Recently I read an article in Small Biz Trends titled 18 Tea Franchises to Challenge Teavana. They could have added ‘to challenge David’s Tea or Argo Tea’ as well, I suppose. But, in looking at the companies mentioned, I saw lots of boba/tapioca tea places and some with spices as the main or lead concept. I could be wrong, but most boba tea stores make their drinks from powdered mixes, don’t they? When I think of tea, I think of loose leaf.
That article got me to thinking about why we really haven’t seen super-success in any loose tea retail concept here in the U.S. It reminded me of another article, a pictorial I had seen recently called Tea Traditions Around the World. Maybe this explains why boba seems to be the dominant/winning concept in U.S. cities with high Asian youth demographics. Boba explains why even Starbucks couldn’t make an upscale tea cafe concept happen here, and so is moving their major retail tea efforts now to countries like China.
We actually do have a strong tea culture in the United States, however, and, statistically, that culture is drinking iced, black tea either ordered with our meal in a restaurant, or made at home from bags or powdered instant tea. That’s over 80% of the tea consumed here. That is our tea culture and it’s been the culture here for as long as any of us alive today can remember. It hasn’t been great loose tea in all its stages of oxidation, brewed perfectly and served well. The only concept here, until the recent modern tea cafes, that even resembled another ‘tea culture’ was the red hat ladies, where the quality of the tea didn’t really matter; it was pots, tea bags, funny hats and a little day-time party-time.
One thing I respect about Starbucks is that they can admit when something isn’t working. And to them, that’s when a concept doesn’t make them as much money per square foot as the space could be worth if they put one of their coffee houses in it. I think it’s harder for the independent retailer to just admit when something doesn’t work like they were hoping it would. Even David’s Tea has run into a problem in the U.S. for their “on call” hiring and, as labor continues to become more expensive, and as space rents continue at their outrageous monthly fees or even possibly escalate, all of us who have ‘tea retail dreams’ have to get real and look at the numbers. Can tea carry its weight as a stand-alone concept? Notice how some of the other franchise concepts in the article use something else as the major draw, be it coffee or spices, along with the tea.
If we look at those tea traditions around the world, many other countries already have cultures in place that can support tea cafe concepts much more readily than the U.S., including Britain, Canada, Asian countries and the Middle East. The United States is a convenience-oriented, instant society. However, the foodie culture has come on strong, putting flavor and artisinal values over convenience. How will this impact tea–or will it at all? It may, as we are seeing chefs all over the country promoting tea-infused recipes and menu items. Tea-infused cocktails and tea mocktails are all over social media. Loose/quality tea definitely is getting some awesome press and attention.
Then there’s the ‘elephant in the room’ we might want to ignore, but can’t: the big taste (and caffeine) difference between tea and coffee. As a U.S. coffee-oriented culture, coffee doesn’t mean black, unsweetened coffee. It means sugar, cream and, perhaps even more importantly, espresso drinks with syrups, sauces, and whipped cream. We did specialty tea drinks that people loved, but it’s a whole new idea. Coffee culture is an addictive/addicted culture, and that means plenty of repeat business (and profit) by necessity for people to need that caffeine fix, to avoid jitters, headaches, grouchiness, or just to be able to function and keep going through the workday. One huge coffee chain was accused of hyper-caffeinating their coffee. Whether or not that was true, the fact is it is much more physically addictive than tea, and the taste is “richer/deeper/stronger” in general. Tea is a more delicate, refined taste profile that, once you come to appreciate it, makes coffee seem ‘coarse’. It’s also much healthier than coffee. I’ve read the articles on health, like most of us here have, and aside from those articles showing all the health benefits, I think most of us just feel physically better after drinking tea–as opposed to feeling pretty darn crappy after too much coffee.
So, those are my thoughts on the subject. What are yours? We are working on our own updated tea-centric retail concept, but we need more statistics and information before once again putting in the money required for launch. In the meantime, it is fascinating to watch as the big race is on to hit the ‘right formula’ for a U.S. tea concept that mainstream/mass consumers will really go for in a big way. If quality and presentation, or even marketing, was all it was about, there would not be a problem. But that’s not what it’s all about. Starbucks did us all a huge, expensive favor by trying out the retail tea cafe concept themselves, with all their money, marketing and muscle, and letting us know that the U.S. is still not ready to accept it as an equal to coffee houses.
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You bring up many interesting points Diane. When I look around Portland Oregon I see small tea shops thriving. They are loose leaf centric and are very detail oriented about brewing issues – time and temperature. Perhaps the ritual of tea does’t lend itself to a chain. Perhaps the ritual of tea is more intimate and benefits from a variety of styles and environments and offerings. Each neighborhood tea shop seems to have evolved a dedicated following that fits its aesthetic and offerings. I think it resembles wine bars more closely than coffee shops. Have you noticed that there aren’t wine bar chains? Why must we follow the path of coffee to be successful? As more people jump on the tea band wagon, initially because of its health benefits, they soon come to appreciate and enjoy the more subtle taste profile of this remarkable drink. They will become life long tea drinkers. No chain required.
Good point about tea shops resembling wine bars more than coffee houses, and that there are no real wine bar chains. However, in India, particularly, there are tea chains which are fairly new but growing, and I think that is because tea is already their ‘coffee’ so to speak. It seems very cultural to me, so far as what concept works. The Portland area has always been very welcoming of artisan shops, much more so than many other areas in the U.S., but now many big cities here are coming around to the same thing because of the foodie movement. At any rate, Teavana definitely works as a mall concept, but there aren’t many more malls for them to work in at this point. When you say the tea places there are thriving, are we talking lines of people waiting to order, like a Starbucks? The thing about leasing space is that the $/sf has to be there, or it becomes a hobby, and an expensive one. If you read about Teavana, it has always been about the real goal being scooping as much tea as possible into those take home cannisters, upselling, and cashing them out, and not preparing tea to go, with no tables to support staying.
I don’t know if you need lines of people waiting to order to be “successful”. Yes, their spaces are full and there may be a shot line to order. It’s not frantic anywhere in Portland – even the coffee shops.
I do agree that cultural issues are a reality and in the U.S. we don’t yet have a true tea culture. The healthy/wellness movement has certainly embraced tea – go into any naturopath’s office and they have high end, organic tea offerings. I think tea culture is in its infancy here and we get to influence it at this time.
I never did get Teavana – I can hardly stand going into one of their shops. Granted I’m rarely at a mall – other than when the Apple store was there and across the hall from Teavana. Fortunately they have moved to a free standing space down the block.
So true; one needs a personalized, highly individualized atmosphere with true connection to an owner/stable staff who know the customers names and preferences and can suggest trying new things if that seems appropriate. True premium leaf properly brewed tea is a slow beverage. not a grab and go or slurp it down. Include those points in a concept and with proper social marketing focused on a particular image will make sense and launch tea into the retail sphere, not as a competitor to coffee at all, but as a wonderful thing unto itself, that speaks for itself, albeit quietly sometimes.
I’m not a mall person either, Michelle. I hate shopping period. But you bring up another interesting point. Tea is being sold at so many places now other than tea shops..and that’s part of what that article showed; that ‘tea franchises’ are often now places really making it an add-on, like spice or coffee businesses who have added tea as a secondary emphasis. It is exciting, as you bring up, to be at the infancy of this industry in the U.S., to get a chance to watch a culture develop here other than just iced and black.
I would like to see you do that, Robert. I think Mr. Barenholtz is doing that in his Los Angeles American Tea Room from what I’ve read. We have no desire to do a full restaurant or cafe concept for a number of reasons. Again, I would love to see you, as a chef who loves and understands tea, show the way with this in a retail location. I’m sure it would be outstanding!
Most of the companies listed in the original article are not viable franchisors. A number of them have yet to actually sell a single franchise.
I disagree with the premise that there is a vibrant market for coffee shops and not for tea shops. If Starbucks were to drop food, tea, smoothies and blended iced drinks they would need to close the majority of their locations for being unprofitable. Similarly, a wine bar can’t succeed without a good food menu.
There are two business models that have been proven profitable hundreds of times over in tea. The first is gifting-focused retail as demonstrated by Teavana. American Tea Room is in a similar boat. Very different level of presentation and service, but they make their money selling gifts, not brewed tea. The second is a full-service cafe with a tea theme as demonstrated by Argo and Samovar. But unlike the purists that try to get by selling hot and iced premium loose teas, Argo sells more coffee than tea in the morning and sells a ton of food and speciality beverages that are barely tea.
There are one-off examples outside of these buckets, but most are no-where near the profitability and have been unable to replicate their success.
Since you were associated with the tea cafe side of Starbucks Teavana acquisition, I’d love to hear more on that. They couldn’t get it where they wanted it in sales/sf …or?
Most of the answer to that question isn’t mine to share, but I can say a few things. First, tea cafes are not nearly as profitable as Starbucks stores. So if Wall Street is looking for maximum profits this quarter, it’s hard to tie up dollars and real estate in a secondary business model when there is still opportunity to open more Starbucks.
Second, Teavana’s brand equity product and systems strength is in tea retail. The types of neighborhood locations that make for great cafes (you see the same local population on a daily or weekly basis) is terrible for tea retail and gifting. Teavana’s mall stores see millions (quite literally) of people walking by over the course of a year. Any neighborhood cafe is going to see the same few thousand over and over. Great for selling drinks and sandwiches, but if only 10% of the people passing by are loose tea customers the locations that work are malls, not neighborhoods. To succeed in neighborhood cafe locations Teavana needed to develop competitive offerings around food and beverages in addition to tea. That’s a pretty sizable investment.
Finally I think it’s worth asking the question whether we really need a lot of tea cafes? Maybe there is more money to be made introducing higher quality teas into the 14,000 US Starbucks locations instead of trying to build out a parallel chain of tea only cafes.
For Starbucks the question isn’t “is it profitable”, but “is it the most profitable thing I can do?”
Great answer, thanks. We are probably 2-3 months away from a long journey’s beginning, if that makes any sense. ;)
Oh yes…while you are here. Some people think tea should be brewed traditionally only. I know you were involved with Starbucks when they brought in the commercial by the cup brewers. I’d love to hear your take on the ‘modern version’ of tea retailing (and gift stores can still sample out to sell the loose tea so need a brewing method) versus the ‘meditative/zen/traditional’. Thanks in advance from all of us who consider your opinion as one of the most experienced in this area in the industry.
Thanks for the kind words. Nobel Prize winning physicist Niels Bohr once said that an expert is someone who has made every possible mistake within a narrow field. It’s a humbling ego-check to be sure. ;)
I’m very familiar with the elitists and purists in our industry who turn up their noses at anything in a bag, any “tea” that doesn’t include camellia sinensis and any tea room that isn’t a zen-like retreat. They’re welcome to their own preferences, but it doesn’t take an expert to observe that the tea consuming public has little interest in their dogma. Based on the research I’ve seen, the away-from-home market for hot tea brewed from loose leaves is about 1% of the total US tea market. My guess is that less than 1% of even that market is being served in zen-like tea rooms.
At the end of the day there’s no money to be made in a zen-like traditional tea room unless you add on coffee, alcohol, a proper kitchen, etc. The volume is too low, the average ticket is too small and the market is too niche. I’ve said this for more than a decade, and for more than a decade people have pulled me aside at trade shows or online to “prove me wrong”. The closest I’ve seen are tea rooms where the owner invests their life savings and works full over time only to pay themselves less than $50K per year for their troubles.
My position has always been that I’ll sell products the customer wants to buy to give myself the platform to share products that I personally love. I do believe there is an opportunity to elevate the conversation and change consumer perception of tea. I also believe that we do so by touching lots of people and making incremental improvements to what they drink, not by turning up our noses and judging them.
I didn’t know that 80% of US tea market share was iced tea. To me, it’s an abomination of tea with a ton of sugar or whatever else.
I don’t buy much leaf tea even in through the Chinese herbal /tea shops here in Canada. No one in my family knows much about tea.
So there needs to be a totally different way of marketing loose leaf tea /diversity of tea to the North American public.
Part of it, the practice is buried through the non-North American traditions that are not Eurocentric in sensibility.
So may Toronto’s annual Tea Festival, diversify its approach.. not just the tea-serving ceremonies, but marrying stories of history, culture into today’s faster paced life. Sure go ahead and Pokémon angle on this. :) Don’t just have your events at the public library..
Good comments, Jean. There’s a lot of opportunity out there for people who get it right.