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Tonia, left, and Hatem Jahshan, founders of Steeped Tea (ONE FOR THE WALL PHOTOGRAPHY)
Tonia, left, and Hatem Jahshan, founders of Steeped Tea (ONE FOR THE WALL PHOTOGRAPHY)

Case study

Steeped Tea brews a winning growth strategy Add to ...



THE CHALLENGE

Hatem and Tonia Jahshan didn’t really plan to start Ancaster, Ont.-based Steeped Tea, a direct-sales tea company. It just happened.

“In 2005, we were on holidays in Nova Scotia, and we had a cup of loose leaf Creme of Earl Grey tea that just blew us away. Before we knew it, we had visited the tea shop and bought a bunch of loose tea to bring home to try out,” Mr. Jahshan recalls.

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Ms. Jahshan liked this tea so much that she started to make baskets of tea to give to family and friends, and then expanded to having tea-themed open houses.

At one of the open houses, someone asked her if she would do a tea party at her house, and an idea was born.

Could the couple start and grow a direct sales tea company, based on independent consultants throwing tea parties in people’s homes?

THE BACKGROUND

Ms. Jahshan had a sales background, as a rep for an electrical equipment supplier, and also experience with a direct selling company.

Mr. Jahshan, a chemical engineer, owned three Subway franchises and knew a lot about software systems, localized marketing and setting up effective training programs for retail sales.

The couple realized that direct selling was a big, and growing, business in Canada. At the time they started Steeped Tea, total industry sales were about $1.96-billion in Canada. During the next five years, according to figures from the Direct Sellers Association, industry sales have grown more than 11 per cent to $2.18-billion. And 1.3 million Canadians now work in direct sales.

However, the Jahshans had few financial resources available to start the business, and were hoping to start a family. To do well in this industry takes “deep pockets,” Mr. Jahshan says.

THE SOLUTION

It was possible to start Steeped Tea with minimal investment. The couple bought their tea in small quantities and stored it in their garage. They grew the business by selling their tea though independent consultants, rather than by building up their own sales force. These consultants are independent business owners – predominantly women –interested in a part-time income, who run tea parties in people’s homes.

There are benefits to being the party host – commensurate with the level of sales at a party – and the consultant is compensated through a combination of sales commission and bonuses for hitting certain milestones.

As the business grew, though, so did the costs. Having more consultants meant more complexity.

“We had to rethink our processes and make expensive improvements,” Mr. Jahshan says. “We needed to develop deeper relationships with suppliers to get volume discounts, we had more inventory to store and longer distances to ship it, we needed more complex software, we needed revised training protocols, we needed new communication mechanisms, and we needed higher quality catalogues that highlighted an expanded product line.”

For example, they started to offer services to their consultants to help them manage their business, such as a website with a shopping cart and a system for their customers to have online tea parties.

At first they hired IT expertise, but found that it was too time-consuming to supervise system development, and so they now rent the software for a monthly fee. “It’s great,” Mr. Jahshan says. “Now someone else worries about software development.”

The couple’s growth-oriented approach makes them stand out from the competition.

“There are several small competitors in the U.S.,” Mr. Jahshan says, “but they are unwilling to make the investment to grow. A direct sales business is relatively inexpensive to start, but you need to invest in growth. Every additional 50 active consultants requires a cash infusion for new tools, new types of support and different organizational structures.”

THE RESULT

The Jahshans’ growth-oriented strategy is paying off. The company now has eight employees and 400 affiliated consultants who sell their tea from coast to coast across Canada.

Their products are popular: Each tea party yields an average of $500 in sales.

They get phone calls every day from potential consultants wanting them to expand into the United States. The Jahshans realize that entering the U.S. market would increase their operating costs substantially from their current level of $250,000 a year, but it is tempting to participate in the $28.56-billion direct sales market down south with a formula that is known to work here.

Further, they see the business as recession-proof : The products are inexpensive and fun and people are looking for second incomes – and so they are exploring possibilities south of the border.

Special to The Globe and Mail

Becky Reuber is a professor of strategic management in the Rotman School of Management of the University of Toronto.

This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Your Business website.

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