WORRIED YOU MISSED THE BOAT?
October 1, 2020 In the 12 years since I opened my first tea lounge back on that hot, dusty day in Edmonton, I had a vision of an industry whose trajectory would replicate that of our darker cousin. I had the sense after less than a year in operation, that within the decade there would be such things as corporate teahouse chains boasting retail outlets in the hundreds, all under the same moniker. From that period in the late 90s, I remember distinctly two conversations I had at Steeps in the heady days of our surprising growth, one with a gentleman who had flown in from another Canadian city to see our shop, and another with an eccentric artsy movie producer. They both sat on opposite sides of the fence, with regard to where they thought the future of tea in North America was headed. From that period in the late 90s, I remember distinctly two conversations I had at Steeps in the heady days of our surprising growth, one with a gentleman who had flown in from another Canadian city to see our shop and another with an eccentric, artsy movie producer. They both sat on opposite sides of the fence about where they thought the future of tea in North America was headed. Go Big or Stay Small Chris, the guy from Winnipeg, had made the journey to try to convince my brother and me that now was the time to roll this out. He offered venture capital and would assist in defining the exact Steeps model and opening locations across Canada. Paul and I both realized this opportunity and knew that Chris was good on his word; he would deliver the capital for our growing business. The dilution of our respective shares was whole other issue. Terry, the artsy movie producer, reflected on what Chris had said to us about initiating a rollout. Being a regular at Steeps, he loved what we had going on and did not want to see it change. His take on the industry was a little more guarded. He suggested that people who appreciate fine tea will never frequent a MacDonalds of the tea world, we were simply too sophisticated a community and would shun wholeheartedly the corporatization of our beloved beverage. This was in early 2000, and, at that time, there were no multistore sipping houses in North America. Tealuxe in Boston was the only entity I knew of that had successfully opened more than one location, breaking out of that mom-and-pop stereotype. So now looking back, who was more on the mark? Chris, with the big expansion plans of being the first multistore teahouse chain six years prior to ratcheting up? Or Terry, with his notion that teahouses for many more years to come would remain as one-offs, out-of-the-way, neighborhood sipping houses catering to those seeking only the finest cup of tea? I think both were correct in certain ways, but as we can see when we look around, teahouses are probably opening at a rate similar to that of gourmet coffee houses a decade ago.
Seeing the Light In my recollection, the light bulb seemed to click on in early 2005. By that time, Steeps had five locations, and franchisees were showing up at our doorsteps weekly. Teavana was off and running and Tealuxe had somewhat disintegrated. They were retreating back to their original outlets to lick their wounds. It seems Tealuxe had tried what Chris had suggested in 2000, and the results were obvious in New England. There just weren’t enough people drinking loose-leaf tea to support such a chain, or at least that was the industry consensus being espoused at the time. I did not necessarily agree, based on the growth of Steeps. In my opinion, it had more to do with the quality of the experience being offered. This was one of the strengths of Steeps, and I believe now that we would have trumped any challengers of the day. A Saturated Market? What I am now sensing is a palatable concern that the corporate entities rolling out stores are going to saturate the market. There will not be any room left for the little guys. With the big three in Canada and the U.S. having well over 200 locations open, the sense is that the niche is filling up. Teavana itself just concluded a massive IPO (let’s hope some of that capital goes into cultivation and protection of the growing regions and the skilled growers who make their business possible), so corporate money is flooding into the world of tea retailing. With tea consumption being touted as a must for a healthy, balanced lifestyle and the low cost of a cup of tea, there is no end to the growth coming down the pipe. The biggest limitation will be supply, which ultimately will affect price. An enormous void remains to be filled when it comes to servicing today’s tea-hungry public. So if you are worried there won’t be any room left to open your little dream tea shoppe or regional chain, or even national conglomerate for that matter, breathe a sigh of relief. You just need to flip a page in history and take a quick glance at what has occurred in the specialty coffee industry. The last I heard, there are now over 28,000 coffee houses in the U.S. and Canada. There is only one Starbucks, but in the next tier down, there are tons of players all quite large, but nowhere the size of the green giant. The reason tea will not spawn a Starbucks is because most chains started around the same time and growth is occurring almost equally among the top three, it’s actually a full-on race that is taking place here in Canada. In Vancouver, a city of just over two million, we have around 200 Starbucks (an educated guess), four other coffee house chains, each with 30+ cafés, another dozen that have 5-10 stores, and then another 200 or so one-offs. That is a total of just under 600, and I am not counting the 300+ Tim Hortons (similar to Dunkin Donuts) that service another group of coffee clientele. How many teahouses are there in this market? Not even a dozen. If you harbor any more thoughts that you may have missed the boat on getting in on the boom in specialty tea, you can put those silly notions out of your head. The only thing you need to decide is how big you would like to get. I wish you all the luck in your chosen path.