Whittard of Chelsea Plc

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Whittard of Chelsea Plc

Union Court, 22 Union Road
London
SW4 6JP
United Kingdom
Telephone: (+44) 20-7819-6400
Fax: (+44) 20-7627-8850
Web site: http://www.whittard.co.uk

Public Company
Incorporated: 1886
Employees: 488
Sales: £37.4 million ($59.84 million) (2003)
Stock Exchanges: London
Ticker Symbol: WOC
NAIC: 445299 All Other Specialty Food Stores

Whittard of Chelsea Plc appears finally to have found the right blend for its growing chain of tea and coffee shops. The London-based company, which originated as a tea trader in the 1880s, operates more than 100 specialty shops throughout the United Kingdom. The company also operates boutique shops in major department stores around the world, including in Japan and, in the United States, through Marshall Field's. The company's own stores, which average 100 square feet of selling space in order to preserve a feeling of intimacy and quality, stock more than 50 blended and single estate teas, as well as nearly 20 coffee varieties, and a range of hot chocolate and other drink types. The Whittard shops also sell teapots, cups and saucers, and other china and service related to tea and coffee, and most of the designs sold in the stores are exclusive to the company. In addition to its primary stores, the company operates some 20 outlet shops. Whittard also operates a small number of High Street-based "T-zone" tea bars in an attempt to recapture market share from the rising numbers of coffee shops. The company has long operated a thriving mail-order business for its teas and coffees; a rising proportion of its mailorder sales come from its Internet web site. Traded on the London Stock Exchange, the company is led by chairman and major shareholder William Hobhouse, and CEO Richard Rose.

Buying the Best in the 1880s

Whittard of Chelsea was originally founded in London in 1886 by Walter Whittard as a commodity and retail trading house for teas from the British colonies. The shop, on Mincing Lane near Fleet Street, soon established a reputation for its fine teas by adhering to Whittard's motto: "Buy the Best."

Whittard expanded his shop offerings at the dawn of the 20th century with the introduction of a selection of coffee blends as well. He also was joined by sons Richard (Dick) and Hugh Whittard, who later took over operation of the family business after their father's death in 1935. Despite the harsh economic climate of the time, Whittard managed to grow, notably by introducing a mail-order business. Orders quickly came in from all over the United Kingdom, and even from abroad, as visitors to the United Kingdom began requesting shipments of the company's teas. The company also opened its own warehouse nearby, on Mansell Street.

The years of World War II placed a new burden on the company. All supplies of tea, the British national drink, were requisitioned for the duration, and in 1940, the rationing program instituted a limit of two ounces per person per week. Yet bombing raids that same year destroyed both the shop and the warehouse. The company lost not only its entire stock, but also its brewing and blending equipment.

The Whittards quickly relocated, to Fulham Road in Chelsea, and by 1941, the company was back in business.

Wartime restrictions, however, made it impossible for the brothers to obtain new equipment. Eventually the Whittards were able to locate a used coffee roaster. For its tea blending, the Whittards were forced to rely on old-fashioned methods.

In the decades following the war, the company, now known as Whittard of Chelsea, shifted the focus of its attention on its retail side. For this effort, Whittard began packaging its teas in tins designed for the company and introduced a variety of other tea- and coffee-related items, including china services and foods. Whittard also began promoting its own tea blends, including scented and fruit-based teas.

The transition to retail shops took on greater force in the early 1970s, when Richard Whittard sold his stake in the family store and business to David Gyle-Thompson in 1973. Thompson maintained the original store, then added two more Londonarea stores over the next two decades. At the end of the 1980s, however, Thompson brought in a new managing director, William Hobhouse, with the intention of developing Whittard of Chelsea into a major U.K. specialty retailer.

Just 30 years old at the time, Hobhouse already had made his fortune in the United Kingdom's retail market. After stints working for the Argyll Group and Associated British Foods, Hobhouse joined a small retail operation, Tie Rack, in the early 1980s. From just 15 stores, Hobhouse, who became managing director and a major shareholder, rapidly expanded the company using a franchise model. By the mid-1980s, there were more than 150 Tie Rack shops operating in eight countries. In 1987, after Tie Rack was listed on the London Stock Exchange, Hobhouse sold out his stake, then worth in the millions of pounds, and began looking for new challenges.

Fast Track for Growth in the Early 1990s

Whittard of Chelsea, now led by Hobhouse as managing director and Thompson as chairman, turned to venture capitalists for the funding—about £750,000—required to buy out the remainder of the company from the Whittard family and to pursue their goal of expanding it into an international retailer. In the process, Hobhouse acquired about one-third of the business with his own investment of some £100,000.

Whittard started small at first, opening two test shops in Bath and Oxford, to see if the Whittard store concept would support a national roll-out. The Whittard formula involved adapting the company's "Buy the Best" tradition to an extended range of high-value teas and coffee. As part of that effort, the company promoted so-called "single estate" teas, likened to the Bordeaux wine estates. Whittard also began selling "vintage" teas, which, like their wine counterparts, classified teas according to year. In keeping with its upscale market aim, the new Whittard stores were kept small, averaging 100 square feet in sales space.

The success of the new stores' first season, particularly during the winter holidays, encouraged the company to move ahead with a full roll-out of the concept. By 1990, the company had raised another £1 million from investors and began opening new stores at a rapid pace. One year later, the company already boasted more than 16 stores.

Over the next half-decade, Whittard added more than 80 stores, topping 100 in 1996. Although most of these stores were in England, with the majority in the London and southeast regions, Whittard also had gone international, adding stores in France, Poland, Iceland, and, especially, Japan, where the teadrinking culture had rapidly abandoned traditional green teas to embrace the "superior" British blends. While the company maintained ownership of its stores in its U.K. expansion effort, it turned to the franchise and licensing format, as well as the placement of "corner" stores in department stores, for much of its overseas growth.

Whittard's sales and profits rose accordingly. After losing a bit less than £300 million in 1992, the company turned a profit of more than £230 million the following year, with sales topping £7 million. By the middle of the decade, Whittard claimed a 12 percent share of the United Kingdom's specialty market—a small segment representing less than 10 percent of a larger, billion-pound market dominated by generic store-bought teabags—against chief rival and dominant tea seller R. Twining & Co. The company also maintained a strong mail-order business, shipping more than 10,000 orders per day.

In 1996, Whittard went public, listing on the Alternative Investment Market (AIM), designed to provide liquidity to smaller companies. The successful launch enabled the company to raise more than £8 million—some £6 million of which went to buy out its initial financial backers. Hobhouse's own stake in the company had by then grown to be worth more than £6.5 million.

Buoyed by the success of the offering, Whittard then announced plans to add 10 to 15 new shops per year over the next five years, doubling its U.K. operation. The company also began expanding its original retail format to include stores featuring onsite coffee roasting, and others featuring their own espresso bars. Despite the addition of this latter format, Whittard was later to be criticized for its lack of response as a new breed of coffee bar, represented by the United States' Starbucks and Whitbread-backed Costa Coffee, had begun to capture a growing share of the British beverage budget.

Diversification at the End of the 20th Century

In 1997, Whittard's fast growth enabled it to switch its listing to the London Stock Exchange's main board. The company then announced plans to accelerate its growth, forecasting the addition of up to 20 new stores per year. A number of observers remained skeptical of the company's growth plans, however, believing that even the country's larger cities would be unable to support more than a single Whittard shop.

Nonetheless, Whittard pushed ahead with its expansion, building up its number of U.K. stores to nearly 120 by 1998. The company also had pushed into a number of new international markets, including Dubai, Abu Dhabi, Kuwait, Singapore, South Africa, and Chile. In the meantime, the company had expanded its Japanese presence with the addition of 34 in-store boutiques in many of the country's major department stores.

Company Perspectives:

Whittard of Chelsea has been specialising in the finest teas, coffees and gifts since 1886. We pride ourselves on our reputation for quality and innovation.

Walter Whittard, the firm's founder, had a philosophy to "buy the best." The success of the Whittard product range lies in an uncompromising attitude towards quality of product and packaging.

At the same time, Whittard began pursuing other retail opportunities. In 1997, the company launched a new retail concept, Kitchen Stores, which specialized in selling upscale kitchen equipment and products. By 1998, the company had opened six of the new city-center stores. Closer to its origins, Whittard also expanded with the launch of its own Factory Outlets stores, which opened in the growing number of shopping centers specialized in factory outlet stores. Helping to orchestrate this growth was new Managing Director Richard Knight.

The company also responded to the growing presence of the new-generation coffee bars by launching its own related concept, the so-called "T-zone" tea bar. Yet by then, Whittard's fascination had been captured by a new and highly promising market: the Internet. In 1998, a member of the company's management team, Petra Schenke, had decided to move back to her native Germany in order to form her own Internet business, Dita.de. Schenke turned to Whittard for her first client, offering to set up an e-commerce site for the company. The site, Whittard .com, appeared to be an immediate success, with revenues growing by more than 300 percent in its first two years. Interestingly, more than 40 percent of the company's Internet-based sales came from the United States.

In the meantime, Whittard's retail growth appeared to have run out of steam. In 2000, the company began dismantling part of its retail network, shedding a number of stores, including its failed Kitchen concept. Instead, encouraged by the rapid growth of the Internet site, Whittard decided to base part of its future growth on reinventing itself as an online retailer. In 2000, the company took control of its site from Dita.de, and then made headlines when it paid £1.2 million to acquire an online "department store" dedicated to U.K.-made luxury goods, Bestofbritish.com.

The company's transition to the Internet initially appeared promising, especially after Bestofbritish announced that it had boosted the number of online brands to more than 70, including such prominent British names as Aston Martin, Jaguar, Duchy Originals, and Historic Royal Palaces. Yet the site remained a drain on the company's finances, costing more than £1.5 million per year—while revenues barely topped £300,000. Total company losses amounted to £3 million for the company's 2001 year. Nonetheless, the company's core tea and coffee sales remained healthy.

Refocused in the New Century

By September 2001, Whittard was forced to pull the plug on its Internet experiment. The company appeared uncertain as to how to proceed for the future, and announced that it had begun entertaining takeover offers, including a management buyout offer led by Richard Knight. Yet, unable to generate a suitable price, the company decided to remain independent. Following that decision, Knight left the company, replaced by Richard Rose, formerly CEO of Dutch electrical group Hagemeyer, as CEO. Hobhouse then retired to the position of company chairman.

Rose promptly began repositioning the company to focus once again on its core tea and coffee products. Among Rose's objectives was to expand the Whittard brand beyond its own retail store network and introduce its packaged products into the United Kingdom's supermarkets. By 2002, the company already had signed up two of the country's largest chains, Tesco and Sainsbury.

At the same time, the company's Internet experiment had alerted the company to its popularity in the United States, and Whittard now formed a partnership with Minneapolis-based department store group Marshall Field's to introduce Whittard corner stores. The first of these opened in Minneapolis in 2003 and proved to be a strong success, encouraging the company to expand its presence in the United States, particularly with the introduction of its own tea and coffee shops. By then, the company was buoyed by rising sales, which neared £37.5 million for the year, and a return to profit growth. Under Rose, Whittard appeared to have found the right brew to lead it into the new century.

Key Dates:

1886:: Walter Whittard sets up a tea commodity and retail shop in London, before expanding to include coffee sales at the turn of the century.
1935:: After Whittard's death, sons Hugh and Richard take over the business and add a mail-order business.
1940:: The company warehouse and shop are destroyed by bombs; the company moves to Fulham Road in Chelsea.
1973:: Richard Whittard turns over the operation of business to David Gyle-Thompson, who adds two more London-area stores.
1988:: Thompson hires William Hobhouse, who had successfully expanded the Tie Rack retail chain, as managing director and the pair buy out Whittard from the Whittard family.
1990:: After raising venture capital to open two test stores, in Bath and Oxford, Whittard begins nationwide roll-out of tea and coffee shops, adding 80 stores by mid-decade.
1996:: Whittard of Chelsea goes public on London's AIM market.
1997:: Whittard switches its listing to the London main board; the company launches Kitchen and Factory Outlet retail formats.
1998:: A former employee establishes an online e-commerce site for Whittard; the company unveils the "Tzone" tea bar format.
2000:: Whittard takes over the e-commerce site and decides to transform itself into an Internet company, acquiring bestofbritish.com.
2001:: Whittard pulls the plug on the Internet experiment; new CEO Richard Rose refocuses the company on its core tea and coffee retail offerings, and begins rolling out the packaged Whittard brand to U.K. supermarkets.
2003:: The company opens its first U.S.-based in-store corner shop in the Marshall Field's department store.

Principal Competitors

Whitbread Plc; Starbucks Coffee Co. U.K. Ltd.; Holland and Barrett Retail Ltd.; Lyndale Foods Ltd.; Crookes Healthcare Ltd.; Bettys and Taylors Group Ltd.; Ringtons Holdings Ltd.; Longslow Dairy Ltd.