There’s a tea war brewing with major North American hot beverage players having set their sights on the multibillion market for the world’s second most popular beverage.

Two years after Starbucks acquired Atlanta-based Teavana’s 300 plus stores for $620 million (U.S.), Montreal-based DavidsTea Inc. is preparing to go public with a growth strategy that includes adding 30-40 stores annually and introducing products like tea-scented candles and tea-infused chocolates.

With Canadian tea consumption expected to jump 40 per cent by 2020, according to Agriculture and Agri-Food Canada, it’s no wonder refreshment giants as well as up-and-comers are focused on tea drinkers and health conscious consumers increasingly attracted to the beverage’s potential health benefits.

“We believe that the large size and outsized growth of the tea category combined with the relatively low percentage of tea value sales in North America make our market opportunity highly attractive, especially as we expect consumer awareness of tea in Canada and the United States to increase,” DavidsTea said in last month’s filing with the United States Securities and Exchange Commission, citing Euromonitor International research that North America represents only 7 per cent of the $40 billion (U.S.) global tea market.

The company has grown to 134 stores in Canada and 24 in the U.S. since it was started in 2008 by second cousins (Le Chateau founder) Herschel and David Segal. And sales have increased from $42 million in 2011 to $142 million in 2014. Last year, the company realized about 68 per cent of its revenues from loose-leaf tea and tea-related gifts; 22 per cent from tea accessories; and 10 per cent from food and beverages prepared in stores.

“There’s a huge upside for us when people like Davids are doing well; it’s just meaning more and more people are converting to premium teas and loose-leaf teas in general; it’s good for everybody,” said tea sommelier Jennifer Commins, president and founder of Toronto’s Pluck Tea Inc.

Founded three years ago, her boutique firm’s teas are available in 150 GTA restaurants, including Terroni’s and the CN Tower’s 360 Restaurant, as well as online, and at Indigo and the AGO. The company aims to hit $1 million in sales by 2017, she said.

“When Davids, Teavana and Teaopia (a Canadian company since acquired by Teavana) began popping up, to me, it seemed that the time would be right for a company to emerge that created a solution for restaurants to do training, but also to provide them with a line of teas that was kind of following food trends and being 100 per cent natural and using as much local product as possible,” said Commins.

There’s enough business for big and small players, said Louise Roberge, President of Tea Association of Canada citing Neilsen research that Canadians consume an average 8.3 cups a week. She attributed the drink’s increasingly popularity to scientific studies demonstrating its health benefits; booming immigration from tea drinking cultures; and younger people differentiating themselves from their coffee drinking Boomer parents.

With its modern teal and white logo, stark stores and 150 varieties of teas, DavidsTea seems well positioned for the tea explosion, even though the company’s prospectus acknowledges potential pitfalls, such as, “changes in consumer preferences and economic conditions affecting disposable income” and “the impact of weather conditions, natural disasters and man-made disasters on the supply and price of tea.

“The market will demand growth and they’re going to have to be very careful to make certain that they don’t deviate from what got them here in their pursuit of that growth; normally when that happens it’s because you run out of neighbourhoods that are ideally suited to your price point,” said Queen’s University marketing professor Ken Wong.

“Just make sure you don’t become Second Cup, as in second fiddle,” he added. “In a market that’s forming like this there’s going to be one brand that sets the stage for everybody else; that serves as the reference point. And I think DavidsTea is quite smart to be doing this IPO at this time, because they’re at the ‘go big or go home’ stage right now.”

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Currently, DavidsTea’s biggest competitor is Teavana and its parent company Starbucks which serves Teavana teas in its 1,300 plus Canadian stores. With wide marketing of its Oprah Winfrey-branded chai and La Boulange baked goods “Starbucks itself has to be careful it doesn’t dilute its own brand,” said Wong.

The company’s marketing notes, however, that tea has been a part of Starbucks heritage since 1971, when it launched in Seattle as Starbucks Coffee, Tea and Spices.

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