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Crain's Chicago Business
July 31 2010
Argo Tea brews up big plans to expand
By: David Sterrett July 29, 2010
(Crain's) ' Backed by big-name Chicago money, Arsen Avakian is
flooding Manhattan with tea.
Sam Zell, Glen Tullman and Oxford Capital are among the investors
funding the first foray outside Chicago by Mr. Avakian's Argo Tea. He
is set to open his fourth cafe this year in New York on Friday, hoping
a splashy debut in the country's biggest market will help make Argo
the Apple to Starbucks' Microsoft.
`I want to build the Apple of tea, and really create a premier global
brand,' says Mr. Avakian, 34. `We have really reached a growth tipping
point for us and are ready to take growth to the next level.'
Seven years after the Armenian immigrant opened the first Argo Tea
store in Lincoln Park, the chain has 18 locations and more than $10
million in sales. Mr. Avakian's two-pronged growth strategy focuses on
opening more cafes and selling a new line of bottled Argo tea in
grocery stores.
The push into Manhattan will test Argo's appeal outside its home
market. A major challenge for Mr. Avakian is persuading large numbers
of Americans to drink more tea. He'll also have to woo tea-drinkers
away from bigger rivals like Starbucks and mass-market brands like
Lipton that dominate grocery store tea sales.
The U.S. tea market grew 3% last year to $7.3 billion, according to
the Tea Assn. of the USA Inc. in New York. That's a fraction of the
$40-billion coffee market.
`Tea is definitely one of the hot categories, and it's a very large
category, but coffee is still dominant,' says Harry Balzer, an analyst
at NPD Group in New York.
Mr. Avakian drank tea while growing up in Armenia. After working for
several years in the U.S. as an information technology executive'and
marveling at the success of a Starbucks chain offering what he
considers a bland menu'he became convinced that a chain of high-end
tea shops could succeed here.
`When I stated Argo I had the vision of being the Starbucks of tea,
but in the last few years I realized that is no longer our
inspiration,' he says. `Starbucks is more like PC'it's old, less
healthy and designed for everyone'and we want to be more like Mac:
young, healthy, cool and a more unique, innovative brand.'
Seattle-based Starbucks did not return calls seeking comment.
Argo specializes in exotic blends, such as white tea with Acai berry
and lemonade, and red tea with pomegranate juice. The chain makes a
point of buying all of its tea leaves directly from farmers in 16
countries.
Darren Tristano, an executive vice-president at Technomic Inc. in
Chicago, says Argo Tea is the largest chain focused on tea. He reckons
the challenge for the company will be to maintain its quality as it
expands to new markets.
Neither Mr. Avakian nor his investors will say how much capital Argo
Tea has raised to finance its expansion. Mr. Zell invested through his
Chicago-based Equity Group Investments LLC, which declines to comment.
Mr. Tullman, CEO of Chicago-based Allscripts-Misys Healthcare
Solutions Inc., invested after he noticed an Argo Tea cafe near his
home and arranged a meeting with Mr. Avakian at the shop.
`He told me exactly where he bought each tea and how it was brewed,
and in the midst of it he stopped to tuck in a cord he noticed was
sticking out from behind the register in the cafe,' Mr. Tullman says.
`I decided right there that I wanted to invest in this guy because of
his passion and fanatical attention to detail.'
Mr. Avakian won't disclose specific growth targets but plans to open
another store in New York this year and a licensed location at Saint
Louis University. Next year, he wants to open at least five more
stores in New York and several more in Chicago and prepare to launch
in Los Angeles and London.
Grocery stores represent a potentially more lucrative channel for Mr.
Avakian's teas. Despite a slowdown because of the recession, sales of
bottled tea grew more than 3% to $3 billion last year, according to
the Tea Assn. Argo sells bottled specialty teas at local Whole Foods
and Treasure Island stores. Mr. Avakian hopes to get them into Jewel
and Dominick's stores in the next year.
`They are selling really well, and people have been excited to see the
Argo brand in our stores,' a Whole Foods spokeswoman says, declining
to provide specific sales numbers.
Argo will have to fight for grocery store shelf space with Unilever
PLC's Lipton, Texas-based Dr Pepper Snapple Group's Snapple and New
York-based Ferolito Vultaggio & Sons' Arizona teas. The three control
more than 50% of grocery store tea sales, according to SymphonyIRI
Group, a Chicago-based market research firm.
Mr. Avakian says in the next year he expects to open a large bottling
facility in Chicago, which will require more financing. He says every
store is profitable but declined to provide specifics on the company's
finances or what type of funding it would seek to expand.
`I believe Arsen will continue to be able to raise the capital he
needs to continue to build this into a global brand,' says John
Rutledge, CEO of Chicago-based Oxford Capital Group LLC, which has
$3.5 billion in investments, including Potbelly Sandwich Works LLC and
Argo. `Arsen is a hungry first-generation immigrant and a very savvy,
well-educated executive'that is a very powerful combination.'
http://www.chicagobusiness.com/article/20100729/NEWS07/100729907/argo-tea-brews-up-big-plans-to-expand
From: A. Papazian
July 31 2010
Argo Tea brews up big plans to expand
By: David Sterrett July 29, 2010
(Crain's) ' Backed by big-name Chicago money, Arsen Avakian is
flooding Manhattan with tea.
Sam Zell, Glen Tullman and Oxford Capital are among the investors
funding the first foray outside Chicago by Mr. Avakian's Argo Tea. He
is set to open his fourth cafe this year in New York on Friday, hoping
a splashy debut in the country's biggest market will help make Argo
the Apple to Starbucks' Microsoft.
`I want to build the Apple of tea, and really create a premier global
brand,' says Mr. Avakian, 34. `We have really reached a growth tipping
point for us and are ready to take growth to the next level.'
Seven years after the Armenian immigrant opened the first Argo Tea
store in Lincoln Park, the chain has 18 locations and more than $10
million in sales. Mr. Avakian's two-pronged growth strategy focuses on
opening more cafes and selling a new line of bottled Argo tea in
grocery stores.
The push into Manhattan will test Argo's appeal outside its home
market. A major challenge for Mr. Avakian is persuading large numbers
of Americans to drink more tea. He'll also have to woo tea-drinkers
away from bigger rivals like Starbucks and mass-market brands like
Lipton that dominate grocery store tea sales.
The U.S. tea market grew 3% last year to $7.3 billion, according to
the Tea Assn. of the USA Inc. in New York. That's a fraction of the
$40-billion coffee market.
`Tea is definitely one of the hot categories, and it's a very large
category, but coffee is still dominant,' says Harry Balzer, an analyst
at NPD Group in New York.
Mr. Avakian drank tea while growing up in Armenia. After working for
several years in the U.S. as an information technology executive'and
marveling at the success of a Starbucks chain offering what he
considers a bland menu'he became convinced that a chain of high-end
tea shops could succeed here.
`When I stated Argo I had the vision of being the Starbucks of tea,
but in the last few years I realized that is no longer our
inspiration,' he says. `Starbucks is more like PC'it's old, less
healthy and designed for everyone'and we want to be more like Mac:
young, healthy, cool and a more unique, innovative brand.'
Seattle-based Starbucks did not return calls seeking comment.
Argo specializes in exotic blends, such as white tea with Acai berry
and lemonade, and red tea with pomegranate juice. The chain makes a
point of buying all of its tea leaves directly from farmers in 16
countries.
Darren Tristano, an executive vice-president at Technomic Inc. in
Chicago, says Argo Tea is the largest chain focused on tea. He reckons
the challenge for the company will be to maintain its quality as it
expands to new markets.
Neither Mr. Avakian nor his investors will say how much capital Argo
Tea has raised to finance its expansion. Mr. Zell invested through his
Chicago-based Equity Group Investments LLC, which declines to comment.
Mr. Tullman, CEO of Chicago-based Allscripts-Misys Healthcare
Solutions Inc., invested after he noticed an Argo Tea cafe near his
home and arranged a meeting with Mr. Avakian at the shop.
`He told me exactly where he bought each tea and how it was brewed,
and in the midst of it he stopped to tuck in a cord he noticed was
sticking out from behind the register in the cafe,' Mr. Tullman says.
`I decided right there that I wanted to invest in this guy because of
his passion and fanatical attention to detail.'
Mr. Avakian won't disclose specific growth targets but plans to open
another store in New York this year and a licensed location at Saint
Louis University. Next year, he wants to open at least five more
stores in New York and several more in Chicago and prepare to launch
in Los Angeles and London.
Grocery stores represent a potentially more lucrative channel for Mr.
Avakian's teas. Despite a slowdown because of the recession, sales of
bottled tea grew more than 3% to $3 billion last year, according to
the Tea Assn. Argo sells bottled specialty teas at local Whole Foods
and Treasure Island stores. Mr. Avakian hopes to get them into Jewel
and Dominick's stores in the next year.
`They are selling really well, and people have been excited to see the
Argo brand in our stores,' a Whole Foods spokeswoman says, declining
to provide specific sales numbers.
Argo will have to fight for grocery store shelf space with Unilever
PLC's Lipton, Texas-based Dr Pepper Snapple Group's Snapple and New
York-based Ferolito Vultaggio & Sons' Arizona teas. The three control
more than 50% of grocery store tea sales, according to SymphonyIRI
Group, a Chicago-based market research firm.
Mr. Avakian says in the next year he expects to open a large bottling
facility in Chicago, which will require more financing. He says every
store is profitable but declined to provide specifics on the company's
finances or what type of funding it would seek to expand.
`I believe Arsen will continue to be able to raise the capital he
needs to continue to build this into a global brand,' says John
Rutledge, CEO of Chicago-based Oxford Capital Group LLC, which has
$3.5 billion in investments, including Potbelly Sandwich Works LLC and
Argo. `Arsen is a hungry first-generation immigrant and a very savvy,
well-educated executive'that is a very powerful combination.'
http://www.chicagobusiness.com/article/20100729/NEWS07/100729907/argo-tea-brews-up-big-plans-to-expand
From: A. Papazian