David’s Tea U.S. IPO boils as it gears up for Starbucks battle.

• 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, seeks 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 loose-leaf 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. ... And innovation has been rooted in the DNA of our company. In the last eight years we have probably created 400 teas.” The company also gets 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.

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.

The company has reported doubledigit 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 US$141.9 million last year from US$41.9 million in fiscal 2011.

The company’s initial public offering of 5.1 million shares raised about US$96.9 million. David’s Tea shares were priced late Thursday at US$19 a share. They closed up 42 per cent Friday at US$27.

We think the market is growing fast, people are very engaged