Rising tea sales drive profits for beverage chains

The tea industry in Canada is boiling with big and small retailers clamouring for a share of what appears to be a growing market.

DavidsTea started five years ago in Montreal and helped move the humble cuppa upmarket. It now has 120 locations across Canada.

Last year, Starbucks invested $600 million to acquire 300 of the Teavana chain stores — 59 of them in Canada. Its first New York Teavana opened last month.

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In Canada, which has a rich history of tea-drinking, there has been a big increase in drinking tea outside the home, according Louise Roberge president of the Tea Association of Canada.

“Canadians love speciality tea.  When I talk about the difference between, Canada, U.S. and U.K.,  in the U.K., they drink their traditional black tea, In the U.S., they drink it more cold than hot... in Canada, it’s all about specialty,” she said in an interview with CBC’s The Current.

Businesses are seeing profit in the tea business, she said.

“What happens is that tea lovers, since 2006, 2007, have a lot more retailers that offer tea in Canada, the Davids, the Teavana. Actually the quality of the tea that is being sold is up and that’s why we’re seing an increase.”

Canadian staple

Before 1940, tea was the beverage of choice in Canada, but in the next 20 years, there was a trend toward more coffee. The baby boomers are big coffee drinkers, but their children don’t want to be like Mom and Dad – they want something different, Roberge said.

“We used to drink only black tea, but now it’s interesting to be able to drink an oolong or green or black tea, flavoured black, flavoured green,” she said.

An influx of tea drinking immigrants, from China and South Asia, are also changing tea habits, she said.

Tea drinking in Canada hit its lowest point around 1991, when the coffee culture took off, Roberge said. But since then, science that shows the anti-oxidant properties of tea has help revitalize tea-drinking.

DavidsTea was begun by Montreal tea lover David Segal with his cousin Herschel Segal, the entrepreneur behind retailer Le Chateau.

“Their mission when they started was to make tea fun and accessible. Nobody was doing that,” said DavidsTea spokesman Bradley Gill.

Davids sells about 150 versions of tea, from English Breakfast, to green, Rooibus and other specialty teas. It now has 120 locations.

Starbucks has plans to open 1,000 more Teavana locations in North America over the next 10 years.

Growing market

Tim Hill, U.S. bureau chief for the Guardian, visited the new Teavana tea bar Starbucks has opened on the Upper East Side in New York City.  He described it as “akin to going to a boutique hotel” with nice decor, warm lighting and an expensive selection, ranging from $2.50 for English breakfast to $6 for specialty drinks.

As a British tea drinker, who thinks of a hot cup of tea as one of life’s joys and comforts, he finds the large selection and lush presentation over the top.

“Tea, drunk conventionally on its own with milk, with boiling water and decent quality tea, is a fantastic, delicious, simplistic drink and I just think we’re adding extra complexity to something that really doesn’t need it,” Hill told The Current.

But he sees that U.S. consumers might embrace the humble cup of tea, meaning big opportunity for a tea chain like Teavana.

“Coffee, which used to be for everybody, now seems to be a drink for upwardly mobile, aspirational types.  I guess Howard Schultz, the CEO of Starbucks thinks, if I did it with coffee, why can’t I do it with tea?” Hill said.