At the time, in 2008, I felt the specialty and premium tea category had reached its tipping point and would begin its steep climb up the vertical part of its projected growth curve, only to be set back by a global economic flu. Ironically, tea helps improve immune systems and theoretically could have prevented this global economic meltdown.
But now as the economy moves through its slow recovery, I am confident that the momentum set forth in the past year, even the past two, has provided enough acceleration for specialty and premium to reach the Promised Land. Several leading data houses have been suggesting a near doubling in the size of the U.S. tea market in the coming 5 years and further have been predicting significant consumer shifts to specialty and premium resulting in billions of dollars in new sales for our segment.
While forecasting is a art with almost guaranteed incorrect results, it provides us with the benchmarks to plan for the future. At the 2012 World Tea Expo, I moderated a panel to discussed the plausibility of tea eclipsing coffee in the U.S. and this lofty aspiration was affirmed by several leading tea professionals and retail experts on the panel.
With the past year highlighted by healthy M&A activity, major retail expansion, and positive media coverage, we should expect this to translate into increased consumer awareness and engagement in specialty and premium in 2013 and major growth of the category.
Big Deals!
Sara Lee Coffee &Tea acquired Tea Forte right out of the gate in 2012. Later in January, Martin Bauer Group acquired Beverage House- a deal undoubtedly fueled by the growth in the RTD tea category.
In February, Jamba Juice acquired Talbott Teas. Owners Shane Talbott and Steven Nakisher appeared on ABC’s Shark Tank the summer prior where they took on “Mr. Wonderful” Kevin O’Leary as a 35% partner. Through their new partnership, the company was fully acquired by Jamba Juice bumping Mighty Leaf from the shelves of their approximate 750 outlets.
A slew of other deals were done in 2012, notably; Qtrade Teas & Herbs brought on Kopius Teas to expand their online wholesale capabilities. Leading contract packer, North American Tea & Coffee, quietly acquired Boston Tea Company, then they themselves were acquired by Associated Brands.
All of this merger and acquisition activity is healthy for our industry and justifies further investment of capital into our businesses. We ourselves at World Tea Media were acquired at the onset of the year. These acquisitions, like our own, provide needed investment capital into the growth of the businesses and are validations of the business opportunity. But the real M&A news came on the retail front.
In April, Teavana acquired Canadian-based Teaopia’s 46 stores for roughly $500,000 per store. The move appeared to strategically compete with the growing retailer DavidsTea. After successfully taking his company public in 2011, Teavana CEO Andy Mack was able to create a surplus in his capital raise to allow for this aggressive expansion. Shortly thereafter Teavana announced the opening of their 300th retail store. Then came the big one…
The most surprising and powerful event of 2012 came in November when Starbuck’s announced they will acquire Teavana for $620 million, or approximately $2 million per retail store. Visionary Howard Schultz stated it was time for Starbucks’ to come in and disrupt the business model and become the leader in this space. Tazo itself had already become a $1.4 billion dollar brand according to Tazo execs and arguably the leading specialty tea brand in the U.S.
This news remains the key buzz for the industry and I believe will be the rising tide that will raise all boats. Starbucks currently operates approximately 11,000 of the 25,000 estimated coffee retail outlets in the U.S. I remain true to my conviction that I do not believe the other 14,000 non-Starbucks outlets would have been as successful without Starbucks. The competition provides more opportunities to engage new tea drinkers and also creates pressure for retailers to up their game to compete with the massive resources of a large retailer.
Retail expansion
In addition to the acquisitions and expansions above, we saw a lot of growth on the retail front. After many closures by independent tea rooms following the economic collapse, spring had arrived with the promise of renewed growth.
DavidsTea expanded into Chicago, one of the U.S. tea retail hotbeds, and continues its aggressive growth strategy. Coffee Bean & Tea Leaf continued its expansion started in the fall of 2011 into New York. Tea luminary Bill Waddington added his third store to TeaSource. Harney & Sons and Stash Tea both entered the retail market. Capital Teas continued its growth expanding into neighboring communities from its D.C. base. And after a year of hiring talent from Adagio, Rishi, and other leading specialty tea companies, Starbuck’s opened its first Tazo retail store.
Access to capital will be the key factor to determine retail outlet growth. The large players have their own cash, but smaller businesses will need to be resourceful for new openings and organic expansion. The positive press from the Teavana public offering and subsequent buy out by Starbucks will aid in justifying the business model to potential investors.
Consumer Shift
The groundswell has begun and there is a national war on soda. With Americans getting an estimated 25-30% of their daily caloric intake from sugary drinks combined with a childhood and adult obesity epidemic ultimately feeding a diabetes epidemic, tea is ideally positioned to capture the consumer shift away from the CSD (Carbonated Soft Drink) category.
But there will be stiff competition from other healthy beverage categories, namely bottled water. A unified marketing effort for our category is needed. Take a look at what the bottled water industry is doing using social media….Meet Norman.
One way we will help the industry capture this opportunity is by launching a new event, Healthy Beverage Expo. While creating a new event, we will be able to leverage the buying audience from this event into the World Tea Expo.
But the main vehicle to increase consumption will be the continued expansion of retail as mentioned above and the continued innovation of new products, flavors, and opportunities to engage new tea drinkers.
A year of prosperity ahead!
With the momentum of 2012 behind us, I believe this next year will exceed this past. And we can expect the year after to be better than both. While my opening comment about this past year being measured in significance to Emperor Shen Nung discovering tea may have seemed strong, we are truly in a golden age for tea in the North American markets that should continue for the foreseeable future.
Borrowing from a conversation I had with Charles Cain at the Tazo retail opening, coffee only comes in one flavor but with thousands of flavor profiles for tea, there truly is a tea for every person. Our job as an industry will be to help each and every consumer, one by one, to find his or her personal tea flavor!