Apr 6th 2011 Issue
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Connoisseurs vs. Novices

Charles Cain - Apr 6th 2011

Premium tea for the connoisseur

Blends for the casual drinker

An ongoing debate as we've worked to refine Adagio's brand, model and retail strategy, is how much we should focus on existing tea connoisseurs vs. novices who may be converted into tea drinkers. On the one hand, connoisseurs will buy more and will prefer more expensive teas. On the other hand, there are far more casual consumers or tea novices and so the upside to catering to the masses may be greater. Balancing our strategy to appeal to connoisseurs while also attracting casual and novice tea drinkers is one of the more important aspects of our business strategy.

First let's try to estimate the market. According to research done in 2009 by Mintel, 76% of American households buy packaged tea products. Roughly 11% of American households buy loose teas. Research by the Health and Wellness Trends Database and others I've seen in recent years suggests that roughly 1/3 of Americans drink hot tea on a semi-regular basis.

Summarizing all of the reports I've seen, I'd estimate that roughly 10% of the US population are "connoisseurs" (frequently enjoy reasonably good quality tea). Another 25% are "casual tea drinkers" (periodically enjoy hot tea). The remaining 65% do not regularly drink hot tea.

Based on these estimates and the demographic data from my store locations, there are 22,200 tea connoisseurs within 5 miles of my Naperville location and another 55,500 casual tea drinkers. There are 1,100 tea connoisseurs living within 1 mile of that store. One mile is roughly 6 suburban blocks, or 8 Chicago City blocks. (The total population within 5 miles is 222,000, with 11,000 living within 1 mile). Since I obviously won't attract every tea connoisseur, it's pretty important in Naperville, IL to cater to casual and novice tea drinkers.

Moving to one of the retail spaces I'm negotiating on downtown, however, the numbers are a little different. The space right in the heart of Chicago has nearly 85,000 people living within 1 mile (not including many thousands more that work nearby). That means I probably have 8,500 tea connoisseurs living within walking distance of that shop, and another 21,000 casual tea drinkers. It's rare to get foot traffic numbers, but the vehicular traffic passing by in front of the shop and through the intersections to the immediate north and south is a whopping 40,000 cars DAILY. That's 4,000 tea connoisseurs driving by every day. Probably a lot more since educated, wealthy, urban populations tend to have a higher percentage of tea drinkers.

There are just under 3 million people living within the city limits and a total of 9.6 million people in the Chicago Metropolitan Area, which stretches roughly 60 miles in any direction from downtown. By sometime this summer I hope to have four stores serving those 960,000 tea connoisseurs.

Obviously the market for novices is currently much larger and more potentially lucrative. That said, there are already a lot of cafes and grocery stores selling mediocre teas at low prices. I don't really want to be in the business of catering to the masses only to have them all graduate to a "real" tea company with high quality teas. There is value in being on the forefront of a quality revolution. I don't want to be so exclusive that we turn off the casual drinker, but Americans love affordable luxuries.

We definitely need to attract and convert casual and novice tea drinkers, but honestly I think we're doing a pretty good job of that in comparison to other specialty tea retailers. In my experience, the sale of premium teas grows steadily as a percentage of overall sales as a tea store's base of loyal customers grows and matures. I want to be very careful to make sure that we maintain a leadership position in the eyes of connoisseurs. We're not going to win long-run by taking a mass-market approach to a niche product.

All of that said, one major conclusion from this thought exercise is that I would never open a specialty tea shop in a town of less than 100,000 people. Serving what is currently a niche market requires a large enough population base that there are a LOT of people in your niche.

At the end of the day I'm anxious to see how our model performs in an area with 10 times the population density and traffic of our first store. It could be, as another Charlie likes to say, EPIC.

Adagio Teas