Bitcoin Update

Last week trading was halted on three crypto currency exchanges after it was revealed hackers stole 4,474 Bitcoins from the Silk Road 2.0 website.  Silk Road is a drug-selling black market whose technical staff blamed the loss on a “transaction malleability” bug in the Bitcoin software. The loss was valued at $2.6 million, according to an article in  Forbes.

Bitcoin developer Greg Maxell responded to concerns about Bitcoin security in a Q&A with Coin Desk News. He said coding done by the exchange is to blame. He admitted there is a known bug in early versions of the Bitcoin software, first identified in 2011. The bug has been fixed and old versions previously installed on servers are gradually being replaced but “this wouldn’t make the top ten list of dangers in the Bitcoin technology.”

Experts advise against keeping digital coins in an exchange or other online wallet services. Keep your coins in your own encrypted wallet to keep them safe from hackers. An escrow account with millions of coins is a tempting target for hackers.

Bitcoin has a current market valuation of nearly $1 billion but this is highly volatile. The valuation spiked in December then plummeted on regulatory concerns voiced by several governments. In January Bitcoins were listed at more than $900.

The incident involving Silk Road 2.0 has since led to questions about Bitcoin’s ability to prevent fraud. Last week the value of the currency fell 10% percent in a single day. TechCrunch writer Alex Wilhelm noted the “price of Bitcoin on Mt.Gox has cratered, again. It now rests just above $110. That’s down from around $260 the day before. Users are betting more heavily now that their Bitcoin on the exchange is never coming back.” The weighted value of Bitcoins based on multiple exchanges was $621.1 Feb. 23. Mt.Gox was excluded from the calculation as of Feb. 10.

Mt.Gox is a Tokyo, Japan-based firm that claims to be the largest of several exchanges trading Bitcoins. Mt.Gox suspended trading in mid-February due to technical difficulties leading to security concerns.

In a Feb. 17 open letter to its customers Mt.Gox announced it has a workaround that will use a unique identifier created by Blockchain to show whether transactions have been modified or not. This will prevent any fraudulent use of the malleability bug and “protect the assets of our customers.”

Mt.Gox added a new login system that emails customers accessing the account and advised customers to use two-step authorization.

Withdrawals will be permitted at “a moderate pace” and with new daily and monthly limits in place “to prevent any problems with the new system and to take into account current market conditions,” according to Mt.Gox.

Mishaps like the above will either strengthen merchant and consumer confidence in the ability of Bitcoin and similar currencies to address security issues or lingering uncertainty will sink them.

Learn more: Reddit, Tea Biz and Crypto Coin Talk

In January India’s central bank warned against the use of Bitcoins shutting down several exchanges and China has directed its banks and other financial institutions not to deal in virtual currencies. Germany’s Bundesbank voiced a similar warning while in Canada the first of five Bitcoin ATMs opened in a Vancouver coffee shop.

TEABIZ-BitCoin_StackGermany’s central bank later joined several other European banks in warning of the “enormous” risks due to speculation but regulators have not banned the trade of digital currency.

The Reserve Bank of India expressed concern that trading Bitcoins could violate the country’s Foreign Exchange and Payment Systems laws and regulations since the currency has yet to be authorized by the central bank. Last week several Bitcoin exchanges halted trade in response.

Following these news reports India’s Commerce Ministry and Tea Board announced a review of transactions by tea growers accepting Bitcoins as payment for small consignments of tea. The country permits shipments of up to 4 kilos of tea without mandatory surveillance if sent by International courier.  Tea growers selling direct benefit using Bitcoin by avoiding currency and bank fees and service charges for credit cards.

Globally there are about 100,000 Bitcoin transactions a month according to the Bitcoins Association of India (BAI) but fewer than 1000 are made in India. Billions of transactions are concluded daily making it unlikely trade in Bitcoins and other cryptocurrencies threaten the stability of world currencies, provided that money creation remains at a low level. The BAI’s legal advisers said that trading in Bitcoins is not illegal, citing legal precedent in the U.S. and U.K.

Last month Ben Bernake, chairman of the U.S. Federal Reserve, echoed concerns that digital currencies present speculative risks but said “there are also areas where they may hold long-term promise.”

The Canadian ATM is operated by Vancouver-based Bitcoiniacs using a kiosk designed by Nevada-based Robocoin. It converts Bitcoins into Canadian currency and accepts Canadian bills, according to a report by CBC News. The ATM scans the user’s palm before transferring money from an online wallet via a QR code read by your smartphone. It then issues a paper voucher for the transaction. The machine is installed at the Waves Coffee House. Bitcoins are accepted by at least two dozen Vancouver retailers.

The machines “make it easier for people to buy and sell Bitcoins and hopefully will drive the adoption of Bitcoin, and make it more accessible,” Bitcoiniacs owner Mitchell Demeter told CBC News. The company plans to install four additional ATMs in major cities including Toronto and Montreal. Rules of the Financial Transactions and Reports Analysis Centre of Canada — also known as FINTRAC — aren’t as strict as regulators in the U.S. The coins are traded on Canada’s VirtEx exchange.

While not against the law, trading in Bitcoins is speculative. In December Bitcoins demonstrated their volatility after rising to a high of $1242 (the price of gold) before falling to $600 in 48 hours between Dec. 5 and Dec. 7 on word the Chinese government would not allow its banks to trade directly in Bitcoins. China blocked the country’s Bitcoin exchanges from accepting new cash in what has been Bitcoin’s largest market.

In February Bitcoins are trading at $621 making the cumulative value of the 12 million outstanding Bitcoins about $13 billion in U.S. dollars.

See: Bitcoin Primer

To insure scarcity the supply is capped at 21 million coins, a number that is expected to take 126 years to digitally mine. All currencies are volatile and subject to inflation over time but few could fall to zero since they are backed by governments large and small.

Meanwhile an increasing number of retailers are accepting Bitcoins. To minimize risk the coins are quickly exchanged by online ventures such as www.bitplay.com which processes payments for more than 12,000 retailers in 30 countries. Participating retailers are typically online ventures that range from small companies like Mad Over Coins and the Bitcoin Mega Store to Hawaii-based Tealet and giants like Overstock.com with more than $1 billion in annual revenue.

Timothy Lee in Forbes argues that Bitcoin is less useful as a retail currency and more likely to find its place serving niche segments like transferring funds without the expense of hiring Western Union or as a meta currency facilitating the exchange of world currencies since Bitcoin allows wealth to be transferred across international borders without the expense or government scrutiny that comes with traditional wire transfers.

Are you considering accepting Bitcoins? Click this link to see TIME Magazine’s informative video introduction and share your thoughts with Tea Biz readers below.

Sources: Bloomberg BusinessWeek, TIME, CBC News, The Hindu Business Line, Forbes

Learn more at:
Bitcoin.org and Bitpay.com and BitcoinFoundation.org and BitcoingCharts.com and BitcoinMagazine.com

Last updated: Feb. 24, 2014

Bitcoin Primer

World Tea News recently published an article on the emergence of many popular tea brands on offer in Bitcoin’s new online MegaStore. 

Larger retailers with a thorough understanding of the risks should definitely consider accepting Bitcoins as this digital currency promises to significantly lower the cost of online transactions. BusinessWeek reported Dec. 27 that Overstock.com will accept Bitcoins beginning in mid 2014. With 2012 revenue of $1.1 billion Overstock is the largest retailer to accept the world’s leading cryptocurrency. There are now 12.1 million Bitcoins in circulation, valued at $13 billion.

Should your venture accept Bitcoins?

The novelty of buying things with Bitcoins has a certain appeal to consumers but most of those who own Bitcoins are holding them tight anticipating an increase in value greater than current savings rates.

Prices for tea in the MegaStore (which lists 100,000 items and went live in August) are displayed as a percent of the current value of a Bitcoin. A single coin was trading for $858 last week when the article was published. At that rate ฿0.0842 was the equivalent of $72 (all dollars US unless otherwise stated). Between Dec. 5 and Dec. 7 Bitcoins dropped from $1242 (the price of gold) to $600 in 48 hours. On Dec. 23 Bitcoins were trading for $634 making a dollar worth ฿0.00157. On Dec. 31 the buy price was $735.80. On Jan. 4 the buy price topped $1000.

This volatility illustrates one of the obstacles to widespread use of any peer-to-peer payment system. To insure that Bitcoins remain “rare” there will ultimately be only 21 million in circulation. This means that even small numbers of speculators trading Bitcoins will alter its value in the market.

The fact that the currency lacks liquidity and is accepted by only a small (albeit fast-growing) number of vendors suggests Bitcoin will emerge as the strongest of the cryptocurrencies but anyone can create a competing product, make it equally scarce and useful provided enough vendors accept it as payment.

To reduce this risk Bitpay and Coinbase were established as Bitcoin wallets willing to immediately convert the digital currency into dollars (and other local currencies). Retailers use these wallets to accept Bitcoins and generally sell the Bitcoins they collect every night to minimize risk. At Coinbase there are no chargebacks or exchange rate risk and no fees on the first $1 million in transactions with 1% fee to cash out Bitcoins after $1 million in sales. Bitpay charges $300 per month for accepting Bitcoins on up to three domains with no transaction fees. A single domain account is $30 per month and accommodates 20 shopping cart plugins.

Other advantages include the fact that retailers can accept mobile payments from any country in the world without PCI Compliance; direct deposit to your bank daily and accept payments over wi-fi and 3G/4G without the need for NFC terminals.

Critics point out that Bitcoins are not legal tender and therefore are not regulated by legal tender laws. Bitcoins have no intrinsic value which means if they fall in value, unlike gold and silver, they could fall to zero. There is no government backing, no Federal Deposit Insurance Corp. rescue plan. Bitcoins are not going to replace the U.S. dollar.

All that said, there is value in a frictionless exchange of a universal currency that is not subject to geopolitical influence. The payment system is transparent and math-based, not subject to government manipulation. It protects against identity theft. It is private but not anonymous to guard against money laundering and fraud. Bitcoins will grow in popularity so long as online purchases require credit card authentication with its requirements of a billing address and the burden of fees and onerous service charges.

Compared to existing payment systems Bitcoin is almost as handy and frictionless as cash.

Learn more at: Bitcoin.org and BitcoinFoundation.org and BitcoingCharts.com and BitcoinMagazine.com

Service and Innovation

Service and innovation differentiate tea retailers. At its core, specialty tea is a commodity since most blends use similarly sourced mid-grade green or black tea enhanced with ingredients and flavor.

The lowest tier in the sector consists of tea-only blends that are bagged and retail for less than $300 a kilo. The entry point is $5 for 200 grams (equivalent to a 100 ct. box of 2-gram teabags) or $25 per kilo with many supermarket teas selling for $7 to $8 per box ($35-$40 per kilo). This tea costs $2 per kilo at origin and is blended with similarly priced teas for consistency. It costs $1 to ship a kilo to the U.S. and less than $1 to fill, tag and box 100 tea bags. Marketing established blends is a rising cost. Store-brand competitors pressure national brands but there will always be a place for bottom-shelf tagless tea bags selling around a nickel to a dime.

The upper tier is loose leaf with fruit, spice and floral inclusions, pyramid bagged, gift boxed or in tins. A 25-gram pouch of specialty blend sells for $15, earning retailers $300 per kilo. Retailers get only 5-cents a tea bag selling Lipton but they sell a lot of Lipton. Nearly every home in the country has a nationally branded tea in the pantry. Fewer than one in ten are willing to pay $1 a tea bag for a foil-wrapped Tea Forté pyramid (with 4 to 6 grams of tea) but grocers selling Adagio, Rishi, Numi and Republic of Tea are getting $250 a kilo a ten-fold premium.

The core component of these teas arrives in shipping containers warehoused and blended by a few gateway importers with entrenched (often family) supply chains originating in China, Taiwan, Japan, Sri Lanka, Kenya and India. Raw materials for blending are very similarly sourced and priced with tea often the least expensive component. There are an infinite number of blends and taste sensations but remarkably little variance in a warehouse stacked to the ceiling with four million pounds of tea.

This is why service and innovation are critical to retail success. Service is the key point of differentiation. It begins with that first impression, the cold-call presentation that gives buyers a reason to believe that working with you as a wholesaler will benefit their business. There are often two or three wholesalers with identical price points pitching a retailer whose first concern must be to meet the needs (within limitations) of his or her customers. The fact that sales of these similar teas are growing is due to the nearly continuous introduction of new formulations and experimental blends and the presence of color, texture (chunks and leaves, not dust) and intense flavor (often added).

This suggests the path forward is to innovate with taste and convenience foremost. Cultivate in those who show interest a more sophisticated appreciation of the profitable, highest quality teas. Tell the story, let them taste the tea. Repeat. Repeat. Repeat. Retailer and customer advance in step with sellers bringing ever-larger numbers of specialty tea drinkers into the tent where a growing percentage of newly-converted tea lovers share and spread the joy of discovery after readily paying the always-reasonable price for the pleasure of a fine cup of tea.

LinkedIN: Share you thoughts on the importance of service and innovation.

—- Dan Bolton

Giving Thanks

Since Dan lives up in Canada and I’m here in the U.S., the Tea Biz team has the good fortune of celebrating Thanksgiving twice a year. Dan has already had his and now it’s my turn. (I’ll send you some virtual turkey and pie though, Dan, if you’d like.)

I had been preparing a more traditional business-related post to send today, but decided that many of you were preparing to head out the door for the holidays and business could wait for a bit. Instead, I wanted to take a moment to give thanks:

* I am thankful for tea. I am grateful for the quiet moments it has provided, the renewal of energy and spirit when I am low, and for the opportunities it has given me to spend time with friends.

* I am thankful for the tea growers, for those who spend their hours planting, nurturing, harvesting, and transforming those magnificent Camellia sinensis plants into the tea I drink each day.

* I am thankful for the dreamers who have built (and are building) tea industries in locations many of us hadn’t imagined. It gives me joy to think of tea estates in England, the Azores, Tuscany, and all over the United States.

* I am thankful for the packagers and designers who dedicate their creativity to ensuring that I am able to enjoy fresh tea from a container whose beauty honors what is inside.

* I am thankful for the artists whose hands have formed magnificent teaware that makes each tea experience even more special.

* I am thankful for the tea shop owners, both brick and mortar and online, whose passion for tea helps encourage others to discover enjoyment of loose leaf tea. Whether a Victorian-inspired teahouse, a contemporary tea cafe, a homey bakery serving quality tea or a virtual marketplace, they have all advanced the cause of tea and have customers who are devoted to them.

* I am thankful for the large tea companies who introduce thousands to their first taste of tea, creating lifelong tea lovers.

* I am thankful for the tea writers, the book authors, the magazine publishers, and, of course, my people – the bloggers, who expend creative energy putting words on the page to explain and explore their passion for tea.

* Finally, I am thankful for you. Thank you to those who read our blog, who trust their work to us to create content for their businesses, and to those who will open their doors to us in the future. We appreciate the relationships we have with you and look forward to working with you in the future.

Synchronized Real Time Tea Blending

TEABIZ_NEWS_Equiplment_JamesMackness2_680px

Motovotano Founder James J. Mackness, Seattle, Wash.

SEATTLE, Wash. — Mixing tea ingredients is easy. Keeping them stable and evenly dispersed is not.

“Inclusions” is the technical description for the flower petals and bits of fruits and nuts, rind shavings, spices, tiny peppers and candy added to modern tea blends. Sales of these specialty teas are brisk with marketing that invites consumers to constantly try new formulations.

TEABIZ_NEWS_Equipment_Epanie_Inclusion_320px

Example of a large, difficult to blend inclusion.

Color and texture are critical to the appeal of these teas. New recipes increasingly call for odd shaped bits of botanicals of varying densities that make consistency a challenge.

Take for example maple sugar flavored black tea, a hit here in the Great White North that eluded blenders for decades. On exiting a commercial “V” blender the mix seems well dispersed but the sugar quickly settles during the packaging process and in transit separates into a sticky dense layer of maple underlying tea with no maple taste.

TEABIZ_NEWS_Equiplment_EpanieMachine_380pxSynchronizing combinations of precisely weighed ingredients during the bag-making process is a promising development by Epanie, a South Korean manufacturer of an innovative tea bagging machine. Motovotano, a Seattle firm founded by tea industry veteran James J. Mackness, is the first company to use the equipment in North America. The pyramid-style filling and bagging machine blends gourmet tea in real-time.

The pyramid has established itself as the go-to format for high quality blends. But large inclusions such as flower buds that delight the eye are difficult to apportion. Improvements in its design by Epanie over existing pyramid and traditional filter paper sachets allows for larger tea leaves and for those leaves to unfurl and brew properly for superior taste. Bags can be made of nylon, non-woven commercially compostable or certified biodegradable materials.

TEABIZ_NEWS_Equiplment_EpanieBin_380pxMotovotano’s Epanie Pyramid Teabag machine utilizes eight servo-motor controlled weigh bins holding either a single inclusion or pre-blended mix that can be flavored. In a recent demonstration Mackness first blended several ingredients with similar density and volume in a traditional V blender. He then placed this mix in the Epanie machine along with several difficult to handle inclusions such as Calendula flowers and a spice with an intense flavor profile. A control panel instructed scales to tip the precise weight into each bag before it was sealed.

Click here for a video demonstration.

Mackness showed how the machine lets formulators cup on the fly. Pausing production to drop a bag into a hot cup of water instantly revealed the color and infusion time and most important, the flavor imparted by the inclusions. After a sip, using a touch-screen panel he then adjusted the scales in the individual bins to deliver slightly more (or slightly less) of one or more ingredients.

Digital touch screen controls.

Digital touch screen controls.

“Traditional tea bag production pulls from single batch blends, which does not produce as consistent or flavorful a product,” said Mackness. “The Epanie delivers a consistent flavor profile and uniform appearance because each ingredient of the blend is apportioned by weight into the bag,” he said. The 1200 pound machine will bag up to 85 pyramids per minute, each containing up to 20 grams of inclusions.

Mackness said the machine is ideal for artisan tea blenders.

Flying Bird Botanicals founder Scout Urling agrees. The small family-run business in Bellingham, Wash., has developed recipes based on ancient herbal knowledge and wisdom. Organic ingredients, many of which are large and odd-shaped, are sourced in the Pacific Northwest. “Our intent is to provide products of comfort, therapy and efficacy all while creating a delicious cup of tea,” said Urling. “The new tea bags allow for the convenience of bags and the efficacy of loose tea,” she said.

Tasting formulation on the fly.

Full of goodness.

Motovotano promises to make the physics of blending tea less daunting and the process of creatively pairing tea and ingredients more fun. The company is seeking boutique teas, and restaurant, hospitality and grocery chains interested in private label product. Inland Packaging, Inc. is the manufacturer’s exclusive representative. To learn more about blending tea in real-time visit www.motovotano.com or email: james@motovotano.com.

Teaware Trends to Watch, Part 1

Whether we are buyers or sellers, the turn of the calendar to November puts holiday shopping firmly on our minds. Retailers are in the position of constantly trying to predict customer desires and to prepare for (or create) new trends. What are the items that tea business owners will be looking to put on their shelves this holiday season?

Kettles will continue to be popular, particularly electric models with temperature control. As more consumers become aware of the need to steep different teas at different temperatures, it is critical that we supply them with easy ways to meet this need. Glass and stainless steel continue to be popular choices and temperature presets can assist newer tea drinkers. Other features that customers will be looking for are cordless kettles, a stay-warm feature, and automatic shut-off to prevent scorching or boiling dry.

photo(19)On the teaware side there are two concurrent trends emerging. On one side, tea drinkers are leaning toward the basics – teapots and cups in white, glass, and earthy greens and browns. On the other side, teaware can be seen as a fun accessory, adding a bright pop of color in an otherwise conservative decor. Be on the look out for splashes of red, blue and yellow. Convenience is also a key factor. Infuser mugs have become both more practical and well-designed. They offer users an option that takes up little space in the cupboard, but allows for proper steeping of tea, a convenient way to dispense of leaves, and an appropriate vessel for drinking. O Magazine selected Tea forte’s KATI cup version as one of Oprah’s Favorite Things in 2011. Forlife Designs offers other attractive cups in a range of shapes.

Tea accessories will always have a popular following, especially because they can be more kitschy and fun, and don’t need to fit squarely in with existing collections. Infusers with a comedic twist seem to be getting more play. The Shark Tea Infuser and Mr. Tea have been getting a lot of attention. But what about the tea diver, the manatea, and the ducky? Humor isn’t the only attraction though. The stunning work of artists like those at Tea Tangent who make award-winning unique and beautiful cherry wood tea accessories. Tea traveler mugs, the jars with screw top infusers and caps, are popular for commuters and people who enjoy tea on the go.

We’ve only just begun. We haven’t started talking about the tea and its related off-shoots like cosmetics and apparel. More to come…

Teavana Fine Tea + Tea Bar Opens in NYC

Teavana Fine Tea + Tea Bar

Teavana Fine Tea + Tea Bar opens Thursday in Manhattan’s upper east side.

MANHATTAN, New York  — Starbucks unveiled a comfortable, tea-focused Teavana Fine Tea + Tea Bar that dazzled local and national press Wednesday night.

The shop is a prototype for 1,000 North American locations, according to Starbucks CEO Howard Schultz. The Teavana tea bar is devoid of any Starbucks branding and does not serve coffee. However, Starbucks outlets in Atlanta are currently selling Teavana tins, a new line of Verismo capsules featuring Teavana chai and Teavana blends are replacing Tazo Tea on coffee shop menus at a price increase of about 50 cents per cup.

TEABIZ-LOGO_TeavanaFineTea+TeaBar_120pxTea Biz reporter Linnea Covington arrived at the pre-opening to discover a trendy store front at East 85th & Madison (in a residential neighborhood near Central Park), with a comfy, sophisticated ambiance and immense selection of loose leaf tea.

The shop is super sleek, though with muted purples, oranges, and greens, it almost like a yoga shop, according to Covington. There is a giant wall of tea in short canisters and a service area that is sleeker than a Starbucks with food behind a glass counter, like some pizza parlors display their by-the-slice pies.

It feels more like a to-go place, though the “leather” chairs are comfortable, she writes. The menu includes many loose leaf teas and a selection of sweet, consumer-friendly drinks.

TEABIZ-Teavana-lines of tea on the ceiling-by Linnea Covington_320pxThe most unique thing about the space is the tea ceiling, observes Covington. There are tubes filled with a hundred types of loose leaf tea in clear beams stretching across the lighting fixture, she said.

A half dozen carafes are displayed on a long light panel in the bar. Prepared teas are priced from $2.95 for 12 oz. to $4.95 for 16 oz. and rare teas are $6.95 for a teapot. Flights of teas are offered to encourage sampling.

Drink selections include Maharaja Chai, Youthberry + Wild Orange Blossom, Gyokuro Imperial, a Matcha Latte and Golden Monkey Black tea. Customers seeking dry tea weighed in pouches are separated from tea drinkers to speed transactions. There is cafe seating at tables and in thickly padded lounge chairs.

Charles Cain, left, heads Concept Development for Teavana's new stores.

Charles Cain, left, heads Concept Development for Teavana’s new stores.

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Tea selections. Photo by Teavana.

Food is an important new addition with small plates, salads, flatbread sandwiches and pastries. A breakfast menu lists Chicken Sausage + Spinach Strata $5.95 and Bacon, Egg + Cheese Flatbread for $5.95 with Honeyed Granola $3.25 and Cage-free Hardboiled Eggs with tea-smoked salt $2.45.

There are sweets like Earl Grey Profiteroles and Lemon Thyme Macarons. Tea time for two is $14.95 to $17.95.

The store is open from 6 a.m. to 9 p.m. Lighting, music, menu and mood are adjusted as the day progresses.

TEABIZ-Tea-inspired_SmallPlates_240pxDinner items include Mushroom + Kale Flatbread at $8.85 or a Four Cheese Flatbread with Parmesan, Provolone, Asiago and Fontina at $6.95. Fresh tossed salads include Glass Noodle Chicken Salad and Butternut Squash Couscous Salad $9.95.Click here to see entire menu: front and back.

By Linnea Covington

Wall display

The tea lounge is larger than Teavana’s 350 mall locations and designed to encourage customers to see and touch and ask about the tea. Dry tea is displayed next to the carafes while customers across the room are encouraged to sniff a tin from the tea wall. Wooden shelves with glass partitions show off the tea and teaware.

The neutral gray walls are accented with colorful display shelves with merchandise in gift boxes stacked on modern curved blonde wood tables. Tea wall tins were upgraded but retain the same bright color coding devised by Teavana to identify categories of tea. Wait staff is dressed in black caps and charcoal aprons with an orange Teavana logo.

By Linnea Covington

Teavana founder Andrew Mack and Naoko Tsunoda, Director of Tea Development.

“Americans have always have drunk tea,” said Naoko Tsunoda, Teavana’s Director of Tea Development. “At Teavana, we bring a higher quality of loose leave tea because customers are getting more sophisticated palates.”

Investors placed a $1 billion bet on tea retail in the past year, acquiring brands like Teavana (Starbucks) and Australia’s T2 (Unilever) following a 2012 round of venture capital investment in Canada’s DAVIDsTEA (Highland Consumer Fund) and private investment in Chicago-based Argo Tea (Terzian Enterprises).

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CEO Howard Schultz. Photo by Teavana.

Earlier this summer Starbucks CEO Howard Schultz told investors that “we are leveraging all of our unique internal assets – including our knowledge in creating best-in-class retail experiences and handcrafted beverages –  to create a premium tea experience for our customers, just as we have done for coffee.”

On Thursday Schultz told CNBC’s Jim Cramer that Teavana will “leapfrog internationally” with locations in Asia within the next couple of years.

The tea bar will establish a new breakfast occasion that is not based on speed of service, Schultz explained. Tea needs to be nurtured, taught and sampled, he said. Teavana’s higher average sale ($40 per transaction) means tea bars can emphasize service and spend more time with each customer, customizing tea, for example, or demonstrating merchandise.

Tea is a $90 billion global industry, twice the size of coffee that we strongly believe is ripe for innovation.”Tea is not a distraction, this is part of our core strategic plan,” he said.

“I love this concept and think it can drive long-term growth,” exclaimed Cramer.

The new format is likely to accelerate development of retail tea in the U.S. and globally where the growing affluence of the middle class and familiarity with tea combine to welcome America’s unique take on tea.

TEABIZ-TeavanaTeaBar_Exterior_320pxThe number of tea and specialty coffee outlets in the U.S. is static at 30,000. Coffee shops currently outnumber retail tea outlets 7.5:1. There was lots of churn and a net loss of 500 to 600 specialty coffee shops in the mix since 2009 due to consolidation and attrition. Led by chains, the number of tea retailers increased during the recession to approximately 4,000, according to the Tea Association of USA. The association reports 1,800 tea rooms in 2004. That count is comparable to the 1,650 specialty coffee shops operating in 1991. At that time most coffee shops were small chains and independents, much like tea retail today. In 1992, twenty years after its founding, Starbucks operated only 165 stores, with a growth rate comparable to Teavana.

A rapid influx of investment changed the game and by 2006 Starbucks was building 2,571 stores a year.

Raspberry and apricot cream scone.

Teavana pastries. Scone sell for $3.75.

A similar pattern is expected in specialty tea. Thousands of new tea shops are not going to suddenly appear. After all, more than half of the nation’s 4,000 tea outlets are small ventures, grossing less than $350,000 per year per store. Specialty tea merchants and tea rooms together grossed $1.43 billion in 2011, according to the Tea Association of the USA.

DAVIDsTEA is approaching 125 stores in the U.S. and Canada and Taiwan’s Ten Ren Tea operates 81 stores in seven countries with 23 shops in four U.S. states and six stores in Canada. Argo has opened 40 U.S. shops, earned $25 million in 2012 and plans to build 20 stores next year.

Teavana hot drinks include Coco Caramel Sea Salt Latte.

Teavana hot drinks include Coco Caramel Sea Salt Latte.

“By selecting only the finest premium loose leaf teas and botanicals to be sold in Teavana mall stores, Teavana has built a strong reputation among tea enthusiasts and introduced casual tea drinkers to new experiences in tea,” said Cliff Burrows, Starbucks group president, Americas, Europe, Middle East and Africa, and Teavana. “We are excited to work together to help create new and innovative ways to delight tea drinkers and continue growing the overall tea category in a variety of ways. The Teavana Tea Bar is a critical first step for us to meet the needs of tea drinkers everywhere by providing a place where tea enthusiasts and casual tea drinkers alike can learn about, enjoy and share in the tea experience.”

TEABIZ-Teavana-tea wall 04-by Linnea Covington_320pxStarbucks Chief Financial Officer Troy Alstead describes tea “at the core, in the heritage of Starbucks” yet tea represented only 8 percent of store sales in 2012.

“It was part of the original name of our company, Starbucks Coffee, Tea, and Spices, and yet it’s been a category that we have not put enough focus into.  We have a fantastic brand in Tazo, but we recognize we have opportunity both through our stores and through the CPG channels and globally to really reignite what tea means to us,” he said in a video interview with Motley Fool CEO Tom Gardner.

Teavana service bar offers the store's entire selection of loose leaf tea.

Teavana service bar offers the store’s entire selection of loose leaf tea. Photo by Teavana.

“Tea is wonderfully complementary to coffee. If you think about the U.S. consumer, coffee is about that morning experience. It’s get up and go, it’s moving fast, it’s on your way to work, it’s on the way to taking the kids to school. Coffee is more of a morning experience in the U.S.,” he said. “Tea is a slower, Zen-like experience for people. It tends to skew to the afternoon. It skews to the evening. It skews to the weekend.”

Will tea retail surpass the $41 billion earned globally at coffee shops?

Wall Street welcomed the expansion but Starbucks traded flat at $80 per share. Analyst Brian Sozzi, CEO of Belus Capital Advisors told Forbes that Teavana is unlikely to grow as large as Starbucks coffee.

“The bottom line is that in this day and age of frantic tech-driven lifestyles, people want to run on 100 milligrams of caffeine, and they will trade taste to make that happen,”said Sozzi.

Linnea Covington contributed photos and on scene reporting.