T2: Slow and Steady

Australian tea retailer T2 opened its third store in New York City last week, marking a slow but steady expansion in North America that began in October 2014 when the Unilever-owned company opened its first U.S. Soho boutique. There are now 66 locations with 53 stores in Australia and New Zealand, making T2 the largest tea retailer down under. The fastest growth has been in the United Kingdom where Unilever (makers of Lipton) operates 10 stores in London. The firm is beginning to locate stores away from the larger urban centers, with locations in Bath and Cheltenham. The Prince Street location in NYC did well enough to lead to a Brooklyn (Cobble Hill) location, which opened in December 2015. The latest shop is located in the Upper West Side on Columbus Ave. Teas are available to sample, but T2 is more tea merchant than tea bar. Unilever’s global president for refreshment, Kevin Havelock, said in 2013 that the company will eventually open hundreds of T2 stores around the world. Unilever’s plans remain ambitious, but just as Teavana (which closed its NYC tea bar locations earlier this year) and Palais des Thés (which recently closed its NYC location) and Germany’s TeeGschwendner all discovered: tea vendors can’t get much of a bite of the Big Apple. In April, The Sydney Morning Herald analyzed the 2013 T2 acquisition, concluding that the multinational company encountered slower-than-expected growth. In a revealing look at how the deal was structured, the newspaper discovered the sellers never qualified for a 30 million Australian dollar (US$29 million) contingency set aside to reward rapid expansion. Unilever reportedly paid co-founder Maryanne Shearer and her partner Bruce Crome AU$58.6 million cash for the company’s 40 stores. (The Australian dollar was valued at US$0.9679 in 2013 making the sale price US$56.8 million.)

This was about equal to annual revenue of AU$57 million in 2013. The company reported AU$2.48 million profit for the year prior to the sale. Financial documents disclosed an additional AU$3.4 million payment in 2014, after which growth stalled. Documents indicate a contingency of AU$31.8 million was reversed in 2014 and 2015. The amounts of AU$29.1 million in 2014 and AU$1.9 million in 2015 would have been paid had financial targets been met. Instead the funds were returned to Unilever Australia. “A Unilever spokeswoman confirmed that the gains represented payments that would have been due to T2’s former owners if the business had achieved certain levels of performance, but declined to comment further,” according to The Sydney Morning Herald. Shearer left the company in September 2015. The Australian division later sold T2 New Zealand to Unilever New Zealand in January 2015 for AU$2.4 million. It now appears that Unilever ultimately acquired T2 for approximately AU$62 million. Precise sales figures for T2 were not disclosed, but Unilever Australia reported AU$1.56 billion in sales in 2015, down 4.2% from the previous year. “It was never going to be the bargain of the century, but Unilever’s acquisition of gourmet tea business T2 has cost the world’s largest tea company less than originally expected,” according to the newspaper. Source: T2, Unilever, The Sydney Morning Herald US$ TO AU$ 2013: 0.967915 2014: 0.902813 2015: 0.752124 2016: 0.736230