David's Tea founder taps Shopify executive in second go at market

When Canadian entrepreneur David Segal launched his namesake David’s Tea business in 2008, he had dreams of dotting North America with well appointed shops serving high quality tea and finally getting people as enamored with tea as they are with coffee.

Things didn’t work out that way. In early 2016, he left the company, which five years later filed for Canada’s equivalent to bankruptcy protection and closed all 42 of its U.S. stores and most of its Canadian ones. Though it was a Wall Street darling early on, David’s Tea was pushed over the edge by COVID-19 but most reeling from over-expansion and limited demand for upscale tea. (David’s Tea, whose shares trade on the Nasdaq, emerged from bankruptcy protection in June.)

But now Segal, who co-founded David’s Tea in Montreal with his cousin Herschel, an apparel entrepreneur, is taking on the tea market for a second time, armed with lessons learned from his first venture as well as capital and advice from his friend Harley Finkelstein, one of Canada’s most respected business people in his role as president of Shopify.

Initially, the brand, called Firebelly, will launch online only in Canada and U.S. on November 16 with a collection of 20 teas made with upscale ingredients such as Japanese Sencha, ranging in price from $15 to $35 depending on the tea and quantity of tea, and packaged in elegant boxes. Firebelly will also serve accessories like $80 teapots.

This time, though, Segal is in no rush at all to turn it into a large brand with many stores. (He is still running his six-restaurant gourmet fast food Mad Radish chain in Toronto and Ottawa.)

“There is really this opportunity to reposition tea for the 21st century,” Segal,40, tells Fortune on a Zoom video call from his home office in Ottawa. Some stereotypes about tea need to be broken for tea to go more mainstream, he adds, such as that it is a feminine drink, or it’s for hippies, or it’s only for when you’re sick. What’s more, Segal says, people will need to learn that making a good cup of tea from quality leaves is not that difficult. “The tea industry has made it seem like you need a Ph.D. to make it,” Segal says.

Whatever the reasons, tea remains far behind coffee as the warm drink of choice for North Americans. The tea market is estimated to be about $70 billion in North America, but strip out iced tea, which is 80%, and artificially flavored tea, and you are left with a niche of specialty tea.

And as Segal himself knows, the U.S. tea market in particular is a tough nut to crack. When David’s Tea went public in 2015, it had 25 U.S. stores (and 136 in its native Canada), but the company at the time saw potential for 300 stateside, pointing to millennials who purportedly loved tea. The bet was that Americans would develop a fancier palate for tea as they had to some degree for coffee and learn to finally love loose-leaf tea devoid of flavoring, much like the rest of the world, where tea is the second most drunk beverage after water.

To be fair, Starbucks made the same incorrect bet when it bought Teavana in 2012 for $620 million. But by 2017, it said it would close all 379 Teavana stores and just sell the tea in its regular coffee shops. Teavana was hurt by its location in malls and a misunderstanding of tea culture, where people don’t like to be rushed, something hard to avoid in small shops. (Segal sees an opportunity in more people working from home now and having time to make a good pot of tea rather than something from a teabag at a quick service restaurant, positing that “you no longer need quick substitutes for the real thing.”)

There were plenty of lessons on which to draw in his newest venture. After leaving David’s Tea, Segal befriended Finkelstein and turned his new friend on to specialty tea, winning both his financial support for his new venture (they are equal partners in this venture) and access to his business acumen. For one thing, he is not plotting to cover the U.S. and Canada in stores, though down the line he sees the possibility later for stores in gateway cities like New York and San Francisco. For another, he is not going to try to concoct a million flavors and options, preferring to keep it simple and build up the brand slowly. (David’s Tea was up to several hundreds flavors when he was in charge.)

Another thing he’s eschewing: selling via retailers, such as grocery stores. “I don’t want to be another tea brand on the shelf,” Segal says. “We just put too much energy into design.” Of course, selling directly means more profit accrues directly to Firebelly but it also means Firebelly has to be hyper effective in building buzz for itself.

While he has led a public held company with big designs on the United States, and does have a prominent backer in Finkelstein (Firebelly’s web site will of course be powered by Shopify), Segal downplays any ambitions for this to become a huge business or to have a dominant market share.

“I don’t actually care how big this gets, it doesn’t matter,” Segal claims. “We want to grow the tea market, we want to grow the pie itself.” Perhaps managing expectations in his second go at the tea market, he adds: “I’m a product guy. I really do love tea.”