CELESTIAL SEASONINGS SETS RETAIL 'BRAND EQUITY' LAB: DENVER OUTLET AIMS FOR 1-TO-1 CONSUMER RELATIONSHIP

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It's not exactly Starbucks for the tea crowd. But when Celestial Seasonings opens its first retail store in Denver next month, it will attempt to envelop consumers in its brand a la cultlike coffee bars.

Following in the footsteps of branding giants Coca-Cola Co. and Nike, the No. 2 tea marketer is set to launch its first standalone retail store featuring its 70 varieties of packaged herbal and black teas as well as branded apparel, gifts and bath products.

The move is part of an overall effort to broaden Celestial Seasonings' one-on-one relationship with consumers.

The marketer recently created a new unit-called Celestial Direct Group-to focus on sales and branding via the Internet, catalogs and retail outlets. The retail initiative kicks off with the grand opening of the 1,600-square-foot store Oct. 2, creating what Walt Freese, general manager of the new division, calls a "brand equity lab." The marketer's headquarters is in nearby Boulder, Colo.

While not expected to be a huge profit center, Mr. Freese said the store "is intended first and foremost as a brand-building effort, like Niketown; as a way to deepen our relationship with the consumer and extend the Celestial Seasonings equity."

Celestial Seasonings will initially use its retail space to learn how to take that equity into new areas and has no plans at this point to roll the concept into additional locations, Mr. Freese said.

SHARE DOWN

The marketer's recent efforts to diversify beyond its core tea equities with products such as shampoo, ready-to-drink iced tea and herbal supplements have been blamed by some industry observers as the reason for a recent 40% drop in share price.

However, the retail initiative is seen as a way to enhance the marketer's core equity rather than break away from it, said analyst Matt Patsky, managing director of Adams, Harkness & Hill.

The store aims to "capture the essence of the time-of-day experience consumers have with the brand, to say, 'What else can we sell you that fits into that moment?'" he said.

Already, 70% of sales from the Celestial Seasonings catalog are from non-tea products, things such as bath and body items "related to tea and the tea experience," Mr. Freese said.

Celestial Seasonings is hoping to drive those sales, both through virtual 3-D experiences online and in its catalog as well as through the actual store. It is currently seeking a director of merchandising to create products that fit in with its mission to present "the best of natural living," Mr. Freese said.

HERBAL SUPPLEMENTS FALL SHORT

The marketer moved into a new category, herbal supplements, last April. Although initially well-received, the line has failed to meet Wall Street's expectations.

The marketer continues to push the supplements, which come in capsule form. But it has been more successful with its new line of wellness teas and cancer-fighting green teas that fit under the brand's traditional competencies.

After all, the tea business has been booming, with category sales up 5.7% to $710 million for the year ended July 18, according to Information Resources Inc. Lipton, the No. 1 player, saw sales rise 4.2% to $254 million, while Celestial Seasonings gained a whopping 18.9% to $97 million.

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