Teavana closure provides opportunity for tea retailers

Murchie’s, DavidsTEA among surviving tea merchants that could benefit from less competition

Murchie’s Tea & Coffee managing director Grant Kuebler oversees nine stores | Chung Chow

Starbucks Corp.’s plan to close all 379 of its Teavana-branded tea retail stores by spring 2018 is creating opportunity for tea purveyors, such as DavidsTEA and Murchie’s Tea & Coffee, which also operate in Metro Vancouver.

The Seattle coffee giant (Nasdaq:SBUX) bought Teavana for US$620 million in late 2012 and has since increased its sales for tea by 40%, Starbucks CEO Kevin Johnson told analysts on a July 27 conference call.

Despite the sales increases, Johnson described many Teavana stores as “persistently underperforming,” so he decided to pull the plug on the entire bricks-and-mortar tea retail chain and focus on new channels, such as wholesaling Teavana products to grocers.

Six Teavana stores in B.C. are set to close, including Metro Vancouver outlets in Surrey’s Central City Shopping Centre, Richmond Centre, Metropolis at Metrotown and Guildford Town Centre.

The average Teavana location has about nine employees, according to Starbucks, and all Teavana workers will be able to apply for similar jobs at Starbucks.

“I’m going to take a drive around and look at some of those locations,” said Grant Kuebler, who is managing director of the nine-store Murchie’s chain.

“If we find the right location, we would open more stores.”

Starbucks’ decision to close Teavana surprised Kuebler, but he said the chain’s demise is unlikely to have a significant effect on Murchie’s sales.

“They were a nonfactor,” he said of Teavana.

“We didn’t have our customers saying ‘Teavana this,’ or ‘We could do this at Teavana.’”

Kuebler added that Murchie’s mall stores in Park Royal South, Oakridge Centre and Semiahmoo Shopping Centre are all doing well.

“We opened at Hillside Centre in Victoria in December, and that location has exceeded our expectations by quite a bit,” he said.

Murchie’s, which was founded in 1894, was forced into receivership in November 2007, when it operated six stores. Victoria’s Belmont Management bought the assets and tweaked the company’s business model, Kuebler said.

The chain has since focused on selling teas and accessories that customers use regularly. Murchie’s also put less emphasis on selling products, such as china, that are for special occasions or for display purposes.

The move has been good for business. Kuebler told Business in Vancouver that the company’s annual revenue is now almost twice the $7 million it generated in 2007.

Montreal-based DavidsTEA (Nasdaq:DTEA), which has 27 B.C. stores, including 16 in Metro Vancouver, is Murchie’s largest competitor, and investors clearly saw the Teavana closure as being good for DavidsTEA.

Its share price jumped 19.5% to US$6 in the two trading days that followed Starbucks announcing Teavana’s closure.

Part of the investor optimism about DavidsTEA is the chain’s focus on growth, albeit slower than what was promised in mid-2015, when the company went public.

DavidsTEA operates 232 stores in Canada and the U.S. and has increased its store count by 68% since late 2015. CEO Joel Silver said in June that he expects to open another 20 DavidsTEA stores by year’s end.

“Tea consumption in the Lower Mainland is high,” said retail analyst and Retail Insider Media owner Craig Patterson.

“The high-end tea store TWG Tea would have done their homework on where would be a good place to open, and they opened their first North American store in Vancouver.”

Singapore-based TWG Tea opened at 1070 West Georgia Street in December. It sells teas that can range up to $2,700 per 100 grams, although most of its sales are for teas that cost much less.

Patterson sees luxury tea shops as a niche that is in demand and said that he has heard that an upscale tea shop is getting ready to open at the Shangri-La Hotel Vancouver.

Murchie’s products, in contrast, are priced similarly to those of DavidsTEA and Teavana.

The biggest difference between Murchie’s and DavidsTEA, Kuebler said, is likely that Murchie’s sells about half of its teas in tea bags whereas most of DavidsTEA’s sales are for loose-leaf teas.

“We are also a very traditional tea company,” Kuebler said.

DavidsTEA and Teavana rely heavily on flavourings and non-tea products, such as rooibos and tisanes. Our biggest sellers by far are traditional tea items, such as Murchie’s afternoon tea, which is a black tea blend with no flavouring.”•