David’s Tea hot item in its market debut
Montreal-based firm plans major expansion in Canada and the U.S.
Sylvain Toutant is not deterred by the rise of Starbucks’ Teavana chain even as David’s Tea Inc. sets a bold course for expansion across the U.S.
“We think the market is growing fast, people are very engaged, and there are more brands talking about tea, which is great for David’s Tea,” said its chief executive on Friday after its shares began trading on the Nasdaq.
If investor appetite for the Montreal-based chain’s stock is any indication — shares surged 42 per cent by market close — tea is one hot commodity.
David’s, with 136 tea shops across Canada and 25 in the United States, has big expansion plans, seeking to open an additional 100 stores in Canada and up to 300 more stores in the U.S. Toutant expects to open 25 to 30 stores this year in Canada and 10 to 15 stores in the U.S., with an eye to opening 30 to 40 stores annually.
The specialty tea chain with a bold teal and white logo was founded in 2008 by entrepreneur David Segal and his cousin Herschel Segal, founder of the fashion chain Le Chateau, and quickly gained attention for developing a creative range of 150 looseleaf tea blends.
Anticipating expansion, David’s Tea brought in Toutant, a former president of coffee distributor Keurig Canada and one-time COO of coffee distributor Van Houtte, last year as CEO.
“I think the best thing that David’s Tea did was to take a category that was very traditional and attract a very young customer base from the get-go — a lot of millennials. We want (the brand) to be really fun and accessible. We got very involved in social media from Day 1. And innovation has been rooted in the DNA of our company.
“In the last eight years we have probably created 400 teas. We have 150 of those on the shelf, and we bring in 30 new teas every year.” The company has also seen a boost from doing extensive consumer sampling, Toutant said. A store in Palo Alto, Calif. sponsors “tea breaks” in the lobbies of major IT companies.
“We get people engaged. Our philosophy is if we don’t have a customer, go get them.”
In the meantime, Starbucks has been quick to jump on the trend. It bought U.S. specialty tea chain Teavana in 2012 with an eye to expanding the brand through North America.
In Canada, Teavana has 59 outlets, but is sold largely within Starbucks’ 1,400 locations, and it has 350 locations in the U.S. Tim Hortons also plans to diversify its portfolio of tea drinks.
Tea is the second-most consumed beverage in the world behind water, and in Canada it ranks fifth, with 76 per cent of the population drinking the beverage hot or iced, according to market research firm NPD Group Canada.
David’s Tea grew to 154 stores in fiscal 2014 from 70 stores in 2011 and has had 22 consecutive quarters of positive same-store sales growth to the end of that period.
The company has reported double-digit annual same-store sales growth, a critical retail metric that strips out the effects of square footage growth on sales, since 2011.
Sales have grown at an annual compound rate of about 50 per cent, rising to $141.9 million US last year from $41.9 million US in fiscal 2011.
The company’s initial public offering of 5.1 million shares raised about $96.9 million US, which the company will use to repay debts to shareholders and lenders, while using the remainder to expand and enhance the business.
David’s Tea shares were priced late Thursday at $19 US a share, above the company’s earlier estimate of $17 US to $18 US. They closed up 42 per cent Friday at $27 US.