Chains see Starbucks-like profit in tea leaves

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It's a surprising confession. "I put cream in my tea," said Toya Morris, admitting to breaking the long-held taboo in tea etiquette.

Such a statement would barely cause a ripple among the uninitiated, but Ms. Morris is assistant manager at Teavana, a tea salon in Chicago's tony Water Tower Place where the faithful quaff Mate Latte, made with MateVana (a cocoa-infused blend), and organic frothed milk and teas with tapioca pearls, all the rage in China.

While it's far behind Asia, which accounts for roughly 65% of the world's consumption of tea and the U.K., where Brits sip 3.5 to four cups a day, according to Business Trend Analysts' Leading Edge Reports, the U.S. is finally warming up to tea. Thanks to exotic ready-to-drink concoctions and an emerging crop of mom-and-pop tea salons and loose-leaf emporiums like Teavana, Americans have developed a $5.5 billion tea habit.

With headlines blaring the health benefits associated with tea-it contains flavonoids, thought to have antioxidant properties that have been credited with reducing heart disease and cancers-the drink is no longer viewed as a flu remedy.

Brian Keating, president of Sage Group, and tea-industry newsletter publisher, estimates there are 1,500 tea salons in the U.S. Most of them are mom-and-pop Victorian-style tearooms, with a host of concepts on the verge of breaking into the market. He expects to see a double-digit growth during the next 24 months as entrepreneurs dream of following in the $5.3 billion footsteps of Starbucks.

One chain trying to mimic the model is Argo Tea, with a single cafe and two others set to open this month in Chicago. "We're trying to make tea a cooler product that will be appealing to a larger segment of the population," said founding partner Daniel Lindwasser, a Frenchman who moved to the U.S. in 1997. "We're not appealing to the traditional tea drinker, but more to the people who, for example, are Starbucks customers that are looking for healthier alternatives to coffee."

If Argo wants to be the Starbucks of tea, Teavana seems to be aiming to be the Godiva. A hybrid tea emporium and tea bar launched in 1997 in Atlanta, it has 25 stores at high-end malls. In January it got a boost from private-equity firm SKM Growth Investors, which made an undisclosed investment into the concept.

Teavana, whose CEO Andrew Mack wasn't available for comment, sells more than 100 loose tea blends including white, rooibos or red, and pure German rock cane sugar with exotic names like Jasmine Dragon Phoenix Pearls and Monkey Picked Oolong.

Not far from Teavana in Water Tower Place resides Tea Gschwendner, the German chain's first U.S. store. It boasts 300 blends and a staff with encyclopedic knowledge of tea. "We want to be the No. 1 specialty tea retailer in America the same way that we are in Germany," said Brad Johnson, managing director of Tea Gschwendner USA.

Customers range from newbies to accomplished tea drinkers. "We are noticing a trend toward a lot more converts-people who are abandoning sodas and coffee or are looking for alternatives to coffee," Mr. Johnson said.

In other words, they might put cream in their tea.

Tea time

127 million: The number of Americans who drink tea every day

85% of tea servings consumed in the U.S. is iced.

65% of tea brewed in the U.S. is from tea bags, not loose tea.

$5.5 billion: The wholesale value of the U.S. tea industry

87% of tea consumed in the U.S. last year was black tea

12.5% of the tea consumed last year in the U.S. was green tea

Source: Tea Association of the U.S.

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