DavidsTea to slow expansion in U.S.

MONTREAL — DavidsTea has joined its coffee rival Tim Hortons in discovering the challenges of entering the American market.

The Montreal-based company is struggling to re-energize its U.S. operations by catering better to tastes south of the border.

DavidsTea’s new CEO said Thursday that it has learned from its mistakes and is adjusting to make things better.

“This is not a net new problem for retailers entering a new market,” Joel Silver told reporters after the company’s annual meeting.

“We can overcome it but we’re learning on the ground what works differently, what works the same, and we’re responding to it to make it happen.”

He said the company remains committed to the U.S. market but is slowing its American expansion while it tries to better understand its consumers. The retailer, he said, discovered that U.S. customers prefer iced tea over hot brew and have a sweeter palate than Canadians.

DavidsTea (Nasdaq:DTEA) plans to open up to five U.S. stores this year after launching 49 locations since 2011. The company won’t say how many U.S. stores it now expects to possibly open but last year told analysts it saw a potential to have 320 American locations and 230 in Canada.

Silver, who became CEO in March, said the priorities across North America are to reduce its tea assortment from more than 130 varieties, focus on bestsellers instead of new mixes, as well as improve marketing and the online experience.

Tim Hortons (TSX:THI) experienced its own challenges in the U.S. where consumers didn’t have the same emotional connection to the brand as Canadians.

Since its debut in 1984, it has faced a series of changes and fended off criticism from activist investors who pressured the company to scale back its U.S. expansion.

Like Tim Hortons, Silver said it will take DavidsTea some time to figure it out.

“Tim Hortons has some momentum now in the U.S. but it took them time to get there, so that’s the lesson I take from it.”

Meanwhile, former chairman Pierre Michaud told shareholders that the controlling family isn’t acting in their best interests by constantly changing its strategy that has resulted in the departure of senior executives and a big decrease in the value of their investments.

Since reaching a stock price of US$27 following its public offering two years ago, DavidsTea’s shares have plunged to $5.97 in Thursday trading.

“What is the future for the shareholders like us,” he said, questioning whether co-founder Herschel Segal’s actions will hurt their investments as happened to those who put money into his other company Le Chateau.

Michaud, who founded home renovation retailer Reno-Depot and was chairman of grocer Provigo, said the company is not being patient with the U.S. operations because they are unprofitable.

“This is where the potential is, and the people who invested in this company invested because we were going to expand in the U.S.,” he said.

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