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Argo Tea brews up big NY plans
Backed by big-name Chicago money, Arsen Avakian is flooding Manhattan with tea.
By David Sterrett, ChicagoBusiness.com
August 2, 2010
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 Inc. to Starbucks' Microsoft.
"I want to build the Apple of tea, and really create a premier global
brand," said 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 the Lincoln Park neighborhood of Chicago, 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 Association 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," said 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 started 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 said. "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, which declines to comment.
Mr. Tullman, chief executive 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 said. "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, as well as prepare launches 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 Association. 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 said, 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," said John Rutledge, CEO
of Chicago-based Oxford Capital Group, which has $3.5 billion in
investments, including Potbelly Sandwich Works and Argo. "Arsen is a
hungry first-generation immigrant and a very savvy, well-educated
executive-that is a very powerful combination."
From: A. Papazian
Backed by big-name Chicago money, Arsen Avakian is flooding Manhattan with tea.
By David Sterrett, ChicagoBusiness.com
August 2, 2010
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 Inc. to Starbucks' Microsoft.
"I want to build the Apple of tea, and really create a premier global
brand," said 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 the Lincoln Park neighborhood of Chicago, 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 Association 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," said 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 started 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 said. "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, which declines to comment.
Mr. Tullman, chief executive 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 said. "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, as well as prepare launches 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 Association. 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 said, 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," said John Rutledge, CEO
of Chicago-based Oxford Capital Group, which has $3.5 billion in
investments, including Potbelly Sandwich Works and Argo. "Arsen is a
hungry first-generation immigrant and a very savvy, well-educated
executive-that is a very powerful combination."
From: A. Papazian