Time for tea in America: Arsen Avakian, co-founder of Argo, is on a mission to convert the coffee-drinking masses

October 8, 2013 3:56 pm

Time for tea in America

By Neil Munshi

©Pascal Perich

A new leaf: Arsen Avakian in an Argo teashop

At a table outside a café in Chicago’s Connors Park, Arsen Avakian is sipping cups of tea and providing a commentary on the different flavours like an oenophile at a vineyard. The manager of this branch of the Argo chain of tea shops Mr Avakian’s co-founded has just brought him a tray of samples – including Pumpkin Chai, Iced Maté Latté, White Tea Acai Squeeze and Hibiscus Apple Chiller. The entrepreneur has an effusive line for each. Mr Avakian says the Earl Grey Vanilla Crème is “Nilgiri black tea blended with bergamot orange peels to give you a very unique take on the traditional Earl Grey”. He also mentions some of the 14 countries from which Argo sources tea leaves for its 40-plus “signature drinks”.The name Argo was inspired by the Greek myth of Jason’s quest for the golden fleece. As guitarists strum in the sunshine on the patio Mr Avakian outlines his own mission: to make the coffee-drinking US a base for his chain of tea shops.

Argo has about 40 outlets and this one is barely a block from another branch. “That one’s available too,” smiles Mr Avakian, pointing out a vacant corner shop, but he adds that he has no plans to take it on. Argo is not about to become the “Starbucks of chamomile” – with outlets on every corner – but you feel Mr Avakian, an Armenian immigrant to the US 17 years ago, would like to get close to the coffee chain’s footprint.

The Chicago-based company plans to increase its store count by 50 per cent annually for the next few years. It is expanding across college campuses and key cities in the US, has a licensing agreement in four Middle East countries and plans to launch in London and Moscow. He says the privately held company now has annual revenues of about $25m, thanks partly to the expansion of its bottled iced tea business to 10,000 US retailers in just two years.

Mr Avakian was raised on both tea and coffee and could not understand why Americans much preferred the latter. But recently there has been growing interest in the health benefits of drinking tea, as well as the flavours. Even Starbucks is moving in on the tea sector, last year acquiring Teavana, a loose-leaf retail­er with more than 300 stores, for $620m.

Message in a bottle

Argo’s move to extend the brand by bottling its beverages is timely. The Tea Association, a trade body, says drinking bottled tea has risen in the US more than 15-fold in a decade, with sales a “conservatively estimated” $4.8bn in 2012.

Joseph Simrany, president, says the rise is mainly driven by young consumers drawn to potential health benefits and that “ teens and people in their 20s are looking for tea on the go”.

Teashops have also proliferated, he says. Only 15 years ago, there were fewer than 200 independent tea cafés in the US: today the figure tops 4,000, not including coffee outlets that also offer premium tea.

Argo’s overseas plans are also buoyed by statistics: global ready-to-drink tea retail sales grew 61 per cent to $45.7bn between 2007 and 2012, says Euromonitor.

Tall with salt and pepper hair, the 38-year-old Mr Avakian, a consummate salesman, leans in for emphasis, a gold chain winking out from under his open collar. Describing Argo’s ap­proach as combining a nutritionist’s focus on health – “the right balance between the carbs and fibres and fats and antioxidants and vitamins” – with a mixologist’s palate, he says the idea for Argo came in a Starbucks while on the road as a management consultant.

“A very simple thing dawned on me: ‘Wait a second, I’m drinking this tea [made with] a tea bag that is over-brewed, it’s too hot . . . it’s nasty’,” he says. At the same time, he noted: “there’s hundreds and hundreds of people coming [into Starbucks]”.

Mr Avakian had been “blown away” by what chains such as Starbucks had ac­complished. He thought he could show consumers that loose-leaf tea was “more diverse and much more interesting than coffee can ever be”.

After a computer science degree and a Fulbright scholarship took him to Roose­velt University in Chicago for an MBA, he became a consultant. But he says the entrepreneur gene inherited from his father, who has more than 70 alternative-energy patents in Armenia and Europe, was strong, and he launched Blue Meteor, a software-as-a-service company. It failed, but he had his “first taste of what it means to be an entrepreneur”.

His next job was working for software company i2 Technologies. But after the dotcom bubble burst, and he had the idea for Argo, he jumped at the chance despite protestations from friends, family and colleagues. Other than his father, only Rouben Terzian, a toy designer and entrepreneur, backed the plan. Mr Avakian had sought out Mr Terzian – who he describes as “one of the most successful Armenians in the world” – as a young immigrant in Chicago, and he is now godfather to both Mr Avakian and his small daughter. He says that Mr Terzian told him: “ ‘This is tea – people are drinking tea for thousands of years. Don’t worry about it’.” Comforted by this advice, he struck on a way of turning Americans on to tea: bring out the taste while presenting it as a “platform for creativity” that could be changed, with in­fusions and experimentation, to suit any palate.

He and two co-founders, Simon Simonian, a childhood friend and fellow programmer, and former consultancy colleague Daniel Lindwasser, opened in 2003. On the first day, he realised he knew nothing about how to run it, so the manager they had hired lost her job. “She said, ‘But you know nothing about this job’,” Mr Avakian says. “I said: ‘Exactly. That’s why I need your job – so I can do it and learn it’.”

For two years, the trio worked long hours behind the counter telling the stories behind their steaming brews to customers. By 2005 they were able to open three more stores.

Hiring proved a challenge. Students working a few shifts a week – a common tea shop model – were un­likely to buy into the healthy lifestyle philosophy behind the brand, so the founders worked on convincing potential recruits “this could become a career-building opportunity”. Of Argo’s 400 or so staff, many of the senior managers joined Argo around then, with some, including the director of East Coast operations, as hourly shift workers.

On funding, Mr Avakian has raised capital from connections he made in his tech days, along with institutional and private equity investors. But the company needed to expand beyond Chicago. As the financial crisis took hold, Mr Avakian decided to take advantage of falling rents in New York. It was an unusual move because “brands usually go to New York when they are already big and stable and they’re willing to take on that crazy risk”, he says. But not only did the move pay off, it brought exposure to additional investors and its Middle East partner, whom Mr Avakian declines to name, which has since opened cafés in four countries.

Mr Avakian also proposed a bottled-tea business. Again he was told he “must be crazy, stupid, nuts”. When even bottling plants refus­ed his business he set up his own mini-plant in Argo’s downtown offic­es. It now has deals with two bottlers and a third is planned. He hopes to extend the bottled-tea brand overseas.

Back in Chicago, the Connors Park shop feels like a refuge in the heart of the city. The idea is that such stores will act as “playgrounds” for Argo’s customers, who can buy the bottled version at Whole Foods or 7-Eleven stores.

“Company-operated stores, licensed stores and Argo Tea bottled business are the three ways to win [in this business], and none of them are less or more important than the other,” he says. “We feel like we’re just scratching the surface.”