Developing a Retail Strategy for Tea Shops

Most new tea businesses fall into one or more of the following categories: Retail, Café, or Restaurant.

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 to try a new restaurant is not difficult. There are a handful of truly successful tea restaurants in America, 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 entail. In a restaurant, the speed at which the staff refills your customer’s water is more important than the quality of your tea.

Here's an example. In 2006, TeaGschwendner opened a Tea Bistro in the trendy Lincoln Park neighborhood of Chicago. It had a beautiful location, 300 of the world's finest teas, seating for 29, and a chef who 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 it closed its doors for good.

We are not saying that you shouldn't open a tea-themed restaurant. There is undoubtedly 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 four 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 identical to those in any other restaurant. The only difference is the menu and the decorations.

Tea Café

For a while, this was the most common strategy for new tea shops in the US. Modeled after the ubiquitous coffee shop, tea cafes were popping up everywhere. But they are cut from a different cloth. First, Starbucks effectively addressed the consumer need by creating a "third place" (a space between 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, do you want to compete with Starbucks over comfort and convenience?

Most tea cafes have mediocre food, mediocre tea, mediocre profits, and a ton of customers with laptops and empty cups of tea.

Also, ask yourself, how many people do you know who do their holiday shopping at a café? The biggest season of the year in the tea business is the gift-buying season. In cafes, the retail product is the stuff of impulse buys. Typically, 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 the experience of hundreds of such attempts across dozens of industries, this rarely works. Usually, the combination of two different models results in a business that does neither particularly well. Consumers go to cafes and retail stores for totally different reasons, and any energy you expend on one side of the company may leave 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, we define a tea retail shop as one that focuses on selling dry tea. We’re in favor of offering tea-to-go (being able to sample the tea is rather critical), and are 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 less cost. If you have 10 seats or more, you have to offer both a male and female, handicapped accessible bathroom.)

While none of the tea café models have succeeded in going national without deriving more than half of their business from coffee, three tea retail chains have been able to grow to a substantial size. At one time, TeaGschwendner had more than 145 Retail stores in 9 countries on four continents. Teavana had hundreds of locations in the US, Canada, and Mexico. Ten Ren had 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.