Need To Know - Tea Biz

Penton Acquires World Tea Expo – Need to Know

World Tea Expo was acquired last week by Penton, a large New York based business-to-business publishing company with a portfolio of trade events serving the natural food industry.

The transition of the tradeshow, the North American Tea Championship, the World Tea Academy and World Tea News from Ohio-based F+W Media, A Content + eCommerce Company is underway. Terms were not disclosed.

Penton announced that Group President Fred Linder will oversee World Tea Expo as part of Penton Exhibition Services which supports more than 100 Penton events across five sectors. Linder also runs the company’s New Hope Network.

“An essential element of our strategy is to focus on high-growth sectors and extend leadership positions. World Tea Media is at the forefront of the U.S. tea industry and is poised to double its size over the next five years,” said Linder. “This portfolio of events and digital products perfectly complements our assets. We have the ability to nurture and grow entrepreneurial businesses through our understanding of consumer behavior, product innovation, future trends and exceptional relationships,” he said.

“The show will remain a standalone with World Tea Media operating as a separate entity,” said Kate Spellman, Chief Marketing Officer at Penton.

Key staff members were retained including Event Manager Samantha Hammer Mitchell, Education Program Manager Monique Hatchett, Customer Service Manager Edie Gillette and Tea Academy Director of Online Education Donna Fellman. Hammer Mitchell is a former Penton event manager.

“We’re excited to work with the team at World Tea Media to further extend their value as an information resource for the global tea industry, with an emphasis on the growing specialty, premium tea and healthy beverage segments,” said Linder.

Penton dominates the publishing sector for marketers of natural consumer packaged goods brands, retailers, suppliers, and investors. The Natural Products Expo East and West tradeshows have grown by 20%, according to the release. There were 2,700 exhibiting companies and 634 first-time exhibitors in 2015.

Natural Products West annually draws more than 75,000 attendees to Anaheim. Expo West and the smaller Natural Products East currently host a big selection of tea vendors, many of whom previously exhibited at World Tea Expo. The list of more than 200 exhibiting tea companies includes AOI, Argo Tea, Bigelow, Choice Organic, Davidson’s Organic, Harney & Sons, Hain Celestial, Inko’s Tea, Mighty Leaf, Stash Tea Co., Steaz, Teapigs, Traditional Medicinals, Third Street Chai, Twinings, and Zhena’s Gypsy Tea. Click here for a list of tea exhibitors at the March 2016 Expo West. Click here to see a list of tea exhibitors scheduled to attend the June 2016 World Tea Expo.

The Penton press release explains the company “has created a formula to nurture and grow innovative entrepreneurial businesses in emerging markets into large retailers with mass distribution. Penton also has the ability to tap into large food manufacturers through its leading food brands — Multi-Unit Food Service Operators Conference (MUFSO), Nation’s Restaurant News (NRN) and Supermarket News.

Penton will combine its learning’s from both the natural products and food marketplaces to accelerate the growth of tea and beverage companies, according to the release. Penton is a private company owned by MidOcean Partners and Wasserstein & Co., LP. The company “empowers nearly 20 million business decision makers in markets that drive more than 12 trillion dollars in purchases each year,” according to the release.

Jim Ogle, acting CEO at F+W said that when the company acquired World Tea Media “we set our sights on healthy beverage, coffee, and food markets. However, our core competency has been and will remain in our enthusiast, niche communities. We know the World Tea brand and our team is going to be a great fit with our colleagues at Penton.”

F+W is experiencing a reorganization following the departure of Chairman and CEO David Nussbaum. Founded as a traditional publisher, since 2008 F+W has grown its ecommerce business from one store and $6 million in revenue to 31 individual ecommerce stores with expected revenue in excess of $65 million for 2015, according to an interview with Nussbaum in Publishing Executive.

World Tea Expo launched a dozen years ago in Las Vegas. It was operated by George and Kim Frost Jage for a decade before they sold to F+W in January 2012. The couple continued to manage the event through 2013. Two years ago the show moved to Long Beach, Calif., where the latest edition was produced last May.

World Tea on the Road scheduled for Oct. 10-11 in Boston was canceled. The next roadshow is a Chicago event scheduled for Nov. 7-8. Click here to register.

Ten years ago the show was among the fastest growing in the U.S. Exhibitors numbered more than 300 and attendance topped 5,000 but has since declined. Expo retained a reputation for superior retail training and its educational program however and has spawned several related services including the widely distributed weekly World Tea News, tea championships and tea academy.

World Tea Expo

The next Expo will return to Las Vegas June 15-17, 2016 at the Las Vegas Convention Center. Pre-conference programs begin June 13-14. There are currently 150 exhibitors listed for the show. World Tea Expo focuses on the premium tea segment including Chinese, Taiwan, Indian and Korean exhibitors as well as many U.S. based tea vendors. Firms purchasing significant space on the show floor include International Tea Importers (ITI), Teas Etc., QTrade Teas & Herbs and similar mid-sized tea importers and blenders. Attendees include buyers with purchasing influence representing grocery chains, mass merchandisers, independent retailers, tea shops and coffee houses from the U.S. and 46 countries.

World Tea Academy

An online tea certification and education program for professionals launched in 2014. It is managed by Donna Fellman. The program has graduated 233 students from 29 countries. The majority who enroll are from the U.S. and Canada. Courses cost $325 to $400. “Test only” certifications are $125. There is a core curriculum presenting courses on essentials and advanced courses. Some of the more popular are the biochemistry of tea, presentation and blending, and understanding tea culture.

North American Tea Championships

The next competition is the 2015 Packaged Single Service Class which for the first time will accept K-Cups. The entry deadline is Oct. 30. Click here for a list of the Spring Harvest Class winners July 30-31.

World Tea News

Launched in 2005, the newsletter was distributed to 2,000 readers every two weeks. Founder George Jage described a mission “to deliver clear, concise updates on trends, breaking news and product releases. Buyers have limited time and they need brief but focused information to best understand this increasingly popular and powerful beverage category,” he said. The newsletter was re-launched in 2011 with delivery to 14,000 readers. The next weekly issue is scheduled for delivery Tuesday.

Sources: World Tea Media, F+W, Penton.

? ? ?

Tea Biz serves a core audience of beverage professionals in the belief that insightful journalism informs good decision-making in business. Tea Biz reports what matters along the entire supply chain, emphasizing trustworthy sources and sound market research while discarding fluff and ignoring puffery.

Tea Biz posts are available to use in your company newsletter or website. Purchase reprint and distribution rights for single articles or commission original content. Click here for details.

October 5, 2015

•

Dan Bolton

•

Events

Festivals, Need To Know
China’s One Belt, One Road – Need to Know

China is making its biggest splash in tea in modern times this summer at Expo Milano 2015 the world’s largest food and beverage tradeshow.

“Never before has Italy hosted so many tea experts from China all together with so many companies representing the excellence of Chinese tea,” writes Marco Bertona, chairman of the Tea Association of Italy. The China Pavilion in Milan is shaped like fields of wheat rippling in the wind to reflect the theme, “Land of Hope, Food for Life.” It has been visited by almost 250,000 tourists since it opened in May.

“Chinese Tea Culture Week” which ended Sunday brought to light a political mandate to make China the world’s greatest tea exporter.

In 2013 Xi Jinping, China’s new president, proposed The Belt and Road Initiative, a modernization of the Silk Road Economic Belt and the 21st Century Maritime Silk Road. The goal is reviving ancient trade routes between Asia and Europe. The proposed trade and infrastructure network passes through more than 60 countries and regions, with a population of 4.4 billion. Nations along the route produce more than 80% of the world’s supply of tea.

China Pavilion at Expo Milano 2015

Unlike past initiatives which emphasized quantity over quality, this time China is determined to dominate the global market for premium tea.

In 2014 more than 80% of China’s tea exports were low grade green tea destined for Africa, Europe and Russia. Right now there is a surplus of commodity tea and a scarcity of premium tea making this a good time to export fine tea. During the past decade the green tea that China exported sold for between $1 and $2 per kilo. In December 2014 the world average price for tea sold at auction was $2.56/kg down from $2.72/kg the previous year. The average dropped an additional 30-cents to $2.42/kg by the end March 2015, according to statistics compiled by the Central Bank of Sri Lanka.

China Daily reports that the average price of Chinese tea increased to $4 per kilo during the past few years. Last year Chinese tea exports $4.19 per kilo. This is a big improvement but is still not enough to be profitable, according to Chinese traders.

China’s tea market was valued at $56 billion (RMB 350 billion) in 2014. Exports comprise only $1.27 billion of market value, but were up 2.1% compared to 2013. Export volume declined 7.5% during that same period, an indication that China is shipping greater quantities of higher-value tea.

Sri Lanka, the world’s second largest tea exporter, gets the highest average price for commodity teas auctioned anywhere in the world. But the Colombo Tea Auction average is still less than $5 per kilo. Asia Syaka, a global commodities brokerage notes “Sri Lankan orthodox black tea continues to command premium pricing in the international market with prices averaging $4.97 per kilo.”

Specialty teas, in contrast, sell for $150 a kilo with some bringing $350 to $400 per kilo.

Untapped Capacity

In 2013 China was the world’s second-biggest tea exporter at 322,600 metric tons behind Kenya’s 494,400 tons. That year Sri Lanka exported 319,600 metric tons. In 2014 Sri Lanka stepped up exports, setting a record at 327,800 metric tons and China fell to third.

China is without doubt capable of meeting global demand for premium tea. It is the only large tea producing country capable of mass producing all six kinds of tea. China already produces 40% of the world’s tea and is developing thousands of additional acres per year. Tea is grown there on 6.7 million acres (2.7 million hectares) and it is exported to 120 countries. China’s tea is marketed by more than 200,000 companies representing the work of 30 million growers.

China retains its customary lead in the production of green tea, exporting 79% of the global total and accounting for 80% of value. In most instances exported Chinese tea is blended with herbs and fruits. In the US sales of green iced tea have increased significantly as national restaurant chains promote green tea’s health benefits. At least 10% of the nation’s restaurants now serve green tea alongside traditional black.

Despite its massive production capability “China is not strong enough in exports of tea leaves, tea extracts and deep-processing elements which are fundamentals of the tea industry,” according to Wu Zhibin, vice chairman of the Chinese Tea Culture International Exchange Association told Taiwan-based Want China Times. Deep-processing is the Chinese term for what in the west is known as value-added tea.

“The domestic market values low-production, handmade teas but the global tea market prefers mass-produced teas that are standardized in quality and taste,” according to Wu Jing, editor-in-chief of tea portal chayu.com. He told China Daily that “export teas are grown specifically for that purpose and not consumed domestically.”

Tea Culture Week at the Chinese Pavilion is an opportunity “to support top brands of Chinese tea industry in their path towards growth and worldwide development,” said Zhibin. He praised the top Chinese exports brands which were recognized at as special award ceremony in Milan.

“With rising production costs in China and competition that is likely to intensify, Chinese tea producers have to find new strategies to boost Chinese brands and their sales on the global stage,” says Ji Xiaoming, president of Jingwei Fu Tea Co and chairman of the Shaanxi Tea Association.

“Only if the Chinese tea industry is strong, the Chinese tea culture can be innovative and can be promoted all around the world,” Wu told Xinhua News Service.

Unprecedented opportunity

China Daily reports that “One Belt, One Road” is a rare opportunity to turn Chinese tea consumption into a global phenomenon.

“That is the dream of the country’s tea companies – which are still largely unknown to the world. They are ready to grab a piece of the action in an anticipated market boom,” according to the newspaper.

“The Belt and Road Initiative is not just a rejuvenation of the ancient silk road, but also a comeback of the ancient tea road,” said Jiao Jialiang, chairman of LongRun Group, a Chinese conglomerate specializing in food and health products.

Jiao, who is also a member of the 12th Chinese People’s Political Consultative Conference, told the newspaper that “China’s tea industry will embrace an unprecedented window of opportunity as the Initiative presses ahead.”

Growers and producers spent generations refining the Chinese way of manufacturing tea with its many unique regional variations,” according to the newspaper: “Tea is not simply beverage, but a unique opportunity to share China’s culture.”

“It’s believed the practice of tea culture can take the spirit and wisdom of humans to a higher level, and its study covers a wide field with rich content,” the paper reported.

Tea culture will lead the way boosting the Belt and Road Initiative, said Jiao, “as tea culture spreads around the world, the whole industry will take off,” he said.

Although export figures may continue to trough in the short term, says Wang Jianrong, director of the China National Tea Museum: “The future of Chinese tea exports will be bright if we continue to penetrate overseas markets with tea culture, something that is not reflected in trade figures.”

? ? ?

An informal assessment of China’s export market for tea.

STRENGTHS

China has the land, tea varieties, tea quality, government incentives and motivation to excel in tea exports. The growth of tea retail outlets (T2, Teavana, DavidsTea, TenRen) is a very promising development. 1400 years ago China was the top tea exporter and even after India replaced it as a quantity supplier China always offered more varieties and higher quality orthodox, remaining dominate for centuries. India is the only producing country with similar capacity and it cannot effectively compete. Kenya will remain the dominate commodity supplier of black tea, but remains an insignificant supplier of green. Anything the Chinese can do with green they can industrialized and scale for black, but doing so is not profitable with Sri Lanka, India and Kenya in the picture. China is expert at orthodox green and while it will step up its black tea production for Asian consumption, European and US export, it will make its greatest gains in premium green/white, pu-erh and oolongs. China’s RTD tea market is valued at about $29 billion. China’s Ting Hsin International Group not only dominates China’s RTD market but the international RTD market as well with a 10% global market share, according to a financial report by LD Investments, published by Seeking Alpha. Look for breakouts in RTD and value-added tea products from concentrates and extracts to supplements and cosmetics. These are more likely to be developed in collaboration with Japan (ITO EN) and Taiwan (TenRen, Tingyi and Master Kong) using inexpensive Chinese tea from the mainland. Right now China is primarily developing extracts and “deep-processed” tea for its own domestic market.

WEAKNESS

Globally the demand for black tea is much greater than green. Right now there is a glut of commodity black teas and a shortage of “quality” CTC that is clean, certified and reasonably priced. China loses money producing cheap green and loses volume if they focus only on premium. Conversion to a dominate black tea supplier offers little financial incentives. Ultimately demand for fine green teas will grow due to its health benefits and the adoption of green by foodservice (in US Wendy’s green iced tea at 6,000 stores). Tea exports represents such a tiny fraction of foreign trade that the Chinese government stands to gain very little (other than prestige) from the increase in tea exports. Tea exports earned $1.27 billion which represents about .056% of China’s $2.25 trillion exports. Electronics and other agricultural products generate a lot more money than tea. Unlike the more profitable exports which receive significant government support, much of the investment on outbound marketing will be made by the 200,000 existing tea companies, none of whom are well known brands. Even the largest holds minuscule market share compared to multi nationals like Unilever, Tata Global Beverages or Nestle.

OPPORTUNITY

Chinese tea culture is fascinating, varied and universally appreciated. China exports tea to 120 countries. The country will more fully develop its impressivle portfolio of prized teas (premium green, oolongs and pu-erh) and that will generate significant income for regional producers willing to undertake mass production. Ultimately these firms will spend the money it takes to promote their offerings in Europe and North America. China’s domestic market currently values low-production, hand-made teas. The global tea market prefers mass-produced teas that are standardized in quality and taste. In time China will show the benefit of its hand-made teas by making them more available in the global market while at the same time collaborate with Western ventures such as Starbucks/Teavana and Unilever/T2 to produce more commercially successful mass-market teas. In sharing its finest teas China gradually transitions from a commodity producer earning $4 per kilo to a quality producer capable of marketing teas at 10-times that rate and with the capacity to supply the entire world’s demand for premium teas.

THREAT

A slowing economy makes it more difficult for Chinese firms to invest the marketing dollars it takes to win share in export markets, but its own domestic demand for cleaner tea will help offset these costs. Learning to market value-added tea domestically is a precursor to global expansion and tolerance for the millions it takes to promote a Lipton or Tetley brand (ie. its latest global ad campaign cost Lipton $40 million, no Chinese company has ever invested that kind of money to promote a tea brand). Another threat is global instability that impacts trade (China territorial expansion, tension with Japan, aggressive behavior by surrogate North Korea) are factors. However, the single greatest threat in my view (and a primary motivation for exports) is the fact that young people in China consider traditional tea “old fashioned” and are not practicing the tea traditions of their parents. Consumer surveys reveal that nearly 70 percent of those born in the 80’s do not like to drink tea. This rises to 95% for those born in the 90’s. Tea is not cool, shops are largely antiquated and there is no marketing beyond basic grocery display. Relatively little good tea is purchased in grocery. Ultimately tea must appeal to a new generation of consumers. As one critic noted: “if all the tea stores look like archaeology dig sites and antique stores, then it won’t attract a lot of customers.” Revenue from a lively domestic market is essential to expansion of exports.

? ? ?

Tea Biz serves a core audience of beverage professionals in the belief that insightful journalism informs good decision-making in business. Tea Biz reports what matters along the entire supply chain, emphasizing trustworthy sources and sound market research while discarding fluff and ignoring puffery.

Tea Biz posts are available to use in your company newsletter or website. Purchase reprint and distribution rights for single articles or commission original content. Click here for details.

August 17, 2015

•

Dan Bolton

•

Events

Need To Know
Student Designed Infuser Tops $360,000 on Kickstarter – Need to Know

By Nanette Jackson

Click here to listen to the inventors tell their story (15 min).

Three college students in Bellingham, Wash., set out to design an innovative magnetic brewing vessel to flip your world upside-down and throw tea bags into the past.

Now they are raising money to launch this project – lots of money.

A 30-day Kickstarter campaign that ended last week received $362,679 from 6,248 backers. The team’s initial $20,000 goal was met May 4, the day it launched.

The infuser design was a fund-raising project at Western Washington University created to support the Industrial Design Program.

The Imbue vessel has a magnetized loose-leaf tea holder on the inside of the lid. When you flip the container upside-down, it brews the tea. Once steeped to that perfect shade, you can flip it right side up and remove the magnetic holder to enjoy your drink.

All of the vessels were manufactured on campus utilizing student labor. The inventors used a cylindrical cutting tool to robotically cut out all the lids and then did finish sanding and assembly.

Juniors in the Industrial Design Program Dan Taylor, Leah Cohen-Sapida, and Ashkon Nina are responsible for this new invention.

In December, once they finished developing a prototype, they made 150 vessels and introduced their product to the public.

“Then they sold out, and you couldn’t buy them anymore. We got so much good feedback, and people who wanted more. So we decided we were going to take it further,” Nina said.

The students then decided to launch a Kickstarter campaign, recording video and publishing schematics. The Kickstarter was meant to bring this product into full production. They’re now working with an overseas manufacturer to produce the infuser in larger quantities and to reach a broader audience, according to Taylor.

The campaign raised 18 times their goal. Donors purchased as many as 10 at a time and it remains unknown exactly how many units have been sold because there were so many different donor packages and so many backers.

The Industrial Design Student Association (IDSA) raises money for the students in the Industrial Design program at WWU. The students plan on giving back a lot of their profits to the association once it is determined how much will be needed for full-scale production costs. They are also working on final modifications and new models.

The team collaborated with a handful of students from the onset, inventing a sustainably produced, practical invention. They said they wanted “something that stood out”

“We looked at a bunch of other tea solutions out there and none of them allowed you to easily get the tea out once it’s done brewing. So you brew it and it just keeps brewing while you’re drinking. That’s the unique thing about this product [is that you can easily remove the tea],” Taylor said.

According to Cohen-Sapida, they researched studies on how long you’re supposed to actually brew tea and they found that it was supposed to be around three minutes. But they recognized there are different steep times for various styles of tea. Everyone likes their tea differently, she said.

“This gives you the opportunity to stop, if you don’t want to keep brewing, you don’t have to,” Cohen-Sapida said.

Currently, the vessels sell for $30 on their website, http://imbuetea.com, and are may be pre-ordered online. According to the Imbue Tea website, shipments should begin around October 2015.

Nanette Jackson is a student at Western Washington University.

? ? ?

Tea Biz serves a core audience of beverage professionals in the belief that insightful journalism informs good decision-making in business. Tea Biz reports what matters along the entire supply chain, emphasizing trustworthy sources and sound market research while discarding fluff and ignoring puffery.

Tea Biz posts are available to use in your company newsletter or website. Purchase reprint and distribution rights for single articles or commission original content. Click here for details.

June 12, 2015

•

Dan Bolton

•

Uncategorized

Need To Know, Online
A Good Omen for Specialty Tea – Need to Know

A Good Omen for Specialty Tea

Strip away all the legal filings and investment analysis and what you see in the DAVIDsTEA Initial Public Offering (IPO) today is a positive and persuasive vision of the future of specialty tea retail.

DAVIDsTEA is the latest example of a home-grown venture where the founders, inspired by a love of specialty tea, grew their small shops into a bankable business. Like T2 in Australia, Teaopia in Canada and Teavana in Atlanta, Ga., DAVIDsTEA demonstrated an enviable trajectory from the onset by concentrating on developing innovative herbal blends, loose leaf in packets and selling premium tea online.

In its regulatory filings the company points to 22 consecutive quarters of same store sales growth while constructing 30 new stores a year. DAVIDsTEA is seeking at least $77 million to pay down debt and construct a total of 530 stores. The company reported a $6 million profit on $142 million in sales last year with an annual growth rate of 36%.

Excitement is building for the offering which has been chosen “pick of the week” by several analysts including lead underwriters Goldman Sachs and JPMorgan Chase. DAVIDsTEA upped the initial offering price from $18 to $19 per share Thursday and will likely see a market value vote of confidence of up to $500 million by the end of the week.

Jurgen Link is a pioneer in specialty tea. In 1996 he founded SpecialTeas, Inc. a tea import, wholesale and e-commerce company. In 2005 SpecialTeas merged with leading tea retailer Teavana Corp. (then with 28 stores) to form Teavana Holdings. As president of SpecialTeas and senior vice president of logistics and distribution and Board Member of Teavana Corp., Link lead sourcing, logistics, store distribution and e-commerce fulfillment. He was a member of the executive team during the Teavana IPO and subsequent acquisition by Starbucks.

“In 1996 it was impossible to find special tea in this country,” he recalls. “I grew up in Germany and Germany, like the U.S., is a coffee drinking country but we could always find a tea room with good quality tea in every city of say, 25,000,” he said. That is still not possible in the U.S., said Link.

“That shows me how much more potential we have. What we have available now is merely scratching the surface,” said Link. “Howard Schultz [Starbucks CEO] is right, there is a ‘huge opportunity,’” he added. Retail is changing “but it has not changed enough,” he said. “There needs to be a whole lot more distribution and many, many more outlets, more points of sale and a lot more education,” said Link.

Does DAVIDsTEA hold the key?

“DAVIDsTEA is successfully building a chain of tea stores offering bulk teas, but the jury is still out on the right tea bar or tea room concept,” he explains. “The whole bar/tearoom channel is still in flux because no one has yet discovered a concept that is truly scalable — nobody, anywhere. That does not mean it is not possible,” he said.

“I am very interested to see what Starbucks will do because once the concept is discovered there will be another big surge in growth,” he said. “I think Starbucks has the resources to do it. He [Schultz] needs to invent something that has not been invented,” said Link.

Timing is good for a brisk opening day. DAVIDsTEA reported $35.4 million in sales for the quarter ending May 2, an increase of 28% due in part to an average ticket increase of 7.2%. Comparable store sales grew 6.3% in the quarter. Margins are improving. Rival Teavana, which is twice the size of DAVIDsTEA and benefits from sales at 11,000 Starbucks locations, reported 15% growth in tea sales during the same period.

Click here to see the company’s full financials.

DAVIDsTEA now operates 161 stores. Among those open at least one year, revenue averages $1 million per store. Given the small retail footprint (albeit expensive) and small staff (typically three to five) specialty tea demonstrates a significant return on investment.

Store Count Canada US Total

2008 1 1

2011 68 2 70

2012 91 14 105

2013 108 16 124

2014 130 24 154

2015* 136 25

*As of May 2015

More important, in the world of beverage retail, scale plays a huge role in profitability. Get the menu right, secure good locations and you can expand, and expand, and expand.

DAVIDsTEA’s biggest opportunity is in the U.S. in cities along the northern border like Chicago as well as the coasts. It operates five stores in Illinois, five stores in New York and one in New Jersey; five in Massachusetts and one in Connecticut with six in California. Its greatest concentration is in the Canadian provinces of Ontario (44), Quebec (25) and British Columbia (25). The company intends to build 30 stores in Canada this year and 15 in the U.S. with a long-term goal of 40 to 50 annually to reach 530 in the next five years. Rival Teavana currently operates 330 stores with plans to build 1,000, according to Starbucks, which acquired the venture in 2012.

Tea retail will not experience the meteoric pace of coffee shop expansion in the 1990s, when Starbucks was opening an average of two stores per day, but growth has been steady, averaging two new chain stores a week in a highly fragmented market. Tea retailing tea is less lucrative than coffee in terms of scale but with better margins. Increasing the DAVIDsTEA price to $19 a share reflects the momentum building behind this offering but keep in mind that shares of Starbucks sell for around $50.

DAVIDsTEA sells 150 different type of tea, introducing 30 annually. Popularity is fleeting for most but innovation stimulates sales. The company earns 68% of its revenue from the sale of loose leaf teas and herbals, mainly packets priced around $8-$12 with 22% of total sales from teaware and utensils. Food and beverage sales account for 10% of revenue. Only 7.9% is from online transactions (2014) which have improved significantly from the 2.7% reported in 2010 but remain below the 10% norm for brick and mortar operations with online offerings. DAVIDsTea predicts this number will rise to 15% of sales with additional investment in the company’s website and online marketing.

In July 2011 Teavana generated $123 million from its initial listing on the NY Stock Exchange. It had 284 stores at the time and was averaging $862,000 in sales per location. The company operated 161 stores in 35 states on the day the IPO was funded and was experiencing nearly identical sales growth that reported by DAVIDsTEA for the quarter preceding the IPO, according to a Goldman Sachs analyst posted to Seeking Alpha.

Will success lead to acquisition? Teavana had better margins than Starbucks at the time it was purchased. DAVIDsTEA reports comparable store growth to that of Starbucks at seven years of age, according to a cover story published in Specialty Coffee Retailer.

Starbucks has doubled tea sales since introducing Teavana as a replacement for Tazo in its coffee stores. The greatest sales gains are in shaken iced tea and tea lattes. Meanwhile sales of Tazo, now a CPG brand, top $1 billion.

In my view the company will use the IPO money to press its advantage in the U.S. while solidifying its hold in Canada making the Great White North a less desirable expansion target for Teavana (which is eying Asian expansion and growth in the Middle East).

Once the management at DAVIDsTEA demonstrates to the public that the firm has legs to run, expect an inquiry from Unilever which opened its first U.S. tea store in New York last year and its fourth T2 specialty tea shop in London. The Melbourne-based T2 operates 50 stores in Australia. DAVIDsTEA is a good fit for the ambitions of Unilever’s president for refreshment Kevin Havelock. Unilever, owner of Lipton and the world’s largest tea retailer, is a $75 billion company with a growing appetite for specialty tea.

Sylvain Toutant, who has been president and CEO of DAVIDsTEA since 2014 (leaving Keurig Green Mountain as COO of the Canada subsidiary last May), answers to a board of aggressive executives with a history of building companies to sell.

Expansion through franchise partners is another option. Several of Teavana’s overseas stores and those in Mexico are franchised.

Operating a business largely consisting of franchised stores is much different and less profitable than corporate-owned ventures. In a report published by Entrepreneur magazine Franchise Business Review found that “51.5% of food franchises earn profits of less than $50,000 a year; roughly 7% top $250,000, with the average profit for all restaurants coming in at $82,033.”

Tea’s high margins, an exclusive collection of teaware and utensils and services like monthly delivery subscriptions generate sales at a mall location equal to or even greater than franchise chocolatier Godiva – one of the most profitable franchises with 217 locations in the U.S. and 275 overseas.

Godiva generated $765 million at 10,000 locations in 2013 with U.S. retail stores averaging more than $1 million per year. “Each of these stores makes 37% more sales and posts 248% more profits,” since 2008, according to Godiva’s owners. Production capacity of the U.S. factories has increased 73% since the company was acquired for $850 million by Yildiz Holdings, as reported by the Hürriyet Daily News.

The IPO is hot proving bulk tea vendors are an exciting opportunity but if DAVIDsTEA wishes to remain independent and eventually dominate the segment it must also discover the elusive tea bar concept that will scale.

? ? ?

Tea Biz serves a core audience of beverage professionals in the belief that insightful journalism informs good decision-making in business. Tea Biz reports what matters along the entire supply chain, emphasizing trustworthy sources and sound market research while discarding fluff and ignoring puffery.

Tea Biz posts are available to use in your company newsletter or website. Purchase reprint and distribution rights for single articles or commission original content. Click here for details.

June 3, 2015

•

Dan Bolton

•

Products

Need To Know, Tea
Book Review: Modern Tea by Lisa Boalt Richardson

Over the past ten years some new and groundbreaking tea books have hit the market and become instant industry classics. “The Story of Tea: A Cultural History and Drinking Guide” by Mary Lou Heiss and Robert Heiss was released and took its place as a veritable textbook for tea enthusiasts. It was nominated for a James Beard Book Award and an IACP Cookbook Award and also won Best Tea Book in the USA from Gourmand Awards and a bronze for Best Tea Book in the World in 2008. The expanded version of “A Social History of Tea” by Jane Pettigrew and Bruce Richardson was considered a must-have before it even hit the shelves. Cynthia Gold’s “Culinary Tea” pushed other books aside on cookbook stands. The heavily researched “Tea: History, Terroirs, Varietals” by Kevin Gascoyne presented the science that many students of tea have longed for. I do not hesitate to say that Lisa Boalt Richardson’s newest book, “Modern Tea,” belongs in this impressive grouping.

Richardson is not new to tea writing, having won Best Tea Book USA in 2009 for “Tea with a Twist.” She is an educator and consultant and has been featured in publications including The New York Times, Real Simple and Tea Time Magazine. She has also previously published “The World in Your Teacup: Celebrating Tea and Traditions Near and Far.”

“Modern Tea” is not a particularly lengthy book, at 164 pages, but it is packed with engaging stories, beautiful images and valuable information. “Tea is a beverage,” it begins, “…a commodity, a ceremony, an afternoon tradition, a drink of peace, a pick-me-up, a path to meditation, and much more.” As I read through the text it occurred to me that it is the perfect book both for those who are already tea enthusiasts, but also those who have newly discovered their passion and want a comprehensive primer for their explorations.

Richardson offers a mix of well-researched history interspersed with personal stories that give warmth and color and make the world of tea feel close at hand. The tales will definitely inspire the armchair traveler in many readers. While the general topics covered in the book have been written about elsewhere, this book makes it seem brand new, with Richardson’s personality bursting off the page.

The book begins with thorough explanations of the tea types but the author keeps it fresh and new with her own memories and lessons learned from visits to tea plantations and growing regions. There are detailed sections on buying and storing tea, along with both eastern and western steeping style descriptions. The step-by-step nature of these pages provide actionable items for readers and made me think again about some of my own practices. The lovely descriptions of various tea ceremonies including Chinese, Japanese, Taiwanese, English and Moroccan, not only bring us into those worlds, but also give us the knowledge we need to recreate versions of those ceremonies at home.

Richardson never hesitates to delve into the science of tea, looking at olfactory experiences from this vantage point, along with data around antioxidants and caffeine. Staying close to her roots she also shares her thoughts on pairing tea with other foods, cooking with tea and tea cocktails, as well as ways to use tea in body care products.

I do feel the need to disclose that through my years in the American tea world, Richardson has become a friend. But she has also been a valuable teacher as I pursued my Level 1 and 2 certifications with the Specialty Tea Institute. Her knowledge was thorough and she is an approachable and enthusiastic educator. I am delighted to say that these qualities come through clearly on the page. I strongly recommend that you give “Modern Tea” a read and that you share it with others who are beginning their journey in tea.

May 20, 2015

•

•

Expertise

Need To Know, Tea Expert