Montreal-based DavidsTea steeps its bets in brew boom

TORONTO -- It's generally considered fashionable to be late to a party. The co-founder of DavidsTea is hoping that when it comes to tea, it's also profitable.

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David Segal is steeping his bets that the West is catching up to the rest of the world when it comes to drinking Earl Grey or chamomile.

"North America's just been a little bit late to the party," said Segal. "We've had a coffee infatuation for an awfully long time."

People around the world consumed 4.84 million tonnes of tea in 2013, according to a report from the Food and Agriculture Organization of the United Nations. Mainland China, India and other parts of the developing world drank more than 83 per cent of that total.

"We're always looking to get more people into tea," said Segal, who co-founded DavidsTea (Nasdaq:DTEA) along with his cousin Herschel Segal, also the founder of Le Chateau.

In its last fiscal year, Montreal-based DavidsTea opened 39 stores and it is planning the same number this year.

Since DavidsTea opened its first bricks-and-mortar outlet in 2008 in Toronto, it now boasts 156 stores in Canada and another 37 in the U.S.

"It grew faster than I ever could have imagined in those early days," Segal said.

There is a growing demand for tea in both countries, said Amanda Bourlier, a senior analyst at Euromonitor International. The market research firm projects tea sales in the U.S. will outpace overall hot drink sales over the next three to five years.

Tea consumption among Canadians is projected to grow nearly 40 per cent by 2020, according to a report on the country's food trends published by the Agriculture Department. Alcoholic beverage, soft drink and coffee consumption is forecast to grow by between seven and 13 per cent during that time.

These tea-drinking newbies are increasingly interested in premium teas and experimenting with flavours, said Bourlier, but no company yet dominates the premium tea market. That positions DavidsTea well to move aggressively, Bourlier said.

DavidsTea plans to open another 357 locations, expanding its footprint to 550 stores. That would include 320 locations in the U.S., which would make it a "significant player" in the industry, said Bourlier.

She believes these goals are possible, especially in the U.S. where the market is much larger than in Canada.

DavidsTea hasn't offered a timeline for their growth plans.

"We adjust as we go," said Segal.

In its third quarter, its most recent earnings report, the company's revenues grew to $36.3 million from $27.4 million in the third quarter of 2014.

There was a lot of buzz surrounding DavidsTea when it went public last June. Within days its shares soared to nearly US$30, but they have since fizzled, trading just above the US$9 mark.

Segal said he tries not to watch the company's stock too much.

"My focus is on what we can do to build the brand," he said, pointing to a new charitable partnership with Me to We to sell a new tea and several accessories. A portion of the sale from each product, available in stores Monday, will go towards funding between one and six months of clean water for a child in Kenya.

While the IPO was "a milestone" for the company, DavidsTea needs to focus on its customers to continue growing its brand, Segal said.

"That's really what matters at the end of the day."


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