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How 2 Best Friends Turned a Bunch of Weird Flavors into a Thriving Tea Business

After a trip to Europe kindled their love of tea, the young co-founders could never go back to baggies.

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BY Cameron Albert-Deitch - 15 May 2018

PHOTO CREDIT: Getty Images

"Thin Mint Trim," "Chinese Gunpowder," "Momma's PB&J." They sound like strange shots you'd find at a seedy bar. They're actually flavors of loose leaf tea.

If you're a tea drinker, you probably have questions--but these flavors aren't meant for you. They're gateway teas, designed by Tiesta Tea's co-founders Dan Klein and Patrick Tannous to hook newcomers. That includes most Americans.

While coffee remains the dominate hot beverage in the U.S., tea is on the rise--including the loose leaf variety, often containing full leaves, stems, or even dried fruit. Together, loose leaf and tea bags make up 23 percent of a $12.5 billion U.S. tea industry, according to nonprofit trade group Tea Association of the USA. "Tea consumption has been increasing slowly but surely over the last decade," says Darren Seifer, an NPD Group food and beverage analyst.

That growth is proved out at Tiesta Tea. The Chicago-based company, which was founded in 2010 while Klein and Tannous were still in college, landed No. 759 the 2017 Inc. 5000. It boasted over $5 million in revenue, a 600 percent uptick since 2013. Last year, sales sagged to just north of $4 million, though the founders expect to generate $8 million by the end of this year.

A Unique Partnership

Many co-founders meet at accelerators or networking events. These two met in preschool. They attended the same Chicago-area middle school and both stayed local for college. They even simultaneously studied abroad in Europe, where they kindled their love of loose leaf tea on a weekend trip to Prague.

"We weren't really tea drinkers at the time, but when we had this cup of loose leaf tea, it was truly a tea experience," says Tannous, the company's president. "From seeing all the ingredients unfold to watching all the colors come together."

Upon returning home, the friends' newly-formed tea habit dried up. They couldn't find affordable tea options that didn't involve prepackaged perforated baggies. So, like many budding entrepreneurs before them, they started making their own--waking up at at 1:30 a.m. on Saturdays to brew and sell at farmers markets.

Tiesta Tea co-founders Klein (back) and Tannous test a variety of teas.

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Their big break came in 2016, when they landed a bulk deal with Costco and were able to reach profitability. Today, the company sells seven product lines in 6,500 stores nationwide, including both Target and Whole Foods.

The founders largely credit their success to keeping costs low and prices in check--helping them deliver on their initial promise for the brand. On Amazon, a tin of its Chinese Jasmine tea--a "classic" jasmine green tea--sells for $2.44 an ounce. That's cheaper than similar offerings from competitors like Twinings ($2.69), Rishi ($3.92), and The Tao of Tea ($5.11).

"To get where they are is the hardest step," says serial entrepreneur and Tiesta Tea board member Steve Kaplan. "The hardest thing is getting into the stores. It's a lot easier to get a customer to order more--and reorder--than it is to get them to order for a first time."

A Slowly Growing Industry

To the uninitiated, loose leaf tea can seem inefficient and unwieldy. Steeping a tea bag is easier--and less intimidating--than straining tiny plant pieces out of a steaming mug.

However, the advantage comes from using full leaves; plant material in tea bags is often shaved down to fit through industrial bagging machines. The former gives loose leaf more flavor and, according to some studies, stronger health benefits.

Analysts are cautiously bullish on the market's future, despite the public struggles of companies like Starbucks-owned Teavana, which plans to shutter all its stores by the end of 2018 (its products will continue to be sold by Starbucks). Struggling tea companies, Seifer from NPD notes, often rely primarily on brick-and-mortar tea shops--successful ones typically accept smaller profit margins to sell through established retailers and online.

Beth Bloom, associate director of U.S. food and drink reports at Mintel, cites another potential differentiator: branding. "When I walk into a store and I see a case full of teas, I might be more likely to pick the one that tells me it's going to energize me versus the one that doesn't tell me," she explains.

Tiesta Tea does this well, according to Bloom, splitting its products into categories like "relaxer" or "slenderizer." The quirky flavor titles help here, too--you don't need to be a tea expert to guess what "Maui Mango," the company's most popular selection, tastes like.

Perhaps more notably, Tiesta Tea also emphasizes its social mission. Klein and Tannous spearhead charitable causes through the company: donating to nonprofits and organizing volunteers to help Chicago's homeless during frigid winters.

Last year, the pair even built a well for the rural farmers who grow their hibiscus near Kano, Nigeria. The social endeavors mean the company makes less money. Klein and Tannous don't care. "Every single employee of Tiesta Tea took a bonus in 2017 except for myself, Dan, and our COO," Tannous says. "But we built a water well in Nigeria."