to them.
7:57
And maybe this will be an opportunity for other less known
7:59
companies to to get more market share and for consumers to build
8:04
preferences and new habits with some companies that get less
8:09
love online. And, you know, as we talked to
8:11
more people, we realize that that might be the case.
8:13
But also there's a lot of complexities and externalities.
8:16
Yeah, you might even be the opposite of the case, as we
8:21
learned that a lot of these smaller houses are actually
8:24
depending on these larger houses on their production capacity.
8:28
And in normal years, you know, like these larger houses might
8:32
have overcapacity so that they can, you know, kind of give them
8:35
to smaller houses for for, you know, processing their teas.
8:39
But right now they are running out of their capacity
8:43
themselves, like all these smaller houses might end up not
8:47
having having any capacity to process their tea, which is
8:50
shocking to learn. Very surprising and really
8:55
caught my intention as I was reading a paused reply on our
9:00
question. And, you know, it's not just the
9:01
tea industry that does this sort of thing.
9:03
I know it's a big thing in craft beer is it's, you know, it's a
9:06
really just like building a tension factory is a huge
9:10
investment in capital equipment and land and risk.
9:14
But you have all of this equipment that's sitting there,
9:17
and typically you need to build it above your capacity so you
9:20
can grow into your equipment. So as you produce more, as you
9:24
sell more, you can create more because there's no point in
9:27
building a factory that's exactly at the limits of what
9:29
you're selling now. So even in industries like beer,
9:32
it's very common to do contract brewing so that equipment's not
9:36
just sitting there can make money brewing, you know, other
9:39
people's recipes to create their products and then, you know,
9:43
package it using their packaging.
9:45
It's a huge thing to make sure that you're kind of squeezing
9:48
the most out of your equipment. But what happens when there's a
9:51
huge explosion from the equipment owners, right?
9:54
They're the ones who have the leverage and they need that
9:57
capacity. Now.
9:58
It's could actually be a very negative externality for these
10:01
smaller players that are reliant on other people's capital
10:04
equipment for processing. Yeah, that's right.
10:06
They really have no leverage and right now it's extremely
10:11
expensive to build new facilities and procure new
10:15
machineries for all of these Shiagi process to process alert.
10:20
We learned that, you know, the last wave of construction of
10:24
such facilities was about a decade ago, and it has been a
10:28
long time since any of these new factories being built.
10:31
And apparently in a lot of the in certain tea growing
10:34
prefectures, it's not as easy as just building a new building,
10:38
right? Because you have to work with
10:40
the local land and the local geography.
10:42
And we were learning that in Kyoto Prefecture, there's a lot
10:45
of repurposing of old buildings that get turned into tea
10:49
factories just simply because there's not enough land or they
10:51
can't use the land in certain ways.
10:54
They kind of have to work with a lot of existing infrastructure.
10:57
Whereas in like places like Kagoshima, which are extremely
11:00
large and flat, you can just build this gigantic facility.
11:04
Whereas in like some areas in Kyoto, it's just not the case,
11:07
which is something that Paul Toto told us when we met him in
11:11
Japan. Yeah, that's that's all very
11:13
interesting. So, Ryan, let's look back to the
11:16
original post made by MK and I was fascinating, fascinated
11:21
about the the comments section underneath.
11:25
As you know, a lot of people are blaming, blaming TikTok as you
11:31
know, the main contributor I would say.
11:35
What do you think about? That this is particularly weird
11:37
for us and I don't know anyone who's listening on this that's
11:40
not on TikTok because we are not either.
11:43
So I would say this was a blind spot for us on our like news
11:47
ecosystem. And it is really interesting
11:50
because actually, you know, backing up one step further, the
11:53
first comment that I saw reacting to this news on
11:56
Instagram was from Jacques and Macha as a matcha business in
12:01
the Philippines. And she was talking about all of
12:04
this overconsumption. And she wrote, matcha used to be
12:07
consumed on special occasions like tea ceremonies, and that
12:10
hoarding and overconsumption doesn't look cool.
12:14
And when I first read this, I actually was pretty confused.
12:17
I didn't quite get it. And then I also read from matcha
12:20
moments in the Philippines as well, discussing how matcha is,
12:24
you know, really premium product and how many people are drinking
12:28
all this great matcha and gulping it down in the form of a
12:33
latte, you know, without thinking about it or knowing
12:36
what this product is, right? They're just people with a lot
12:38
of buying power, buying this great stuff and we'll call it
12:42
watering it down or you know. Ryan, as a Chinese and you know,
12:49
I this really reminds me of how people were complaining about,
12:56
you know, all of these vintage Chateau Laffy getting procured
13:01
and gulped by all of these businessmen in business parties
13:06
in in China. And there's just not enough
13:08
supply for elsewhere in the world.
13:10
And people were blending like a green tea of into, you know, the
13:15
wine and drink it as a whole. Let me add some conscious for
13:19
green tea into it, make it more drinkable.
13:23
I didn't really understand this commentary completely until I
13:27
was talking with Cole and this is what he wrote.
13:30
I was asking him what he thought about this over consumption
13:32
argument and he said, yeah, I think TikTok is really pushed
13:35
over consumption. I think that people just
13:37
literally don't understand how fast matcha goes back.
13:40
I see people having full drawers or shelves of matcha, all
13:44
unrefrigerated and all half consumed.
13:48
I was like, well, you're right. I guess I have seen that a
13:50
little bit on Instagram that there's this whole culture of
13:55
like, building up your matcha stash and like, there's no way
14:00
people are drinking that before it goes bad.
14:02
And it is kind of a waste. And I never really quite
14:05
considered that. And he was commenting how
14:07
someone had recently commented in one of his posts that they
14:11
think he does a very good job keeping low stocks and keeping
14:14
matcha fresh. Like, as it's intended to be.
14:17
Like the first real thread in reaction to this news is a
14:20
culture of overconsumption. I guess it's inevitable, you
14:25
know, in their defense, it's inevitable for a lot of the
14:29
beginners to kind of especially in their exploration phase to
14:33
really have a stash of matcha because they, you know, they,
14:36
they probably want to try what all these matcha taste like.
14:40
And I mean, like I have been through similar phase for, for
14:44
tea, for coffee, for wine, for spirits.
14:47
The only problem for matcha is that it really doesn't age.
14:50
It's, it's, it's like it really is a fresh fruit.
14:54
It's very different from other things out there that people
14:58
might be migrating from. True, and that just doesn't have
15:01
copy and paste over to matcha. But you know it's good and bad,
15:05
right? You have a bunch of people
15:06
buying a bunch of stuff, forming preferences, deciding what they
15:09
like or don't like or where they find good value or bad value.
15:13
But on the other hand, you have a bunch of stale matcha that
15:16
could have gone to someone who would drink it.
15:19
It's kind of like a scarcity mindset versus an abundance
15:22
mindset. And like in a scarcity world,
15:25
like what you said with Chateau Lafitte, right?
15:28
Like it's a bit of a shame that people who it's not even people
15:33
who don't even appreciate, let's assume that they appreciate all
15:36
the flavors and can taste it and understand the history.
15:39
Even if they do right, it's still like it's going bad.
15:42
Yeah. But that that is really hard
15:44
though, like because, because you do have a growing demand and
15:48
like growing amount of amount of people that are curious about
15:52
trying more and what are you going to do with them?
15:55
Like stop giving them tea or like who is there to to judge?
16:01
Like you know, you know nothing about matcha Like people making
16:05
those judgments was once a beginner too, right?
16:08
Like, they probably went through a very similar phase.
16:12
Very true. And looping back to, you know,
16:15
the Chinese wine consumption, like you had that crazy face
16:18
about, you know, buying only Chateau Lafi from the Creme de
16:22
la Creme. But you know, that case later.
16:24
Right now you have a very interesting Chinese wine culture
16:27
and Chinese wine, you know, appreciation scene here going
16:30
on. You know, people are saturated
16:33
and like those who are really into wine start, you know,
16:36
taking wine seriously, start even growing wine and producing
16:39
wine in China. And without those initial craze
16:42
like no one will essentially care about it at all.
16:48
So I bet you know, macho is inevitably going to go through a
16:52
very similar phase as you know, there just will be people
16:56
flooding into the market and eventually, you know, like those
17:00
people who treat it as a high pool, let relief and then left
17:04
with those who truly care and and they will become experienced
17:09
drinker in the future. Yeah, absolutely.
17:11
Or, you know, form their own little like subculture, right?
17:14
Like something that we've talked about before, if you look at
17:16
like tea culture in Britain, they were importing Chinese tea,
17:21
but they certainly were not importing any Chinese tea
17:24
culture. Then you can evolve into its own
17:27
thing. And in a similar way, just like
17:29
how you see people buying really good matcha and putting a giant
17:33
scoop of agave into it and then whisking it up right to a
17:36
purist. That's horrifying.
17:38
And there's an interesting comment here in the comment
17:41
threads. Actually I think this was the
17:42
most liked comment under MK's post and it says tik tokers
17:47
ruining tea get 115 likes and then people say ah someone
17:51
finally said it. I'm so annoyed someone else said
17:54
so. True.
17:55
And then if you keep reading down, someone commented on how
17:58
TikTok Mania in America is mixing precious matcha with
18:03
Oatly and now there's not enough matcha for tea ceremony
18:06
practitioners. Well The funny thing is we were
18:09
at the Horty Shichman and and the lady there told us that this
18:13
matcha is good with oatly or oat milk.
18:16
So it's interesting getting purist perspectives and then
18:19
having a more open mind. People might really like it
18:23
mixed with other things. It's.
18:24
A little bit unfortunate to see this dilemma exist for the time
18:29
being because I do understand that, you know, like people get
18:34
angry about, you know, things that they really appreciate and
18:38
things that they not only they are appreciate, they are not
18:41
able to buy at the moment. And seeing them being kind of in
18:46
their, you know, in their eyes spoiled with other things.
18:50
I can relate to the anger, but also at the same time, you know,
18:53
like maybe that's the reality that we need to deal with.
18:57
But. Yeah, why?
18:58
You can't change consumers. Anytime people are blaming
19:01
consumers, it's too hard, right? This industry is in service to
19:05
consumers, whether or not they're tea ceremony
19:07
practitioners or whether or not they're people who enjoy matcha
19:10
in the latte. And that's just the reality.
19:12
And the no amount of huffing and puffing is going to change that.
19:15
And this is just for fun. Some very nice, amusing pinnacle
19:19
of online discourse. And someone wrote, seems like
19:22
it's time to increase capacities and to buy some more land to
19:25
harvest tea. To which someone responded
19:28
that's not how it works. Tea plants are not green beans.
19:32
Wonderful sampling of some of this delightful discourse that
19:36
exists within the On 9 Tea community.
19:38
One interesting thing in the comment threads was talking
19:41
about limited stocks for people travelling to Japan and it
19:44
seemed to be a pretty big topic where you know, people would say
19:48
you know, I'm travelling all the way to Japan, I want to buy it
19:51
there. I planned my whole trip around
19:53
this and please like save it for retail sales versus selling it
19:58
online. To which a lot of people respond
20:00
and this is a quote from someone.
20:02
I live in France and I drink matcha for years now and trust
20:05
me when I say that European brands of matcha aren't worth
20:08
it. Online sales of great matcha
20:10
gardens like MK, like Cori, Shishi, Man, Ippoto are truly a
20:15
gift for people like me. And there were other people
20:18
echoing that sentiment, so. You know, there are no right
20:22
answers to this stuff. It is very complicated.
20:25
And what do you do in a world of scarcity?
20:27
And it'll be interesting to see how that plays out, especially
20:31
if they do run out of matcha. It'll be interesting to see how
20:34
it plays. Out like on one hand, you have
20:37
people like really die hard matcha lovers traveling all the
20:42
way from their own country to Japan, maybe for the first time
20:47
ever. They're so like excited and
20:50
prepared to buy this matcha that they have been loving at their
20:55
at the physical location that they want to visit and only to
21:00
learn that, you know that he sold out.
21:02
But on the other hand, you have people like who, who cannot
21:06
probably afford to go to Japan or plan the whole trip and can
21:11
only relying on, you know, online sells to try all of these
21:15
wonderful things. Like it's really hard to assess
21:19
the situation because for me, I think that, you know, everyone
21:22
should have the freedom to try good matcha.
21:24
You should not stop anyone from buying any things.
21:27
That's just not fair. It's almost, you know, a create
21:32
a man made obstacle for for someone to to assess something
21:37
and that's just not fair for people.
21:39
Yeah, no, absolutely. But that, you know, macho
21:42
culture, you know, exists out of, you know, retail sales in
21:45
Japan and that people have built businesses, people have built
21:48
habits and people have built lifestyles for tea ceremony
21:53
communities that, you know, need to be supplied and that exist
21:58
outside of Japan, right from all of the culture that Japan has
22:01
exported. I totally agree.
22:04
So we reached out to, as I said, a couple different people.
22:10
One of them was Cole from my Matcha addiction, asking him his
22:13
thoughts in general. And then Ian and paws.
22:16
Well, and we're going to kind of put them in this order because
22:18
their commentary in the flows very nicely into to understand
22:25
where the bottlenecks are, why the bottlenecks are the way that
22:28
they are, and then understanding the secondary and tertiary
22:34
outcomes of the fact that there is this shortage.
22:37
So Cole wrote, there are a ton of matcha brands that pop up
22:40
almost every day and it seems like they all seem to be
22:42
sourcing from the same handful of farmers speaking Zhongjun and
22:46
I have went to Japan. This is so real.
22:49
Anyone doing sourcing abroad, it is hard to find farmers,
22:53
especially farmers that are willing to meet with you and you
22:57
know, kind of have to rely on what's an English or finding
23:00
people through Instagram. And it is very easy to discover
23:05
someone else's supplier even by accident if not intentionally.
23:09
So that is so real. The more we learn about sourcing
23:12
in Japan and we have a whole series coming out about that.
23:15
Yeah, for a lot of the teas, it's just the same tea getting
23:19
repackaged into different brands.
23:21
And then it's interesting, like, oh whoa, I know exactly who this
23:24
person bought that from. I can perfectly pattern match
23:27
it. I'm like, interest, this
23:29
person's charging $28.00, this person's only charging 22.
23:33
Like, I know this is the same product.
23:35
Anyway, we won't make any enemies, so we'll stop the
23:38
commentary there. But Cole goes on to say, I do
23:42
worry that to meet demand, either quality goes down or
23:46
price goes up. And that in his opinion, I think
23:48
it would be price that goes up in the short term.
23:51
And in the long term, he says he could see more farms pivoting
23:54
towards 10 shop production, which we'll talk about in a
23:56
little bit as well. But it does seem to be the
23:59
consensus that price goes up and kind of makes sense, right?
24:02
Classic supply and demand dynamics.
24:05
What do you think about MK raising prices?
24:08
Do you think that's the right move or do you think just
24:10
limiting stock? Well, clearly they've decided
24:12
just to limit stock and not to raise prices.
24:14
But what if they did raise prices and not limit stock?
24:18
Yeah, I don't know. I mean like as what they said in
24:22
the announcement, they are trying everything.
24:25
So I guess they just have to try things and they'll figure out
24:28
what's the best solution for for the situation because you know,
24:32
like this is probably like the first time they are running into
24:36
a situation like this. In their 300 year history, they
24:40
were founded in 17 O four kind of crazy.
24:44
Yeah, that is not so much younger than Ming dynasty China.
24:49
And you know, this is not a small business, by the way, just
24:51
to put into context, if you do some basic research on this
24:54
company, this is a huge range, but it gives you a sense of how
24:57
big they are. And it's estimated they do
24:59
between 10 to $50 million in revenue a year, a pretty large
25:04
business. And I don't know how accurate or
25:06
up to date this number is. And it's a huge range, but you
25:10
know, they're pretty significant supplier to the quote UN quote
25:13
matcha economy. So we also reached out to Ian
25:17
from you know, me, who is an incredible wealth of knowledge,
25:20
especially because his perspective is working so
25:25
closely with so many small Japanese tea farmers, like
25:30
hundreds of them. And so he's a sense of like the
25:32
pulse of what's going on in the industry.
25:34
And so we're very thankful that he gave his perspective.
25:38
And he thinks that demand is largely driven by tourism in
25:41
Japan and he kind of separates matcha into two very distinct
25:46
markets. You have domestic, which has
25:49
grown because of tourism and then you have international,
25:52
which needs to be compliant for different regulatory agencies in
25:57
the countries that are importing these products from Japan.
26:00
And there has been a huge boom in tourism in Japan in general
26:05
and Japan retail places and cafes are.
26:09
This is something Ian was telling us in person when we met
26:12
him in Tokyo a few months a few months ago, was that cafes are
26:16
now putting matcha on their menu not because Japanese customers
26:20
want matcha or a matcha latte. It's because all the foreigners
26:24
that are coming to Japan expect it to be on those menu.
26:28
So even in Japan, there's this scramble to get enough supply in
26:32
places where it traditionally wasn't.
26:34
Yeah. I mean, we kind of saw the
26:36
situation, very similar situation in some of the offline
26:41
physical stores of these traditional houses.
26:44
For example, we were in Leo and in Kyoto and we were there to
26:50
buy some tea and try their teas. And for about half an hour of us
26:55
being in the store, there were just tourist and very, very old
27:00
Japanese men. And it's just very fascinating
27:04
to see the demographic of consumers in those physical
27:08
stores. So really foreign driven and you
27:11
can really feel that when you're in Japan too.
27:15
And if you talk to like really local Japanese people and you're
27:17
talking about matcha, it's very apparent.
27:20
It is not cool. Like maybe their mother or
27:23
grandmother studied tea ceremony and that's the extent to which
27:27
they know or talk about matcha or care.
27:29
Like it's like they're, you know, older generations, obscure
27:32
hobby. It's the impression that I get
27:35
talking to like local people in Tokyo.
27:38
Yeah, like getting into matcha, working on matcha is almost like
27:43
sounds like getting into weaving for a lot of the younger people
27:48
in Japan. So very interesting to see, you
27:51
know, how people assess this, this thing from different
27:54
countries. Yeah, absolutely.
27:57
So you have these two very distinct markets and in some
28:00
ways they're intertwined, right? Because you have the domestic
28:02
market, which the growth is being driven by foreigners and
28:06
you also have the foreign market and obviously the growth is
28:08
being driven by foreigners, which is a lot of where this
28:11
interest is coming from. So I'm going to read this
28:13
directly from my conversation with Ian.
28:16
So he says overseas import brands at any scale are
28:19
importing compliant matcha, which is lower in price and in
28:22
quality, meaning more bitter, less humami and less body than
28:26
what is sold in Japan. So if we divide this into Japan
28:29
compliant and overseas matcha, demand for both are very high,
28:34
but coming from different markets, the effect on supply
28:37
for both are similar, though it puts pressure on supply.
28:40
So that was the end of this quote.
28:42
And Pennsylvania also reiterated this over and over and over
28:47
about how this puts pressure on supply.
28:49
And Pennsylvania later on in this podcast is talking about
28:52
the different bottlenecks in matcha production and how it's
28:55
putting all of this pressure. And we'll talk about that in a
28:58
moment. But going back to Ian's
29:00
comments, and while overseas compliant matcha production can
29:02
expand, Japan compliant matcha has significant limitations.
29:06
I think. Meanwhile, I do see more
29:08
overseas entrepreneurs asking for Japan compliant matcha
29:11
without knowing the regulations they need to abide by.
29:16
Compliance for the US can be solved by the EPA establishing
29:20
safety limits on pesticide residue based on research.
29:24
A reviewed research done in Japan.
29:26
Taiwan and the EU take a much stricter approach in general
29:29
though, so it's unlikely. Either way, demand will push up
29:32
prices and import brands will either have to raise prices or
29:36
sacrifice their excessively high margins.
29:39
But for supply for high grade matcha I don't see it expanding
29:43
much. Yes we have more and more farms
29:45
switching to tenta production. The industry could build more
29:48
Tenta factories, but any farmer Co-op now that has sencha
29:53
factories and that have sencha factories and replacing that or
29:57
adding existing factories will be difficult.
30:00
And this is the next part that Ian says really made me pause
30:04
and think is that more than that, the demand being from
30:07
foreigners creates a situation where you have a piece of
30:11
Japanese culture that is being consumed by non Japanese.
30:15
And if at the expense of leaf tea or loose leaf tea, then that
30:20
is in a way a destruction of Japanese tea culture rather than
30:25
spreading. That is a really interesting
30:28
negative externality that I wasn't thinking about that you
30:32
can, you know, there's a lot of tea made in Japan.
30:35
It's not tensha, but if you switch it over to 10 chop
30:39
production, that has to be at the expense of something else.
30:43
Yeah, that's quite an interesting phenomenon.
30:47
I guess you kind of see that in other industry too.
30:50
It's going to use a Chinese tea example.
30:54
So, you know, in China, in certain tea regions, you start
30:58
to see some major cultivars, so a major type of tea overtaking
31:04
the entire region's production. Whereas in some traditional
31:07
regions, not only you produce woolen, you sometimes produce
31:11
some green tea, some red tea, some white tea.
31:14
Now are just exclusively producing, you know, Dahun
31:18
Powell or exclusively 1 certain type of cultivar and they are
31:23
just eradicating like gardens that have been grown the farm
31:27
for centuries and transform the entire production into one, you
31:31
know, specific cultivar. And it's happening in China and
31:34
for very similar reason. I don't see that, you know, I
31:38
don't, I don't see Japan has any immunity to this kind of a
31:41
situation. So I agree with.
31:43
Ian and it seems to be getting worse.
31:45
So Ian was later on saying that a famous tea growing region in
31:49
Kyoto Prefecture. He was on the phone with the
31:51
small farmer earlier that day, and he was saying that big
31:55
factories are setting up these corporate farms leased from
31:58
older farmers. And, you know, these big
32:01
corporate farms, he said, are shading the field for all
32:05
harvest, even autumn, which weakens the plants and lowers
32:09
the quality. So the sense is that the
32:12
priority right now is not focusing on quality, it's
32:16
focusing on quantity. And as more of these farmers age
32:19
out, that's probably a pretty attractive thing.
32:22
Big corporate comes in, runs, takes over the operations, and
32:26
they have all the equipment and process that they need to then
32:30
process that tea and bring it to market.
32:33
It sounds like a pretty attractive proposal.
32:35
These huge blending houses, I won't speak about MK
32:38
specifically, but blending houses in general don't have
32:42
transparent labels. When you look at their product,
32:44
they don't tell you if it's first harvest.
32:46
Sometimes they do if it's like a special product, but they're
32:49
mainstream brands. They don't tell you anything
32:51
about it, where it was from, how it was grown, what the cultivars
32:54
were used, what the blend composition is, if the blend
32:57
includes things like not first flush tea.
33:01
So in a way it's a way of increasing supply, but you can
33:04
hide behind this obscurity or lack of specialty standards.
33:09
Yeah, that's, that's a very sad. But you know, I can't really
33:14
think of any remedy to counter with this situation because you
33:18
know, like people are making more money growing tensha and
33:22
there is a growing demand of matcha in the world and you
33:27
don't have that for for cookie cha, for Fukamuchi cha.
33:36
You just do not maybe there is a demand for hoji cha, which I
33:40
think it's very much the case. That's that's really there's
33:43
nothing that can help with the situation.
33:46
And in some ways, you know, if you look from a tea plant
33:50
perspective, it's sad. If you look from the tea farmers
33:53
perspective, it's sad. If you look at that's like this
33:56
consolidation that's going on and the fact that power is
34:00
getting concentrated right, That's there's aspects of that
34:03
that are bad. And from if you're just looking
34:07
through the lens of the consumer and you're asking how do you get
34:11
more matcha faster blending is A and lack of transparency is
34:17
actually a fantastic way to subtly decrease quality by
34:23
increasing quantity greatly. Like it is a solution to
34:28
creating more high quality products because with the
34:31
skilled blender, yeah, you know, you can blend out flaws and you
34:36
can achieve profiles that you get and maybe on net, right, the
34:41
algebra there quality slightly lowers, but it is a kind of a
34:45
way of creating this like it's like much as fungible, I get
34:49
this inflation, you can create more of it.
34:53
Yeah. Just harvesting it more often.
34:55
And with all these obscured poetic names, you are almost
35:00
creating a fake diversity. But in fact it's really just all
35:06
different. Yabuquita and Okumitory getting
35:09
planned together, but yeah, that's that, that, that.
35:13
That's a very interesting situation.
35:15
Pretty elegant solution in the short term, albeit kind of sad
35:19
as a tea person. And just goes to show, you know,
35:22
it's you can view this stuff so differently depending on if you
35:27
really put Japanese culture first, if you put tea farmers
35:31
livelihoods first, if you put consumers first, if you put the
35:34
heritage of the products first. There's like all these different
35:38
viewpoints that you can project positive or negative
35:42
externalities to for supply shortages like this
35:45
announcement. Yeah, Yeah.
35:47
Like it really depends on the perspective.
35:49
Like, let's see if we are, you know, really going to preserve
35:54
this cultural diversity, this product diversity of Japanese
36:00
tea. Like, what are we going to do
36:02
with it? Like we stop, We stop
36:04
exploitation. We, you know, kind of restrict
36:08
the market to be of these teas to be consumed within Japan and
36:13
now what like you have a aging population, you have a shrinking
36:17
population of consumer younger generation is not really getting
36:21
into drinking tea and you also have farmers that are getting
36:25
old. So if you look, really look
36:27
inward that you have a shrinking market and a shrinking industry
36:31
for like the, you know, the higher end boutique production
36:35
of Japanese tea. Problems are so complex.
36:39
It's almost a little bit desperate to to think about.
36:43
Yeah. Well, I mean, there's there's no
36:45
good solutions. Culture will be, I mean, one
36:48
thing is for certain, like quality is probably going to go
36:51
down, prices are probably going to go up, culture is probably
36:55
going to be lost. New culture is probably going to
36:58
be made, and you have a whole set of new consumers that can
37:02
enjoy this thing that didn't even know that it existed 10
37:05
years ago. And you know, this is a bit of a
37:07
tangent, but Michael Pollan, the food writer, has a very
37:12
interesting flip in perspective. If you read some of his books or
37:15
some of his works, he puts the main character usually being the
37:21
food or the plant. Like how did rice take advantage
37:26
of humans or corn take advantage of humans to spread to every
37:31
corner of the earth? And if you do the same thing
37:33
with matcha, it's an interesting thought exercise if you put it
37:36
as the primary character and how it is taking over the world and
37:40
the different ways that it is, quote UN quote, used humans to
37:44
get there. I'm not saying that's the right
37:45
framing, but it's an interesting thought experiment.
37:48
It's from that perspective, Matcha is doing pretty well.
37:51
So last segment of this is this very detailed response that we
37:55
got back from Pennsylvania from Tea Nursery, which we'll also
37:58
have him on the podcast in quite a few episodes from now,
38:01
probably 5 or 6. And we have quite the backlog of
38:04
content, but it was a fantastic episode.
38:06
He's super knowledgeable and his work, other than his blog is to,
38:11
he's a tea farmer in Kyoto Prefecture and he did a really
38:15
excellent job for us, at least for us, understanding what some
38:20
of the bottlenecks are in the supply and that lead to
38:23
shortages like at MK. Let's start with the one that is
38:27
like literally the plants and processing and cultivation.
38:30
So he wrote tensha and other shaded teas like Gokoro and
38:35
Kabusa require a lot more of tension during the growing
38:38
phase. The cultivation involves
38:40
meticulous application of shading, ensuring the correct
38:43
timing and avoiding potential disruptions like windstorms and
38:46
that could damage buds or open the shading cover.
38:49
And this is just one example of growing differences that have to
38:53
be considered. Let's not even talk about
38:55
pruning, fertilization or any particularities of cultivar
38:59
itself, aside from the additional cost and labor, tools
39:04
and equipment to grow those teeth.
39:05
So that is like really interesting in that like, yes,
39:09
farmers can pay from growing other types of tea like sencha
39:13
to growing tenscha. It's not that.
39:14
Easy. It's.
39:15
Not that easy and I feel like this is a pretty like high level
39:20
answer. Probably you could write like a
39:22
PhD dissertation on the complexities of switching over
39:28
that even you know we won't ever understand.
39:30
But that was really nice encapsulation of getting a taste
39:34
of what that would be like. Something else he talks a lot
39:36
about are factories and just the processing of tensha.
39:40
As Ian mentioned, there's just not enough tensha factories in a
39:43
lot of cases. And something we talked about
39:45
previously is that, you know, a lot of the production capacity
39:48
that's owned by the big companies get leased out to
39:51
smaller farmers, but a lot of the smaller farmers are the ones
39:55
that will get screwed if those big factories need their own
39:59
capacity. And so there's also.
40:01
A pretty major lack of abundance in the ability to process more
40:07
tea. So here's what Paul writes.
40:09
These factories are exceptionally costly to
40:11
construct and maintain. Among tea factories there they
40:14
are a rare sight referring to tension factories.
40:17
Certain regions or prefectures specialized in producing a
40:19
particular type of tea leading to a higher presence of these
40:22
factories. For instance, Kyoto prefecture
40:24
is home to numerous large established high capacity
40:28
facilities with their own brands.
40:30
These facilities often offer some of their capacity overhead
40:34
to smaller farms, providing them with managed production space.
40:38
Smaller farms can benefit from a well run production process with
40:42
skilled operators eliminating the need for them to manage
40:45
grinding equipment in addition to their usual farming
40:48
responsibilities. As demand increases, these
40:51
overheads are starting to be reduced, but production capacity
40:55
remains unchanged. The decision of these factories
40:57
to reduce available spots for smaller clients as a farm
41:00
scrambling to find alternative facilities to produce their
41:03
goods. While it may encourage some
41:05
farmers to establish their own processing facilities, I doubt
41:09
it will be a widespread trend. The time to invest in the
41:12
construction of a tenche facility was a few years ago,
41:16
and some farmers did in several prefectures, and my hope is that
41:20
it is paying off for those who took the courage to invest in
41:24
one at the time. More likely, farmers will simply
41:27
move to another factory that may not have a brand identity and
41:32
focus solely on offering refining, blending or grinding
41:35
services, for instance. Even well established brands are
41:38
struggling to keep their stocks at Bay, as you can read from
41:41
MK's announcement, so you can see how this affects the bigger
41:45
picture. While restricting the quantity
41:46
of products available feels only like a patched temporal
41:50
solution, there is not much that can be done.
41:52
Even with all the production capacity available, if there's
41:55
no high quality leaves available, there's not much that
41:57
can be done. Yeah, very interesting.
41:59
Like it's not like the production that the sheer
42:03
capacity of producing matcha becomes the bottleneck at this
42:08
point. It's super asset heavy.
42:11
It takes time and takes money to build a new one.
42:14
And a lot of these smaller, more boutique farmers just don't have
42:19
the the the ability to construct 1, which is very sad.
42:23
It's very sad. And Paul goes on to write that
42:26
some regions might only have one of those facilities which limits
42:29
leaf intake of that area area. Consequently, this often
42:33
prevents individual farmers from selling their own products
42:36
because they sell leaves to the company at the price set for
42:40
that regional factory. So this creates a complex
42:42
relationship between the factories and the farmers who
42:45
collaborate with them. While some areas have excellent
42:48
cooperation between farmers and factories, others do not.
42:51
Occasionally, farmers may band together to establish their own
42:54
factories and gain control over their livelihoods.
42:57
However, this practice is becoming less prevalent as fewer
43:00
farmers are willing to undertake the challenging and physical
43:04
demanding task of farming. The mere cost of the equipment
43:07
in building the factory can result in substantial starting
43:11
debt. Actually, there's a similar
43:12
problem in the coffee world where a lot of these farmers
43:14
just cannot afford the capital, equipment and facilities to do
43:19
their own processing, which leads to some very complicated
43:22
dynamics. And I bet it's not just the
43:25
capital requirement like farming is hard man, it's very labor
43:30
intensive and I cannot think of by the end of the day after
43:34
finishing taking care of the garden you need to go to another
43:37
site to build this factory like them them must be a nightmare.
43:44
Yeah, and think about it from succession planning.
43:46
I mean, in Cheezuoka, the average age of a tea farmer is
43:49
over 65. I mean, why would you pursue
43:52
this at the end of your career when you don't even know if you
43:56
have a succession plan, right? So it just doesn't make logical
43:59
sense for most farmers to do this.
44:01
Yeah, very true, very true. And interestingly enough, a lot
44:04
of the farmers that we see Western vendors source some that
44:07
are very famous that own their own facilities and the ability
44:11
to grind or produce tension themselves apparently still
44:15
lease some of it out or they're buying aricha from other
44:18
farmers, processing it and selling it under their own
44:21
labels. So in some way, anyone who
44:24
decide these small companies that have the resources to
44:28
commit to this type of equipment kind of become like these larger
44:32
companies controlling these factories because that's just
44:36
the economic model that works. Yeah, it will be interesting to
44:40
see maybe one day there might be, you know, foreigner, foreign
44:45
vendors or consumers realizing this, this situation and might
44:51
also realize this could be a opportunity, you know, like that
44:56
there. There's really a production
44:58
bandwidth problem going on in Japan right now.
45:02
Yeah, absolutely. Anything else there's.
45:04
Something that part, yeah. So something that talks a lot
45:06
about, and this will be on our podcast with him later, are the
45:11
producers that are kind of in the middle.
45:12
And he describes it as either a race to the top or a race to the
45:15
bottom. We have very award-winning
45:18
farmers that are well funded and can invest in these type of
45:22
things. And then you have gigantic
45:24
farming operations that are selling very commodity much up
45:27
and you have a bunch of people in the middle don't own their
45:30
own factories and don't necessarily have their own brand
45:34
or any awareness to or language or international skills to build
45:38
their own brands. Paul wrote.
45:39
All the medium spectrum of producers are stretched to
45:42
either produce more at the expense of a ceremonial grade
45:46
experience and this was in quote ceremonial grade, or attempt to
45:50
compete in a competition grade quote market with significantly
45:55
higher overhead costs, limited name recognition and a
45:59
substantial risk in some of those teas.
46:02
An entire line of farmers is trying to navigate this market,
46:05
and they are most commonly found by overseas customers who only
46:09
tap them because their initial options fail to meet their
46:12
accounts needs. This can be due to pricing or
46:16
volume issues, or both. Sometimes brands simply receive
46:20
an overwhelming number of outreach from overseas customers
46:24
seeking products. Those brands and farmers can
46:27
receive around 600 of such messages annually, so he goes on
46:32
to write from there. You're out to compete in a
46:35
saturated market with minimal regulation.
46:37
There are factors like labeling terms, regional brand
46:41
reputation, long standing company name for owning and
46:44
operating your own factories that can give you a significant
46:47
advantage. So this includes things like
46:49
award-winning farms, highly sought after by both industry
46:52
and consumers in prefectures with long standing tradition of
46:56
tensha and matcha production. Like Fuji Matcha, the
46:59
prefectural tea brand and MK perhaps are the most renowned
47:03
for their private branch strength.
47:05
Consistently ranked as the first choices for their clients
47:08
overseas, these names are sought after by customers who are often
47:12
unfamiliar with the product. As a large number of farmers who
47:15
grow these leaves decrease due to falling prices and the
47:19
retirement a closing of farms. After the COVID pandemic, many
47:23
areas have lost a lot of its capacity.
47:26
It was inevitable that the market would become a race to
47:29
the top, with customers seeking the highest matcha experiences
47:33
while simultaneously competing to the bottom to meet the demand
47:36
for industrial uses. With summer or autumn leaves.
47:39
These products are commonly ground in more time efficient
47:43
methods and appear unable to meet the demand of some
47:46
customers that demand high volume, low price, stone milled
47:50
quote UN quote ceremonial grade T.
47:53
This demand is sometimes unreasonable as most customers
47:56
seek the product that they can sell using terms like stone mill
48:01
or ceremonial, but sometimes paying little attention to other
48:04
aspects. Really interesting heavy hitting
48:07
too. Yeah, I mean for people already
48:10
on the top right like they have, they already have the
48:13
reputation, they have the money to keep experimenting and keep
48:18
making better products. And they probably also have the
48:22
social connection to maintain their status on the ladder and
48:27
for the mass market production, right?
48:30
Like they probably already invest a lot of money in
48:33
machineries and now they already have a pretty sizable production
48:38
lined up. All they need to do is just
48:41
buying more machine and expand their garden and make it more
48:44
flat so that they can run more GPS controlled harvesters.
48:51
And for people stuck in the middle, like where do they go?
48:55
Like if they want to climb up the ladder, it's very difficult
48:59
to make good or higher quality matcha.
49:02
Like every year the weather is different, right?
49:05
Every year is almost a different experiment.
49:08
And if you know one harvest goes bad for one year, like for
49:11
smaller farmers, that's the end of the story.
49:13
Like you have no money in your bank.
49:16
You know you sell the lot and then you retired early.
49:19
And on the other hand, you probably it would be a very easy
49:22
solution to just go mass market, sign the big contract with one
49:27
of the bigger names and just sell all of your leaf as aracha
49:31
or even fresh leaf for them to process.
49:34
And that also means giving up your dream or giving up your
49:38
generations of you know you're giving up your garden that has
49:42
been taken care of by generations.
49:44
So it's a really hard decision to make.
49:48
Yeah, and investing in quality is a really hard decision to
49:50
make. This is fascinating, this whole
49:52
conversation. I never thought about that as an
49:55
externality, that my first reaction was, oh, my word, MK is
49:59
going to run out of matcha. This is great.
50:01
It's in such a hype cycle. People love it.
50:03
Maybe people will explore all their brands.
50:05
And then as we dig deeper into this, we're like, wait a second,
50:08
there's only so much processing equipment.
50:10
Where are these bottlenecks? And what happens in cases where
50:14
these gigantic companies run out of stock and how might that
50:17
affect other tea farmers? And then, you know, Ian's
50:22
perspective on like these two distinct markets, both being
50:25
driven by foreigners, but one domestic and one non domestic,
50:29
and where there's sort of fungibility in the ability to
50:32
produce more, produce less. And what is and is not compliant
50:36
also is not easy, especially when you're not a well resourced
50:39
company. So to me actually all of this
50:42
spells out that it might be net negative for small and medium
50:48
sized producers that are not already well capitalized,
50:51
leading to a net destruction of uniqueness and heritage that
50:56
exists amongst all the tea farmers in Japan.
50:58
Not. Really a bright future as we
51:01
assess this. Especially, you know, we're
51:03
trying to source tea for our mill that can know much afresh.
51:07
And, you know, the easiest people to discover as Westerners
51:11
with very limited Japanese language skills are the people
51:14
that are already on the top. They're the well funded, well
51:18
capitalized. You know as we were, we were
51:21
bouncing this fresh milled, you know idea with a lot of these
51:27
Japanese farmer that we talked to, they seem to be very
51:30
interested too. So we might actually have a very
51:33
unexpected market out there other than, you know, you know,
51:39
Europe and America and Southeast Asia as we wanted to target
51:43
initially. Yeah, it'd be cool to see if
51:45
that that could be a really nice way to change these dynamics, to
51:49
give farmers more options, to save culture, to give consumers
51:53
more options. But this, this was a way more
51:55
complicated episode to research and record than we were
51:59
expecting. And we're very grateful for PAW,
52:04
for Ian, for call, for contributing to making this
52:08
possible with their unique perspectives.
52:11
So it's nice that we have such a wonderful community to help
52:15
share knowledge and resources and to respond to this news.
52:17
So if you enjoyed this episode or if you have anything to add
52:22
to the discussion here, if you disagreed with anything we said
52:26
or you have a very unique perspective that adds to the
52:29
conversation, we would happy to be to release a Part 2 and to
52:33
expand on these ideas further. So please don't hesitate to
52:36
reach out to us on Instagram or by e-mail on our website,
52:40
sankomacha.com to continue this dialogue.
52:43
And thank you so much for listening.
52:44
And if you enjoyed this, please consider sharing it with a
52:47
friend or giving us five stars. And with that, I think that's
52:50
the end of. This episode, awesome.
52:52
Thank you so much for listening.