The Stash Tea Company

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The Stash Tea Company

7204 S.W. Durham Road Suite 200
Tigard, Oregon 97224
U.S.A.
Telephone: (503) 684-4482
Toll Free: (800) 547-1514
Fax: (503) 684-4424
Web site: http://www.stashtea.com

Wholly Owned Subsidiary of Yamamotoyama of America
Incorporated: 1972
Employees: 50 (2002 est.)
Sales: $11.8 million (2002 est.)
NAIC: 311920 Coffee and Tea Manufacturing; 312111 Soft Drink Manufacturing

The Stash Tea Company (also know as the Universal Tea Co., Inc.) ranks among the top five specialty tea companies in the United States, offering a complete line of specialty teas: traditional black teas, flavored and spiced teas, herbal teas, green teas, organic teas, rare and exotic teas, and specialty iced teas. The company’s specialty-tea mail-order business is the largest in the United States, based on an extensive mail order catalog that offers more than 200 blends of tea, tea accessories, tea gifts, and savory baked delicacies and sweets (gourmet cookies, scones, honeysticks, Stash bread mix, jam, and biscotti). Stash Tea products are also available worldwide, through foodservice, grocery stores, tea and coffee shops, club stores, mass merchandisers, natural foods stores, and the Internet. Headquartered in Tigard, Oregon, the company is privately owned by the U.S.-based subsidiary of Yamamotoyama Co., Ltd., a 300-year-old tea company based in Tokyo, Japan.

Early Years: 1970s to Mid-1980s

In 1972, Steve Lee, Dave Leger, and Steve Smith founded The Stash Tea Company in suburban Portland with $7,000 and a Victorian house basement full of herbs, spices, teas, and dreams. Named for the special reserve of precious teas that many sea captains kept for their personal use aboard ship, the fledgling company quickly became a viable purveyor of fine teas. With Lee’s mail-order marketing background with Sears, Roebuck and Co., Leger’s work with Frito-Lay, and Smith’s management experience at nearby Sunshine Natural Foods, the business took off during its first year, making $50,000 selling bulk herbs and spices and loose teas to natural foods stores. The company even began to work directly with Oregon mint farmers to grow and cultivate Oregon peppermint, later recognized by the tea industry to be the world’s best. By 1974, the company reaped $290,000 in revenue.

By 1975, the company began marketing tea bags and a complete line of traditional, specialty blend, and herbal teas to restaurants and through mail-order catalog. Then the company dropped the wholesale, bulk aspect of the business and concentrated almost exclusively on restaurants and other segments of the food service industry. To appeal to the college food service market, for example, the company devised a promotion, which offered a European vacation to the food service supervisor who sold the most Stash tea. Restaurants sales soon became the company’s bread and butter, at one point accounting for 80 percent of total sales. Success in the restaurant business allowed Stash Tea to later break into other markets, including grocery stores and international sales.

In 1977, a worldwide coffee shortage made coffee less affordable, causing many consumers to switch to tea. However, when Stash Tea’s Pennsylvania-based packager could not keep up with the new surge in tea demand, Stash began to look for a packager on the West Coast. They partnered with Yamamoto of America, based in Los Angeles, which was the United States’ arm of Japan’s Yamamotoyama Co., Ltd., one of the oldest tea companies in the world (established in 1690). Alongside the green teas, seaweed, and dried enoki mushrooms packaged under the Yamamotoyama brand, the Japanese company packaged tea leaves imported from Ceylon, China, Indonesia, Sri Lanka, and Kenya for Stash Tea.

The demand for tea was not completely dependent on the fluctuations of the world’s coffee supply, however. Since the 1950s (for at least 35 years, according to the Tea Council of the U.S.A.), tea imports had been steadily increasing by about 4 percent each year. Stash was well positioned to ride the crest of that wave. The tea industry’s growth and Stash Tea’s increasing success turned out to be an irresistible investment opportunity for Yamamotoyama. In 1979, Yamamotoyama acquired 25 percent of Stash for only $112,000. Two years later, when another Stash shareholder wanted to sell out, Yamamotoyama bought an additional stake for $120,000, which brought the Japanese company’s stake in Stash Tea to 48 percent. That left the company with only a handful of shareholders, including Yamamotoyama (48 percent), Lee (about 23 percent), Leger (about 23 percent), and Barbara Longaker, who was a sister of a friend of Lee’s (about 6 percent).

Growing Pains: Mid-1980s to Early 1990s

In 1987, the U.S. tea market crossed the billion-dollar threshold for the first time, when percapita brewing reached 1.54 pounds. Although iced tea accounted for 75 percent of total sales, herbal teas, at about 4 percent of the market share at the time, was the most rapidly growing segment of the industry. By this time, Stash Tea’s employee count had grown to 26. Stash Tea’s 1987 restaurant sales accounted for about 50 percent of total sales, with grocery stores and international sales becoming a larger part of the sales picture. Still, restaurant sales had increased dramatically, in large part due to an 18-month-old association with the makers of the Sweet ‘N Low sugar substitute, Sugar Foods Corp. Sugar Foods sold and shipped Stash Tea to food service distributors throughout the United States, mainly on the East Coast. The relationship easily doubled the number of distributors carrying Stash Tea products. During this time, Stash Tea went well beyond its limited international sales presence in Canada by securing sales in Japan, New Zealand, Australia, and Norway.

To gain even more customers, and keeping marketing costs low, Stash Tea established a marketing strategy that became quite successful. Instead of sending mass mailings to an unsuspecting public, the company opted to simply print a simple invitation on each tea bag envelope: “Send for our Stash Tea catalog of premium teas, gifts and accessories. P.O. Box 61 OR Portland, OR 97207.” According to Susan Mclntyre, director of Stash’s mailorder division, “The sad fact is that most names on any list wouldn’t be interested in your product or won’t be interested today. In package-based solicitation, your effort’s placed directly in the hands of prospects who have selected themselves for interest in your product and have done so today. Also, the waste of scatter-shot solicitation is eliminated.”

This low-cost advertising made it possible for the company to aggregate an extensive database of customer data, and a long mailing list that would become the envy of the industry. By 1987, for example, the company already had more than 100,000 customers on their mailing list, 20 percent of whom made an average $25 purchase. The mailing list had continued to grow at a healthy pace, with the company receiving about 2,000 catalog requests per month. Once someone bought a Stash Tea product, the company used gifts, discounts, and, eventually, free shipping to create a loyal customer. Although mail orders account for only 6 percent of Stash tea sales and contribute just 10 percent of total revenues, they represent 35 percent of the company’s profits. Stash Tea’s later marketing efforts were also successful and savvy, with a form of “added-value” advertising. The company adopted a foster child in India, named Kenda, and began featuring photos and letters from her in the mail order catalog.

The early 1990s were looking good for Stash Tea. The company was already considered the second largest purveyor of specialty teas in the United States, after Bigelow. By 1991, Stash Tea’s offerings had grown to 30 different tea blends, including “Earl Grey,” “Ruby Mist,” “Orange Spice,” “Friendship,” “Lapsang-Souchong,” and “Oolong.” In 1992, industry-wide sales of herbal tea bags in supermarkets increased by 5 percent. However, the Stash Tea-Yamamotoyama relationship became more entwined when Stash began borrowing money from the larger, more successful Japanese company to help ease some growing pains. Even though Stash Tea had some difficulty making payments, Yamamotoyama restructured the debt several times, often loaning Stash Tea even more money during the process. From the mid-1980s, Stash was paying about $20,000 a month in principle and interest to Yamamotoyama. In 1991, after Stash Tea lost about $250,000 for its expansion efforts into the Eastern U.S., and once West One Bank of Oregon demanded repayment on a $500,000 line of credit, Yamamotoyama moved to acquire the remaining shares of Stash Tea, much to the dismay of Stash Tea’s founders.

Lee and Leger were able to stave off the immediate acquisition by Yamamotoyama with a compromise: Stash Tea had 11 months to find another buyer who would agree to pay $1,800 per share, or a total of $3.6 million. They found two interested parties who would partner together in a bid against Yamamotoyama: Windsor, Connecticut-based Redco Foods, a company Stash Tea had had a more amicable relationship with in a previous joint venture, and Endeavor Capital, a Portland merchant banking firm. After some intense counter-bidding between Yamamotoyama and the newly formed Redco-Endeavor partnership, Yamamotoyama resorted to a secret meeting with Longaker, who finally agreed to sell her remaining shares. She had also convinced the Japanese company to buy the remaining minority shareholders’ stock for $3,200 per share, or $6.4 million. The deal closed in the summer of 1993. By that time, the Tigard-based tea company was already a $10-million-a-year operation. Lee left the company a millionaire, and within the next year, without the restraint of a non-compete agreement, he partnered with two other entrepreneurs to found another tea company, Tazo Tea Company, which was later bought by Starbucks.

Company Perspectives:

Since 1972, Stash has been committed to providing premium quality teas and an unsurpassed tea drinking experience. Stash begins with simply excellent tea leaves from the world’s premier tea gardens. Stash offers more than 200 different varieties and blends of black, green, white, oolong, scented, flavored, and herbal teas. All Stash teas are made with the very best tea leaves and natural ingredients gathered from around the world. Meticulous blending and tasting of every tea ensures that you will enjoy full flavor in every cup.

Post-Takeover Successes: Mid- to Late-1990s

Throughout the 1990s, sales in the specialty tea market had doubled, from about $1.8 billion in 1990 to $4.5 billion by the end of 1997. Specialty black and herbal teas accounted for about 25 percent of the tea market. According to Stash Tea spokesperson Catharine Trapasso, the company’s sales had more than doubled during 1992 to 1997. By early 1997, the company’s sales broke down into three main categories: mail order (24 percent), foodservice (14 to 15 percent), and the retail trade (60 to 61 percent).

In 1993, Stash Tea created a bed and breakfast promotion, which became a very popular aspect of its business. The company teamed up with more than 1,000 bed and breakfast inns throughout the United States to offer consumers a great deal: when they pay for one night at a participating inn, they could stay a second night for free. In exchange, participating inns received a sampler box of tea and could order refills at a discount. For consumers to receive a directory of participating inns and a certificate for one free night, they have to send in three Stash Tea UPC codes, a check for $2.95, and a completed offer form. By 1996, the company averaged 2,000 certificate requests per month via the catalog, retail, and new Web site.

In 1995, The Stash Tea Web site debuted on the Internet, and was quickly recognized as a valuable source of information about tea. Not only did the Web site function as another way to do business, but it also shared entertaining and education information about tea in general. The site offered a history of tea, descriptive Stash Tea product information, an online version of its popular print catalog, tea trivia and quotes, clips from its humorous radio campaign, and a directory of bed and breakfast inns for its “free night at a bed and breakfast inn” promotion. The Stash Tea Web site was also very accessible, as it was fully indexed and searchable, and the home page could be translated from English into 13 other languages. Since its debut, an average of 1,000 people have visited the site each month. The Stash Tea Web site was rated among the top 5 percent of all Web sites in a review conducted by Point Survey, a guide referred to as the Zagats guide to the World Wide Web. Also in 1995, the company’s first radio commercial was chosen as the world’s best radio commercial for 1995 in the Non-Alcoholic Beverages category at the London International Awards competition.

By 1996, Stash Tea sold about 80 different blends of tea. In response to consumers’ quickly and ever-evolving palates, Stash Tea introduced several new lines of exotic and unusual teas in attractive, descriptive packaging, offering new teas available loose or in teabags. One example is the “Exotica” line, which features nine exquisite teas including champagne “Oolong,” pure golden-tipped “Darjeeling,” “Silver Jasmine,” rare “China White,” “Ceylon Estate Earl Grey,” “Dragonwell Green Tea,” robust “Assam Breakfast,” fragrant “Osmanthus,” an “Exotic Reserve” blend, and a sampler collection. The tea company also began selling Yamamotoyama teas, introducing to Stash Tea customers a new world of Japanese and Chinese teas, such as “Genmai Tea,” “Kukicha Tea,” “Chrysanthemum Tea,” and “Special Occasion Green Tea.” Stash Tea also introduced a new line of medicinal teas, to appeal to consumers interested in the increasingly popular field of naturopathic medicine. With names like “Sharpness,” “Sleep,” “Well,” and “Stress Relief Tea,” these new teas featured ingredients such as ginseng and echinacea promising medicinal benefits. A premium organic line of teas was also introduced in the late 1990s.

2000 and Beyond

By the start of the new millennium, Stash Tea was one of the more successful tea companies in the industry, and certain trends seemed to indicate that the company could stay successful for some time to come. Consumer demand for tea continued to increase, while demand for coffee generally declined. From 1995 to 2000, the overall retail coffee category declined in sales from about $4 billion to $3.5 billion, while sales of tea bags and loose leaf teas grew from about $637 million to $751 million, according to an industry overview report published in the September 2000 issue of Beverage Industry. Although sales in black tea remained strong from 1995 to 2000, the true leaders in the tea industry segment were chai teas, herbal teas, and green teas—segments in which Stash Tea was already quite successful.

In response to rising consumer demand for loose teas, the company had begun offering loose versions of some of its popular teas in handy, resealable, nitrogen-flushed pouches. By 2000, Stash Tea’s offerings had grown to more than 200 varieties and blends. During 2000 to 2002, the company introduced several more teas, including a “Teas of India” line, which won “Best of Show” in the Beverage Packaging Global Design Awards in 2000, and other teas, including “Ti Kuan Yin Deluxe Oolong,” “Organic Pinhead Gunpowder,” “Energy Tea with Mate and Guarana,” “Wild Lychee White Tea,” “Monkey King Jasmine,” “Chocolate Peppermint,” and “Triple Ginseng.”

Principal Competitors

The Hain-Celestial Group, Inc.; Nestlé; R.C. Bigelow; R. Twining and Company, Ltd.; Reily Foods Company; Starbucks; Tazo Tea Company; Tetley GB Ltd.; Unilever.

Key Dates:

1972:: Company is founded.
1975:: Stash Tea begins its popular mail-order business.
1987:: Company mailing list logs 100,000 customers; employee count reaches 26.
1993:: Stash Tea is acquired by Yamamotoyama of America.
1993:: The company introduces its popular bed and breakfast promotion.
1995:: The Stash Tea Web site launches.
1995:: The company’s first radio commercial wins first place at the London International Awards.
2000:: The Teas of India line wins “Best in Show” at industry design competition.