By Austin Hodge, President of Seven Cups
Seven Cups is an importer of Chinese tea, located in Tucson, Arizona
Filed April 6, 2014. An abridged version appeared in World Tea News previously. Read our previous story about Qing Ming and its meaning from our April 7 Need to Know post.
I started writing this on the way up Xigui Mountain in Lincang Country to check out the condition of some ancient tea trees. We raced along a one lane winding road for about 80 kilometers, starting in Lincang City, a thousand feet above the valley floor. Along the mountain roads there are hard working stone carvers making new facades for the ancestors of local tea growers, as well as plenty of colorful fake money to be burned so that they have some cash. There is plenty of incense also to celebrate Qing Ming, the tomb sweeping holiday, pivotal for both ancestor worship and tea. It was typical of my trip traveling through Lincang Country, visiting areas that are producing some of the most sought after puer. This puer is certainly some of the most expensive, ranging into the thousands of dollars per kilo.
My first question has been how’s the weather? How has it affected the tea? In this area of Yunnan the weather has not been problematic. The old tea trees are producing excellently. The prices here have been doubling every year, and questions about a new bubble are met with exuberant denial even though the evidence is abundant that a crash is coming.
A few weeks ago I was in Hangzhou in Zhejiang, and then I traveled to Anhui and Fujian. The harvest had just begun in Zhejiang, coming a few days before I got the in Xinchang, guaranteeing a very robust pre-Qingming harvest. In all of those places I could not find any evidence that the hot, dry summer last year would have any effect on this years crop. There has never been any time in history, that I know of, where the was no pre-Qingming tea produced, so I can only see those dire predictions coming out of the Chinese press last year, as an attempt to imitate American cable news journalism. I was a little bit early for the harvest to begin in Huangshan but there was no indication that there would not be a great crop this year. The same was true in the Wuyishan area where twice I was caught in the rain searching for shelter while up in the mountains.
On our way to Xishuanbana in Southern Yunnan, just out side of Jingmai, we were caught in a violent thunderstorm while having dinner. According to one of the peasants that owned the place, the government had been seeding the clouds to create some badly needed rain. The ferocious storm tried to blow his little corrugated metal Chinese greasy spoon away while we ate. Just down the road we passed a massive metal billboard sign that had been blown off of a roof blocking most of the road. This last winter brought record low temperatures to the south of Yunnan; snow fell for the first time in some places, damaging some of the forests.
The day before Qing Ming, yesterday, I got a much more reliable report from an old friend in Youle, on top of one of the ‘Six Famous Mountains’ of Xishaunbana. Yang Guanqi is one of my favorite producers in the area and my go-to guy when it comes to any question about Xishuanbana. The rumor about the cloud seeding was probably not true, because the rain had been going on for days, and it rained while we were looking over his ancient tree garden in the afternoon. Still the drought that has been going on for years in Southern Yunnan will not be countered by a few days rain. It has drastically affected the old trees and overall production is way down and will be this year also. The trees will not be harmed, but their new growth will be small and has been decreasing every year. This year will be the no different. The younger bushes are going to produce more quality in contrast. Tea consumers should be very skeptical when buying any cakes being advertised as coming from old trees. The price of all puer will go up this year.
Hard numbers are hard to find but a year after it was sold to Starbucks Teavana appears to be on a roll.
At the company’s annual meeting in March CEO Howard Schultz introduced Oprah Chai Tea in a surprise announcement that brought the celebrity on stage to discuss her love for tea.
The audience was treated to samples and Schultz said $1 from every 2 ounce package would support Oprah’s favorite charities. He announced the construction of 20 new Teavana tea bars in 2014 with major cities including Chicago and Los Angeles. The tea goes on sale Apr. 29.
Schultz reasserted that “a year after the acquisition of Teavana, we are more convinced than ever that we have the opportunities to transform the tea category in the way we have transformed coffee all around the world.”
Earlier in the year, during the company’s quarterly earnings report, Shultz said that Teavana’s two flagship stores in New York and Seattle are demonstrating that Starbucks’ single largest investment to date is beginning to pay off.
“Recent research confirms that Teavana now enjoys the highest level of awareness of any super premium tea brand and like Starbucks, Teavana had a solid Q1,” Schultz told analysts.
Starbucks reported a record $4.2 billion in revenue during the quarter including $159.2 million in the segment that includes Teavana. Overall the company grew revenues 12% with comparable store sales rising 5% in the Americas where store traffic increased 4%.
Financial record footnotes* state that an increase of 174% over Q1 FY13, “is primarily due to the addition of Teavana retail store revenues beginning in Q2 of FY13.” The $159.2 million combines revenue from Seattle’s Best, Evolution Fresh, Digital Ventures and Teavana. The first quarter includes holiday spending and is always strong but revenue in the segment is on track to post $630 in combined sales, most than half of which will be from Teavana.
In the company’s annual report, released in September, the financial segment that includes Teavana grossed $393.7 million for the year which was up 88.7% compared to the previous year largely due to the contribution from Teavana, but the exact amount Teavana contributed was not stated. Net revenue for the segment increased $185 million during the year, “driven by incremental revenues from the acquisition of Teavana in the second quarter of fiscal 2013 (approximately $156 million),” according to the financial filings.
Prior to the Starbucks acquisition Teavana reported quarterly earnings of $43 million and estimated annual sales of approximately $250 million. The company operated 284 stores at that time so a useful guesstimate is annual sales of at least $350 million. The final number will depend on how many stores are built. Teavana’s mall venues typically gross $850,000 to $1 million in sales. Going forward analysts will be able to compare year-over-year results.
Schultz said that “one year into the integration of Teavana, we are poised to begin the roll out of additional stores on the heels of the successful opening of our first two Teavana tea bars in New York City and Seattle.” The company, which currently operates 366 stores, intends to open 1000 more in the next five years. This averages 4 to 5 stores per week, a threshold easily met by a company that currently opens 1,500 coffee shops a year.
As it did with coffee, Starbucks is building gorgeous Tea Bars to showcase the brand in highly visible locations like New York City’s Central Park and Seattle. It will then roll out smaller venues in major cities around the country. These stores are cost-efficient and designed to drive profitability.
“These two beautiful new stores are already providing us the key insights that will help us achieve our goal of combining and leveraging Teavana’s strength and authority around loose-leaf tea and tea merchandising,” according to Schultz. Starbucks understands consumers and what it takes to profit from innovative, handcrafted beverages and a retail store development to create a new retail platform and a unique international premium tea house experience.
Reading consumer response online offers a glimpse of these insights:
On Yelp! Jackie F. from Miami writes: “I had heard about this store opening and made sure that I visited on my weekend trip to NYC… love the environment, service and choices that were available. I have purchased my first three loose teas and sugar and looking forward to buying more in the future. Emily was extremely attentive and helpful during my selection process… she wasn’t pushy or overbearing. Can’t wait to get home and make it on my own.”
Nathali Z. from Brooklyn writes: “I came here led by my cousin who is a Teavana aficionado. I was excited to be in this new space and have my first Teavana Tea. The place was busy with people being helped by sales associates. When we ordered our tea the staff was very friendly, cheerful and attentive. There is an area to sit down and have our “bites”. My cousin got a chocolate brioche and I had a croissant. They were yummy but not spectacular. The tea on the other hand delicious! It was very calm and my cousin and I were excited to be one of the first people here. Definitely coming back!”
Katie R. in New York writes: I LOVE THIS PLACE! I’m so glad that Starbucks has finally opened up its first tea location… Long overdue… I’d visit this over a Starbucks coffee shop any day. I’m tea obsessed and Teavana has the best teas, hands down. The chai latte was incredible. The food selection looked great, too! I just hope they expand to other locations in Manhattan, so I don’t have to make the trek to the Upper East Side.”
This is Yelp! after all, so there were also complaints: “Plenty of cash registers, not enough tables and chairs… “NO where to sit…. and “I really wanted to like this place, but my gut is that it is a concept that won’t work… and “Because there is no coffee, it is not a place to be patronized by groups of people together, because some will inevitably prefer coffee…” comments overall were were positive or benign: “Pretty spot! I got the coco caramel sea salt latte, which ended up being too sugary and sweet for me, even after they remade it without putting any syrup in it!! The jasmine silver needle in a pot was good, though!”
Marketing is much stronger under mighty Starbucks and the public relations team that handles the account at Edelman is first-rate. In January the timely introduction of a limited edition Golden Dragon Yellow tea drew media attention and the Chinese New Year loyalty card and teaware are further evidence of integration of the brand. Customers loaded $1.4 billion onto Starbucks cards last quarter, up $260 million from the previous year. Teavana branded cards are interchangeable with the familiar mermaid which means that 40 million cardholders can conveniently charge a drink. Customers activated more than 2 million new cards a day in the week before Christmas.
Premium single cup is the fastest growing segment in at home coffee and Starbucks has grown its share to 18% of the segment over the last two years, said Schultz. The company has now sold 2 billion K-Cups. Last spring the company introduced Teavana flavors in K-Cups™ and this fall Teavana chai launched in Starbucks’ Verismo single-cup format.
Upgraded Teaware
The website has not undergone a lot of visible changes, but a close look shows an upgrade in teaware including an expanded number of exclusives. Porcelain and bone china are featured along with a packaging refresh with a QR Code and new graphics. The Teavana smartphone app has been updated to make it easier to locate stores. Teavana has 328,000 Facebook likes (Starbucks has 36 million and 5.6 million Twitter followers).
Mall-based stores as a whole were hard hit by a 15% slowdown in retail foot traffic and since the majority of Teavana stores are located in malls that had to hurt. Most of Teavana’s 366 stores in the U.S. and 62 shops in Canada are company owned. It also has 28 franchised stores in Mexico.
The tea market is a huge opportunity for the company. Globally tea is estimated at $90 billion with only a fraction of the tea sold as “value-added.” In fact, the majority is not even packaged. The success of the flagship stores means the company will expand more quickly now.
Two developments hint at the future for Teavana. During a major reorganization of the senior management last week it was announced Schultz “will expand his focus on innovation in coffee, tea and the Starbucks Experience as well as next generation retailing and payments initiatives in the areas of digital, mobile, card, loyalty and e-commerce.”
In his remarks Schultz promised “to bring breakthrough innovation to the tea category in the U.S. and Canada this spring and summer and to the international markets in the years ahead.”
A second clue is that Teavana founder Andrew Mack has retired from Starbucks. Teavana named Starbucks Vice President Annie Young-Scrivner the new President of Teavana and placed Teavana under the direction of Cliff Burrows, who is group president, U.S., Americas and Teavana. Young-Scrivner previously led the Tazo Tea division and was in charge of Starbucks Canada. Burrows, 54, joined the company in 2001 and previously worked as managing director of the U.K. division where franchising is common.
Look for Teavana to expand overseas via traditional franchising. The EMEA region now has 2,033 stores of which 1,177 are franchised. Starbucks has very strong franchise relationships in both Europe and the Middle East. Sales growth in the region was 11% last quarter with revenues of $339 million. A turn-around in the EMEA results, which were previously slack, suggests an opportunity for expansion that would include Teavana.
Financial Footnotes:
The Teavana sale closed Dec. 31, 2012. The final accounting states that Starbucks paid $615.8 million in cash. At closing the company repaid $35.2 million in long term debt. Intangible assets such as the Teavana name were valued at $105.5 million. Teavana’s proprietary tea blends were valued at $13 million. An astounding $467.5 million of goodwill represents the intangible assets that do not qualify for separate recognition, such as established global store presence in high traffic malls and high-sales-volume retail venues, Teavana’s global customer base, and Teavana’s “Heaven of tea” retail experience in which store employees engage and educate customers about the ritual and enjoyment of tea.
For many tea companies, the email newsletter has been a critical tool for communicating with and maintaining a relationship with customers. These documents promote products, share information about the company and its people, and more than anything, attempt to grab attention in a sea of inbox clutter.
Electronic newsletters have, in many cases, replaced print mailers for a number of reasons. The first is cost. Electronic newsletters are significantly less expensive to produce than print and they can be sent to an unlimited number of customers. They are fast – instantly communicating time-sensitive information. They also provide you with a better way to track response. Analytical tools allow senders to see who is opening the document, how long he is reading for, and whether or not he clicked a link that resulted in a later sale.
Remember, getting customers to read isn’t your real goal. You want them to read so that they can eventually be converted to customers. You should be thinking about how to use your newsletter to encourage people to share their information with you (name, address, email), to sign up to receive regular communications, to request information, and to share your information with others. You want to provide information that creates more educated customers. Share information about your products that encourages them to explore your product line and try something new. Get them to spend time on your website. Link! Link! Link!
But how do you make sure that your email newsletter stands out from the crowd?
CONTENT IS KING. No matter what, you must focus on content. You need to prove that you are excited about what you do and that you are knowledgeable about tea.
Look at the newsletters you read. Why do you open them? Which ones do you like? Are you scanning for certain information when you look at them? What do you see in the subject line that makes you click in the first place.
Keep the subject line short, but with enough to make it something customers want to open.
Send it from an actual person who writes an introductory note, rather than a generic corporate email address.
The tone should be accessible and conversational. No lectures here and PLEASE check spelling and grammar. Use bullets and make it easy to skim.
Use images but keep them small and do not embed them. They should sit on your server and be linked to the newsletter with code. Otherwise the file will be too large for your readers.
Consider adding “extras” like video which helps your company feel accessible and personal
Establish an editorial calendar that plans out the information you will provide in a way that supports your business’s sales strategies.
Whenever possible, include a call to action.
Always end with an “About Us” so customers are sure they know who you are.
In the future we’ll talk more about the actual content — what works and what doesn’t.
What do you find brings the best response to your electronic newsletters?
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Service and innovation differentiate tea retailers. At its core, specialty tea is a commodity since most blends use similarly sourced mid-grade green or black tea enhanced with ingredients and flavor.
The lowest tier in the sector consists of tea-only blends that are bagged and retail for less than $300 a kilo. The entry point is $5 for 200 grams (equivalent to a 100 ct. box of 2-gram teabags) or $25 per kilo with many supermarket teas selling for $7 to $8 per box ($35-$40 per kilo). This tea costs $2 per kilo at origin and is blended with similarly priced teas for consistency. It costs $1 to ship a kilo to the U.S. and less than $1 to fill, tag and box 100 tea bags. Marketing established blends is a rising cost. Store-brand competitors pressure national brands but there will always be a place for bottom-shelf tagless tea bags selling around a nickel to a dime.
The upper tier is loose leaf with fruit, spice and floral inclusions, pyramid bagged, gift boxed or in tins. A 25-gram pouch of specialty blend sells for $15, earning retailers $300 per kilo. Retailers get only 5-cents a tea bag selling Lipton but they sell a lot of Lipton. Nearly every home in the country has a nationally branded tea in the pantry. Fewer than one in ten are willing to pay $1 a tea bag for a foil-wrapped Tea Forté pyramid (with 4 to 6 grams of tea) but grocers selling Adagio, Rishi, Numi and Republic of Tea are getting $250 a kilo a ten-fold premium.
The core component of these teas arrives in shipping containers warehoused and blended by a few gateway importers with entrenched (often family) supply chains originating in China, Taiwan, Japan, Sri Lanka, Kenya and India. Raw materials for blending are very similarly sourced and priced with tea often the least expensive component. There are an infinite number of blends and taste sensations but remarkably little variance in a warehouse stacked to the ceiling with four million pounds of tea.
This is why service and innovation are critical to retail success. Service is the key point of differentiation. It begins with that first impression, the cold-call presentation that gives buyers a reason to believe that working with you as a wholesaler will benefit their business. There are often two or three wholesalers with identical price points pitching a retailer whose first concern must be to meet the needs (within limitations) of his or her customers. The fact that sales of these similar teas are growing is due to the nearly continuous introduction of new formulations and experimental blends and the presence of color, texture (chunks and leaves, not dust) and intense flavor (often added).
This suggests the path forward is to innovate with taste and convenience foremost. Cultivate in those who show interest a more sophisticated appreciation of the profitable, highest quality teas. Tell the story, let them taste the tea. Repeat. Repeat. Repeat. Retailer and customer advance in step with sellers bringing ever-larger numbers of specialty tea drinkers into the tent where a growing percentage of newly-converted tea lovers share and spread the joy of discovery after readily paying the always-reasonable price for the pleasure of a fine cup of tea.
LOS ANGELES, Calif. – Investments, mergers and acquisitions fueling tea retail during the past 18 months reached an unprecedented $1 billion.
Remarkably, investments in coffee retail during this same period top $10 billion.
The latest move is a sizable (but undisclosed) investment in California-based Coffee Bean & Tea Leaf. The deal was disclosed Friday by a consortium led by private-equity firm Advent International in Boston and CDIB Capital (the overseas investment arm of Taiwan-based China Development Financial Holdings Corp.) along with Mirae Asset Private Equity, a Korean venture.
The privately held Coffee Bean & Tea Leaf was founded in 1963 and has a large-scale tea blending facility in Camarillo, Calif. The company owns 178 stores and franchises 764 stores in 30 countries with 250 in Korea. It opened its first Asian store in 1996.
Victor Sassoon and his brother Sunny remain significant shareholders, according to a Sept. 12 release.
“Since 1996, we have worked very hard to build The Coffee Bean into the global and innovative company it has become today that touches the lives of millions of guests every week. The Coffee Bean & Tea Leaf® celebrates its 50th anniversary this year and we feel very blessed and excited to join our new partners in continuing to realize the Company’s significant potential as we look forward to the next 50 years of growth on all levels,” according to a joint statement by CBTL Executive Chairman Sunny Sassoon and Victor, who is CBTL CEO Asia.
“The Coffee Bean is the largest independent global player in a dynamic industry,” said Jeff Case, a Principal at Advent International. “The coffee and tea market is poised for continued growth, driven by rising coffee consumption globally and an expanding middle class in Asia and other growing economies throughout the world. We believe this investment will serve to accelerate the brand’s development and market share and we look forward to working with the management team to accomplish that growth.”
Will Kussell, a member of Advent’s Operating Partner program, will serve as Vice Chairman of The CoffeeBean Board of Directors. Kussell was previously president and chief brand officer of Dunkin’ Donuts Worldwide where he led the successful repositioning of the company as a coffee and bakery segment leader, increasing U.S. sales from just over $1 billion in 1994 to more than $5 billion in 2009. He also established an international growth strategy for Dunkin’ Donuts that led to a 60% sales increase from 2004 to 2009.
CBTL President and Chief Executive Mel Elias told Nation’s Restaurant News “The brand was well accepted in Asia, in part because The Coffee Bean had long focused on premium tea in addition to coffee — offering a leg up in a part of the world that had yet to adopt coffee-drinking ways.
The brand’s emphasis on tea will also be an advantage in the U.S., where consumer interest in tea is booming, Elias said. “When I started about 15 years ago, tea was about 4 percent of sales. Now it’s 15 percent, and it’s our fastest growing category,” he told NRN reporter Lisa Jennings.
Coffee Retail Investments
CBTL (Private) – $undisclosed – Advent International (Sept. 2013) Master Blenders 1753 (Public) – $9.8 billion – Joh. A. Benckiser Group (April 2013) Caribou Coffee (Public) – $350 million – Joh. A. Benckiser Group (Jan. 2013) Peet’s Coffee & Tea (Public) – $974 million Joh. A. Benckiser Group (July 2012)
JAB paid $73.50 a share, a 29 percent premium for Peet’s in July 2012 and $16 per share for Caribou, a 30 percent premium. The company then paid $9.8 billion or $16.71 a share for DE Master Blenders 1753, the largest coffee acquisition in history. Illinois-based Sara Lee Corp. became Hillshire Brands last year, spinning off its international coffee and tea business in June 2012 to create DE Master Blenders 1753. The previous high was the $3 billion paid by JM Smucker Co. for the Folger’s coffee brand which it purchased from Procter & Gamble Co. in June 2008.
Tea Retail Investments
T2 (Private) – $80 million est. Unilever (Sept. 2013) – See Tea Biz T2 Post Teavana (Public) – $620 million Starbucks Coffee (Nov. 2012) DAVIDsTEA (Private) – $14 million (April 2012)
Tea represents at least 10 percent of sales at the coffee firms listed above with greater margin contribution than coffee. This means the Peet’s, CBTL and Caribou deals represent at least a $150 to $200 million investment in tea retail. Tea represents much less of the the Master Blenders portfolio includes Tea Forte and Pickwick Tea, a multi-million dollar brand with about 70 percent of the Dutch market and 12 percent of Europe’s tea sales. If you assume Unilever paid at least $80 million for Australia’s T2 the total investment in tea retail tops $1 billion. Unilever did not disclose what it paid for T2.
