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Developing the Retail Model

Charles Cain - Dec 7th 2009

The beauty of loose tea

The first Business Strategy question we had to ask ourselves was who are we? Adagio Teas is, first and foremost, a tea company. As such, our mission is to share Adagio teas with as many consumers as possible regardless of distribution channel. That’s a rather critical distinction because it drives most of the logic behind the second Business Strategy question that seems to be the one that most entrepreneurs start with: What is our business model?

Most new tea businesses fall into one or more of the following categories: Wholesale, E-Commerce, Retail, Café, or Restaurant. Adagio has been doing Wholesale and E-Commerce successfully for years, so for us the choice was between the latter three options. Allow me to start at the end and briefly share my opinion of the pros and cons of each:

Tea Restaurant
The advantage of a restaurant is that your product appeals to the vast majority of the local consumer base. Eating Out is an American pastime, and getting people try a new restaurant is not terribly difficult. I’m aware of only a handful of truly successful Tea Restaurants in the nation, and the owners will be very open in telling you that tea is simply a theme; a hook to differentiate their business. They are not in the tea business, they are in the restaurant business, with all of the stress and work and high volumes and low margins that entails. In a restaurant, the speed at which the staff refills your customer’s water is more important than the quality of your tea.

Because of confidentiality agreements I can't share data on my experience with TeaGschwendner, but it's no trade secret we opened a Tea Bistro in the trendy Lincoln Park neighborhood of Chicago back in 2006. We had a beautiful location, 300 of the world’s finest teas, seating for 29, and a chef that used to be the assistant chef at one of the top restaurants in the US. USA Today named the Halsted Street TeaGschwendner one of the 10 Great Tea Rooms in America less than 30 days before we closed the store.

I am NOT saying that you shouldn't open a tea themed restaurant. There is certainly a market for it and it HAS been done successfully, profitably, and with a great deal of romance. Check out the Samovar Tea Lounge and their three locations in San Francisco. They do have very cool tea rooms with a retail element. That said, the retail element is a minuscule part of their in-store sales. Most importantly, the daily workload and challenges of the manager, chef, servers and hosts are pretty much identical to that in any other restaurant. The only difference is the menu and the decorations.

Tea Café
This seem to be the most common strategy for new tea shops in the US. Modeled after the ubiquitous coffee shop, tea cafes are popping up everywhere. I’ll be honest that this model has NEVER been attractive to me from my first survey of the tea industry in 2004.

First, Starbucks nailed the consumer need when they made their mission to create a "third place" (you spend your time at work, home and Starbucks) where customers could hang out, congregate and feel at home. Think Cheers without the stigma or the hangover. As a third place, the primary differentiators are comfort and convenience. According to the Specialty Coffee Association of America, 70% of coffee shop customers choose their shop based on convenience. With well over 25,000 coffee shops in the best locations across the US, I just never wanted to compete over comfort and convenience. Remember question one… we want to be a tea company. Most tea cafes I’ve been in have mediocre food, mediocre tea, mediocre profits and a TON of customers with laptops and empty cups of tea. (For more on this topic, see The Starbucks of Tea.

Second, how many people do you know that do their Holiday shopping at a café? The biggest season of the year in the tea business is the gift-buying season, and in cafes, the retail product is the stuff of impulse buys. Cafés are NOT destination gift shopping! Too many entrepreneurs go into the business thinking that they can combine the revenues and profits of a tea retail shop with a tea café (or a tea retail shop with a tea restaurant) and that the combination will make them successful. Based on my personal experience (more here) and that of hundreds of similar attempts across dozens of industries, THIS ALMOST NEVER WORKS. Usually, the combination of two different models results in a business that does neither particularly well. Consumers go to cafes and to retail stores for totally different reasons, and any energy you expend on one side of the business leaves you vulnerable to a less distracted competitor on the other side of the business. Your mission, your message to the customer, and your staff training needs to be focused.

Tea Retail
Put simply, I would define a Tea Retail shop as one that focuses on selling dry tea. I’m in favor of offering tea-to-go (being able to sample the tea is rather critical), and am not opposed to seating, but the seating should not be so much or so prevalent that the customer mistakes the shop for anything like a café.

(NOTE: If you have any seating at all you have to have a handicapped accessible customer bathroom. That means more space and more cost. If you have 10 seats you have to have male and female, handicapped accessible bathrooms.)

While none of the tea café models have succeeded in going national without deriving more than half of their business from coffee, I know of three Tea Retail chains that have absolutely boomed. TeaGschwendner has more than 145 Retail stores in 9 countries on four continents. Teavana has 100 locations in the US and a handful in Mexico. Ten Ren has 136 stores in 7 countries. Maybe you aren’t looking to build a national chain, but these success stories demonstrate a real opportunity to find meaningful profits while focusing on the sale of tea.

For Adagio, a Tea Retail store provides an ideal environment for introducing new customers to tea and engaging existing customers in a more personal and sensory rich environment (more here). You can easily by with a small location (as little as 500 square feet) and limited staff. In a tea retail store you will spend your days playing with and discussing tea. At the end of the day, that’s why you get into the tea business, right?

Adagio Teas
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Voice your opinion about this article on TeaChat!
Dec 7th '09 12:24
I've written a piece explaining the logic behind Adagio's strategy for a new Tea Retail shop and would love to get feedback from the TeaChat community. (http://www.tearetailer.com/article_19.html)
Charles
Chicago, IL
Dec 7th '09 13:30
I love the idea of starting a new business. I'm very opinionated, and I also love to notice things, so when I got into a new business it takes everything I have not to tell them what they're doing wrong. :)

We've only had two tea shops that I'm aware of in our area, though we do have a couple of tea houses. Very dainty, and catering to a specific image. The last tea shop I was in was fussy and claustrophobic! 1000 little teapots scattered around and you're afraid to turn too quickly with a big purse, but that's not what stopped me from coming back. What stopped me from coming back was the tea storage.
They had walls and walls of bins of tea. Smelled lovely, but all I kept thinking was how can they possibly sell enough of each one of those teas to go through any kind of stock rotation. I'm sure the tea was fine, but it's all about perception.

I think if you sell the small size tins of tea that is also a huge plus. They're such a fantastic way to try new things, and really, just fun!

Wheewww! I've been wanting to say that for a week! Glad I finally registered.
tlm0000
Dec 7th '09 14:54
I replied in the other thread, so I will re-post here:


Ah, I didn't understand you meant this to be a strictly retail shop. In that case I have the following suggestions:

Teance (Berkeley, CA) has a tea bar. I'd have minimal seating (so you don't need to install special bathrooms if you wish to avoid this expense)... I think Teance's bar seats 6 but I'm not sure. The point of the bar is so that people can taste, and also you can organize tastings -- or they can just offer certain teas the owner decides on in a roster all day long. You could take reservations for this or let people walk in the door or both. Either way, I think it's to a great advantage to let people taste teas. I'd also organize formal tastings of groups of tea to introduce people to tea.

After all, I've no doubt the more time a customer spends in the store, the more money they're likely to spend.

Knowledgeable sales reps are a must - to show teaware and talk about teas. Politeness is mandatory. Need I say stick to the hours posted. I'd still offer minimal tea snacks to go - this requires no cooking if you get, say, traditional Chinese tea snacks or packaged cookies that people can buy to go with the tea or as part of a gift package. And I'd still go with books on tea, and teaware. But you'd know the profit margin better than I.

Perhaps in this kind of set up decor will set the tone and mood and if fairly essential in addition to customer service. What kind of decor do you plan?

ADDITION TO OTHER POST: Where do you plan to open this shop? Big city? Smaller town? Or do you want perhaps a franchise or chain? Then you need to address the question of standardization and that would apply to inventory and/or decor... you could standardize inventory and make decor unique, would be rather interesting and maybe spark people to visit
Janine
Dec 7th '09 14:56
PS I'd still have special prices for tasting. Suppose I want to taste 3 puerh you carry? Or all the varieties of keemun? Or whatever new Taiwan oolongs a harvest season brought in? You could have a price for tasting one tea, another for three, etc.
Janine
Dec 7th '09 15:01
With the phenom of a Starbucks on every corner and some in between,
this seems to be to be the most lucrative suggestion. The Starbucks of Tea.

I'd love to see that happen. Even if it meant putting loose leaf tea in t-saks or fillable bags.

I don't feel customer blending will work in a store and as you said will be messy. It works online, because well, it is online. You get a certain amount of notoriety and gratification and of course the points. Besides, in a store, you could do it anyway, without the fuss. Just say, make that half this and half that. Not that most would anyway. And hopefully we are steering away from foo-foo and concentrating on quality leaf.

Of course thinking out loud here, I guess they really took off when adding the specialty foo-foo drinks with sugar and whatever. Still they did pretty well when it was just coffee and pastries. Right?
Victoria
Southern CA
Dec 8th '09 9:22
Thanks for the feedback. We're actually hoping to allow "professional style" comparison cuppings free of charge (using the porcelain cupping sets http://www.adagio.com/teaware/tasting_set.html). I figure there are a lot of people that will abuse a free offer, but most of them are not going to take 10 minutes to comparison cup 3 Pu-erhs or a half dozen Darjeelings. Tea people, on the other hand, will love the experience and will hopefully reward us with their business.

As for decor and target location... I know all of that matters, but my hope is that a shop focused on the leaf will transcend location and decor. Nature is beautiful and doesn't need much by way of additional adornment.

In my thinking, any artificial hook (like awesome decor) will bring people through the doors, and will bring them back with their friends and family, but won't necessarily lead to higher sales or loyal customers. Even a great sensory experience won't be much more than a temporary help if it doesn't translate to people's everyday life and love of tea.

After leaving the Adagio Retail Store I don't want people to say "Wow, that was an awesome store", or even "I love Adagio". I want them to say "I love tea and can't wait to get home and drink this stuff!"
Charles
Chicago, IL
Dec 8th '09 17:11
Thanks for the feedback. We're actually hoping to allow "professional style" comparison cuppings free of charge (using the porcelain cupping sets http://www.adagio.com/teaware/tasting_set.html). I figure there are a lot of people that will abuse a free offer, but most of them are not going to take 10 minutes to comparison cup 3 Pu-erhs or a half dozen Darjeelings. Tea people, on the other hand, will love the experience and will hopefully reward us with their business.
...
After leaving the Adagio Retail Store I don't want people to say "Wow, that was an awesome store", or even "I love Adagio". I want them to say "I love tea and can't wait to get home and drink this stuff!"

Great ideas. What I meant by my question regarding decor was more a matter of style: modern American? Cozy English? Chinese classical or Japanese style? But you're right to focus on the tea and hope that is the focus of the clientele. Besides, something really splashy could be an unnecessary expense for what you have in mind.
Janine
Dec 8th '09 17:59
I'm planning on a decor that is simple, modern and natural. It needs to be in keeping with the existing Adagio brand. Clean, simple, bold colors, but a soft mix of modern and natural. Ideally I want an environment that can adapt to the situation. It won't be a "theme" shop like Asian, English or even Organic/all natural. We're working on designs now and I hope to post pictures of our plans soon...
Charles
Chicago, IL
Dec 8th '09 20:46
I would suggest a Cafe with food offerings. Comfortable chair/sofa seating and bar and regular table seating as well. I would like to see a warm and welcoming look and feel to it. Not as clean and sterile as TeaG's are set up. In addition, perhaps the best suburban location would be in the Woodfield Mall area. Although, I would be fine if you built it in my backyard. I will send an E-Mail with more specifics when time allows. Thanks for listening.
RachelC
Chicago
Dec 9th '09 15:08
I love that you've opened this up to feedback from your customers.

I completely agree with your assessment of the state of tea cafes - even as a lover of tea I rarely frequent them unless I’m on vacation and need a place to relax for a moment while touring the city. Restaurants are notoriously risky to venture into and I’ve only known one that I found to be so fabulous that I’d go again and again – The Dushambe Tea House in Boulder, Colorado.

But a retail teashop seems like the right idea.

Unfortunately, most of the teashops I've visited are simply a large room with row of tins along the wall - out of reach and mysterious – peppered with a few accessories and a profusion of Japanese teapots. One glance and I’ve taken it all in. There’s little that invites me to discover it by accident, nothing that feels okay to pick up and touch, taste, or experience. And often there’s very little that surprises me since I’ve seen the same thing at the previous shop. What does surprise me is that the teashop experience would be that way. Drinking tea has a feel and a character that's different the world over – there’s so much to offer!

As an anthropologist, one of the things that will keep me in a teashop for longer than a few minutes is the browsing and "discovery" experience. That usually happens when the shop owners have something tea-related that I've never seen before. Often my best tea-shopping experiences are in non-teashops, like middle-eastern grocery stores or kitchen gadgetry stores. Americans are, unfortunately, only really familiar with two stereotypes: frilly rose-splashed afternoon tea for old ladies and uber-zen Japanese-style green tea "lifestyle" tea and that seems to be reflected in the kinds of things that are offered in most teashops. Never have a found a teashop selling rose water and Arabic style glasses for rose-infused milk tea from Syria. I have to go to a middle-eastern market for that. When I traveled to Switzerland this past Fall I was delighted to find accessories (for steeping loose-leaf tea in cups) I'd never seen before. I even found some funky leaf wrapped teas from China while I was there that I've never seen and it’s only on eBay or Indian grocery stores that I’ve found the tiered tea posts from India.

And that’s just the variety of the accessories. What about tasting a sample? Oddly, most tea stores I've been in don't offer any samples, or if they do, it’s only the “sample of the day”. One of my fond memories as a kid was walking into the Hickory Farms store and sampling meats and cheeses and soups from other countries. We always ended up buying something from that store. For someone new to tea, an important experience would be to sample a green tea, then maybe a Darjeeling or a China black tea to understand the difference. (I'm new to wine, and found the opportunity to pay a $5 fee to taste all of a local wineries white absolutely invaluable. Of course I walked away with two bottles - and my $5 tasting fee went towards the purchase.) Someone already familiar with tea might want to try three different Assam blends to find that new favorite of the week. For tea to be enticing to a newbie it’s got to be accessible. Literally. No mysterious labeled tins lined up neatly on the walls behind a counter.

I want to walk into a tea store and immediately see something that’s a new trend, even if it’s slightly silly. I want to have to look up and down and in every direction and to take a stroll through the store to take it all in, knowing that I’ll have to come back again because I surely missed something. I want to taste something, be it tea or the honey or infused sugar to go with it. I’d like to fill my basket with tiny tins of $1, $2 and $3 tea samples because I can’t decide on one larger container. I’d like to know that I could find a gift basket for a friend, some inexpensive accessories, and ooh-and-aah over something both sexy and expensive enough that it goes on my gift wish list. I’d like to find the experience enjoyable and inspiring enough – maybe I get some ideas for entertaining with tea – that I prefer going there to simply purchasing online.
faziarizvi
Dec 9th '09 15:18
faziarizvi - You couldn't have said it better. I too have traveled to different parts of the world and the most appealing thing is something you have never seem before and knowing you will always find something new time and time again. You literally said everything I wanted to say but couldn't put into words so I will say you have my vote for the direction this retail store needs to go in. Way to go! :D
RachelC
Chicago
Dec 11th '09 14:28
Where will the shop be located?
sneakers
Southeast NYS
Dec 11th '09 14:50
The pilot store will be somewhere in the Chicago, IL greater metro area.
Charles
Chicago, IL
Dec 12th '09 11:03
I like the idea of free tastings (of course!, who doesn't) but my business side says..how about free samples quite readily available for some of your mainstay type teas and STILL have a minimal charge pro tastings for some of the more premium teas or everything else you deem "non-free-sample-teas"
For example a lot of wineries play with this model. they have some you try free and them one or even two more "levels" that you may pay a couple different price points for to taste a few samples of.
I'm thinking in my mind that the mainstream public or non to newer tea drinkers would benefit from the free sample teas, or the "lets get them into trying and drinking our teas" type teas..and the aficionados (who have been out there online buying premium teas) would gladly pay a few bucks to sample some of the more higher end teas that they may have heard about but never tried or just want to try your version of.
iannon
The foot of the great Smoky Mountains
Dec 12th '09 14:54
We will certainly have a handful of brewed samples representative of the categories. For the novice, this should suffice. I'm more interested in capturing the interest of the connoisseur with the option of free comparison cuppings. Someone who is serious about Keemuns will be overjoyed to have the option of cupping several side by side, and we are confident that they will be impressed with the quality and value of our product.

It is likely that we will have to put some form of limitation on this. I don't really want someone to cup one each of the 70 flavored teas in a "professional comparison". That kind of defeats the purpose. I do, however, want to make sure that whatever simple limitations or controls we put in place do not deter the tea lover. We don't NEED to charge a sampling fee for reasons of profitability. We WANT tea connoisseurs to come in regularly to experience and enjoy our tea! :)
Charles
Chicago, IL
Dec 12th '09 15:01
... anything to get the customer in the door ... within reason.
Chip
Back in the TeaCave atop Mt. Fuji
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