Oregon Chai, Inc.

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Oregon Chai, Inc.

1745 NW Marshall Street
Portland, Oregon 97209
U.S.A.
Telephone: (503) 221-2424
Toll Free: (888) 874-2424
Fax: (503) 796-0980
Web site: http://www.oregonchai.com

Private Company
Incorporated: 1994
Employees: 31
Sales: $15 million (2000 est.)
NAIC: 311920 Coffee and Tea Manufacturing

Oregon Chai, Inc. offers a line of aseptically packaged chai concentrates and latte mixes in foodservice and consumer sizes and ready-to-drink soy-based chai lattes. The company’s products, which have captured a greater than 60 percent share of the chai market, are distributed throughout the United States, Canada, the United Kingdom, and Guam through foodservice, natural foods, and grocery channels.

Catching the Wave of the Coffeehouse Movement: 1994–95

In 1989, Heather Howitt, a native of Portland, Oregon, and then a student of anthropology at the University of California in Santa Cruz, was trekking in India’s Himalayas. Yearning for a latte, she instead purchased a cup of hot masala chai, a sweet mix of black tea, spices (including pepper), and milk, from a local peddler. Although she did not immediately enjoy the taste, Howitt, a veteran coffee drinker, soon became a “chai” aficionado.

“Chai” is the generic word for tea throughout parts of the Middle East, Asia, and Africa. As a mixture of black tea and spices, it first appeared in the United States during the 1960s, brought back by young counterculture travelers. There it thrived in alternative circles, at ashrams and communes. Back at school in California, Howitt went looking for chai and noticed it for sale at coffee houses near campus. But once she had completed her undergraduate degree in 1992 and moved back to Portland, Howitt could no longer purchase the drink she had come to love.

“I decided to figure it out for myself and it was a total pain,” Howitt said of learning to brew her own chai in a 1997 issue of the Portland Business Journal. “I looked at tons and tons of Asian chai recipes.” After three years of experimenting, from 1990 to 1993, she was satisfied that she had developed a drink concentrate that would please the American palate, a mixture that included vanilla, cinnamon, ginger, and honey—slightly sweeter than the chai she had first tasted—“more dessert-y” than traditional chai. Howitt’s concentrate, when mixed with an equal portion of steamed milk or soy milk, was a cross between Indian chai and the increasingly popular designer lattes served in coffee houses, an alternative to espresso drinks. “Ours is more of a vanilla, dessert, honey drink as opposed to a serious cup of spice tea,” said Howitt of her drink in a 1995 Baltimore Sun article.

In 1994, at age 25, Howitt put her graduate coursework in urban studies at Portland State University on hold, and with the help of her mother, Tedde McMillan, and a $3,000 loan, she applied for a business license to sell her tea concentrate. The mother-daughter team manufactured their product in the basement of a Portland church, running the business from Howitt’s old bedroom in her parents’ home. Joined by high school friend Lori Spencer, Howitt went around Portland, selling the liquid chai concentrate, packaged in plastic bottles with hand-designed labels, to local coffee shops and natural food retailers from the trunk of her car. By the end of that year, the new business, called Oregon Chai, had annual sales of $20,000.

Revenues for Oregon Chai’s first full year of business in 1995 were about $200,000. In early 1995, nine months after its introduction, Oregon Chai had met with such success that the company branched out with an eight-ounce milk and chai blend in a juice-box type container. Certainly the success was in part due to the company’s product being in the right place at the right time. Chai had remained mostly a West Coast phenomenon since its introduction stateside in the 1960s. But during the 1990s, catching the wave of the burgeoning coffeehouse movement, the drink became more widespread. By the mid-1990s, chai had made it to the midwestern states. Seattle-based Star bucks started selling dry chai in teabags and serving it hot and cold in early 1995. Two years later, the Lipton Teahouse in Pasadena, California, was serving a chai product of its own.

“It’s catching on. The demand for the product is tremendous,” announced Rex Bird, veteran restaurant executive and the company’s new president, in the Oregonian in 1996. “As tea and other new-age beverages become more popular, this one has tremendous potential as an alternative to coffee espresso latte.” Advertisements for chai claimed that it was low in calories, with little or no caffeine or refined sugars, and no preservatives. Many chai manufacturers further boasted using only natural ingredients and recyclable containers, and hailed medicinal properties of the spices it contained, appealing to both the New Age and environmental crowds.

Putting Together a Business Plan for Success: 1996–97

With Oregon Chai growing by leaps and bounds, Howitt and her team, aware of their own lack of business acumen, sought out the advice of experts. They put together a board of directors that included Joel Lewis, an advertising executive, and Dwight Sinclair, a broker. “These guys,” according to J.B. Groh of Crown Point Group Ltd. in a 1997 Inc. article, “are more aggressive from a marketing standpoint than their competitors, many of whom seem content to remain backwoods mom-and-pops selling chai out of the back of a VW bus.” Both board members had prior experience in the food industry.

The company’s management took the advice of its board. Using contact-management software and schooled in distribution practices by one board member, Oregon Chai saw its distribution list swell from six to 130. Distributors and retailers also had suggestions that the start-up jumped on; when Sunshine Dairy Foods, a Portland distributor, advised that company representatives show up in the wee hours of the morning to pass out samples of chai to truckers, they did so. The chai was popular and, as a result, Oregon Chai’s distribution network became a source of free marketing and advertising. Nature’s Fresh Northwest, a chain of natural food stores in Portland, came up with the suggestion that the company put its chai in a retail package. With point-of-purchase materials designed by another board member, the company introduced aseptic packaging in 1995 that had the advantage of affording a one-year shelf life.

By 1996, the company’s second full year in business, it had turned its first profit. Oregon Chai had become the premier-selling natural foods product nationally in the black tea category, with 120 distributors (including Sysco, Associated Grocers, United Grocers, Sunshine Dairies, Northwest Dairies, Pike Place Creamery, Food Services of America, Mountain People NW, and Peterson & Co.) and 3,500 accounts ranging from Portland-area dairies to clients in Saudi Arabia. The company’s sales grew some 450 percent to just more than $1 million, while the entire domestic chai market amounted to only $7.5 million in sales.

As the business grew, the company obtained a Small Business Administration loan and arranged for a financing package of $500,000 from Crown Point Ventures, a Portland investment firm. By 1997, Crown Point had helped Oregon Chai raise $450,000. Pouring every penny back into the business, that year Oregon Chai pulled in more than $2.7 million in revenue. Oregon Chai products were sold in all 50 states through natural food channels, and the company was nearing national distribution in foodservice and mass retail.

Continuing Consumer Demand in the Late 1990s and Beyond

By 1998, the company’s sales had increased to $6.8 million, which amounted to a 1,277 percent increase since 1995, and the company had 200 distributors. Howitt credited the company’s swift success to several factors. In addition to the press coverage that spurred and accompanied growing interest in chai, the staff put in thousands of hours each year on the floor of food marketing trade shows. “We see that as our grass roots promotion,” Howitt explained in the Portland Business Journal in 1998.

Howitt also credited the time Oregon Chai had spent in building its distribution channels and the company’s switch to aseptic packaging. “Really our customer base has forced the distribution,” said Howitt in the 1998 Portland Business Journal article. “We’ll get a college in New York and they only use three of the top distributors; so they’ll force it down their distributor’s throat. Then the distributor is calling us to get it.” In 1998, Oregon Chai ranked number one in both the natural foods chai and tea categories with its original drink mix, and the company introduced two new flavors, Kashmir Green Tea and Herbal Bliss.

Company Perspectives

To become the premium brand of natural Tea Lattes that satisfy the daily lifestyle needs of active, professional people—conveniently packed, easily prepared, and crafted with quality, all natural ingredients, for consumption at home, at work or on the go, by a company that is environmentally and socially conscious.

Key Dates

1994:: Heather Howitt founds Oregon Chai in Portland, Oregon.
1999:: Oregon Chai controls 64 percent of the natural foods chai category.
2000:: Company appears on Inc. magazine’s annual list of the Top 500 emerging companies.
2001:: Company adds a new line of tea latte powdered mixes.

In 1999, the company continued to expand its product offerings with the launch of its naturally caffeinated Chai Charger and its first certified organic product, Organic Chai. It also introduced a new product line, ready-to-drink soy tea lattes. After five years in business, Oregon Chai enjoyed $8.5 million in annualized sales and a 64 percent share of the natural foods chai category. To accommodate such growth, the company relocated its headquarters to a trendy neighborhood in the northwest quarter of Portland.

Chai sales nationally amounted to about $30 million in 2000. Of this figure, Oregon Chai controlled about $11 million, a sum that landed it on Inc.’s Top 500 list. “Chai [had become] to the emerging U.S. tea market what cappuccino and latte were to the specialty coffee market when it arose a few years ago,” according to Brian Keating, founder and president of Sage Group International LLC, a tea market-research company in Seattle, in an Inc. article in 2001. Industry watchers continued to debate whether the chai phenomenon was a trend or here to stay. In the meantime, Oregon Chai continued to respond to consumer demand with the introduction of a smaller package and the launch of a new line of powdered instant chai tea latte mixes.