Company Introduction
The company under analysis is DavidsTea Inc., which is a Canadian tea brand. Operating in a highly competitive industry of tea retail, the company utilizes both e-commerce and brick-and-mortar stores to sell its products, which include proprietary tea blends and accessories (“Corporate profile,” 2023). Overall, the global tea production and retail industry is represented by countries with vast agricultural sectors and significant tea exports; however, in Canada, the tea industry is primarily represented by retailers (Saikia & Hussain, 2022). Since tea is a popular beverage worldwide, its consumption has remained stable over the years, as reflected in the steady growth of the tea market (“Volume of the tea market in Canada,” 2023). The industry is characterized by a few large companies competing for market dominance.
David’s Tea Inc. is an influential player in the tea industry. It successfully performs via “e-commerce platform at www.davidstea.com, the Amazon Marketplace, its wholesale customers which include over 2,500 grocery stores and pharmacies, and 18 company-owned stores across Canada” (“Corporate profile,” 2023, para. 1). After COVID-19 lockdown, the company faced challenges with opening physical stores; moreover, being initially a public company, DavidsTea Inc. voluntarily delisted from Nasdaq due to its financial difficulties and a shift toward online retailing (Joy, 2023; Slaughter, 2020). To remain competitive, the company should analyze its competitors in the market and develop a strategy based on the possible ways to facilitate the brand’s strengths.
Competitive Advantage Analysis
Porter’s Five Forces
To conduct a competitive analysis for DavidsTea, one might choose Porter’s five forces as a tool. This tool enables the identification of a company’s attractiveness level in a specific industry environment by examining the competition in the sector (Isabelle et al., 2020). In particular, the five forces that impact competitiveness are “the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products or services, and the rivalry among existing competitors” (Isabelle et al., 2020, p. 29).
For DavidsTea, the threat of new entrants is medium because of the availability of supply and business models for launching a new business in this sector (Saikia & Hussain, 2022). At the same time, the long-term threat of such entrants is low for DavidsTea because the company has a strong market presence. The bargaining power of buyers is moderate due to the availability of tea retailers in the country. At the same time, the competitiveness of DavidsTea relies on the company’s offering of specialty products and unique blends (“Corporate profile,” 2023). Thus, the company’s competitive advantage is based on its established distribution networks and product differentiation.
As for the bargaining power of suppliers, the level of its threat is low. The tea industry is well-developed in many countries worldwide, with a wide range of suppliers to choose from (Saikia & Hussain, 2022). The threat of substitute products is high due to the omnipresence of coffee and other beverages that could potentially replace tea as one of the most widely consumed drinks (“Volume of the tea market in Canada,” 2023).
Finally, the threat of rivalry among existing competitors in the industry is high due to the active development and growth of other companies performing in the tea retail business (“About us,’ 2023; “Our story,” 2023; “Teavana,” 2023). Thus, the company’s competitive advantage is manifested via its firmly established distribution pathways, the availability of unique products, namely company-branded tea blends, and limited risks of being substituted by new entrants.
Competitor Analysis
When examining the performance and potential threats of competing companies to DavidsTea, one might focus on three leading competitors: Tazo, Teavana, and Stash. Tazo’s strengths are a long history of presence in the market, high quality of products, and customer-focused flavors (“Our story,” 2023). However, Tazo’s weakness is its focus on individual retail and the limited visual appeal of the packaging, which may jeopardize its competitiveness.
Similarly, Teavana’s strength is its global market presence, affordability, and high-quality products. However, its weakness is its reliance on Starbucks as a head company, which does not allow for Teavana’s own store opening (“Teavana,” 2023). Stash has a long history of operations, a wide range of loyal consumers, and high-quality products, which comprise its strengths (About us,’ 2023). Regarding the weakness, the prices are higher than average, which may reduce the competitive advantage.
Tazo’s strategy is based on the online presence of the brand and the facilitation of its sustainable business model (“Our story,” 2023). Teavana’s strategy is aligned with the company’s affiliation with Starbucks and relies on in-store sales (“Teavana,” 2023). The strategy used by Stash is based on delivering high-quality products and customer experiences, as well as prioritizing sustainability (“About us,” 2023).
In terms of market share, Tazo’s and Stash’s market shares are high, while Teavana’s is medium in the context of the tea industry (About us,’ 2023; “Our story,” 2023; “Teavana,” 2023). Tazo’s core competencies are high-quality products, well-developed customer support, sustainable practice, and a variety of specially blended tea flavors (“Our story,” 2023). It has a competitive advantage over DavidsTea due to its well-designed sustainability strategy.
In contrast, Stash’s competencies lie in product diversity, offering numerous features ranging from wholesale to bottled tea, and high-quality tea (“About us,” 2023). The company’s competitive advantage over DavidsTea is its wide range of products. Finally, Teavana has medium prices, which is a source of competitive advantage.
The value chain analysis of the competitors allows for identifying a core similarity between them due to the conventional patterns of business operations. Indeed, all three competitors addressed in this analysis are involved in sourcing raw materials with tea-growing organizations, creating supply chains, production, and packaging (“About us,” 2023; “Our story,” 2023; “Teavana,” 2023). These particularities are similar to those of DavidsTea, which is also involved in supply search, packaging, and production (“Corporate profile,” 2023).
As for retail channels, all competitors, except for Tazo, are engaged in e-commerce coupled with retail in wholesale and company-branded stores (About us,’ 2023; “Corporate profile,” 2023; “Teavana,” 2023). As for Tazo, being a subsidiary of Starbucks, the company does not retail in its own stores.
Comparison with Competitors
Figure 1 demonstrates a feature comparison matrix in which the particularities of each competitor are presented and compared. Figure 2 contains a positioning map for DavidsTea and its three selected competitors, which visually represents the distribution of competitors on a competitive continuum related to price and product quality.
Table 1. Feature comparison matrix
The company may be exposed to rivalry with indirect competitors, including coffee retailers like Starbucks, as well as cold non-alcoholic beverage manufacturers and retailers such as Coca-Cola. Given the analyzed data, DavidsTea is in a relatively unstable position compared to its competitors. Its high-quality products and focus on sustainable development allow it to compete with other brands, but only in North America, which limits the opportunities for global competitiveness (Demarest, 2022).
DavidsTea Inc. has a significant advantage over several competitors due to its omnichannel distribution, which is not followed by all brands (“Company profile,” 2023). The company’s prices are higher than those in some competitors, which weakens its competitive advantage; DavidsTea works on its cost strategy to find a balance between affordability for consumer attraction and profitability of the business (“DavidsTea aligns cost structure,” 2023). At the same time, it has a significant contribution to its solid position in the market based on the investment into the diversification of features, such as the tea bar concept launch (Toneguzzi, 2023). However, the company loses its competitive advantage to some competitors due to its relatively limited range of products and features.
Proposed Strategic Change Options
As implied by the results of the conducted analysis, DavidsTea has to fix several business issues. The company should increase its global presence and market share, diversify its products and features, and insufficient in-store experiences. Consequently, there are three options that might be used to fix these issues.
Firstly, international expansion is a strategy characterized by such advantages as improved global presence and opportunities for better market shares in less competitive countries (Saikia & Hussain, 2022). However, this strategy might be challenging due to its time- and cost-consuming implications. Secondly, the diversification of products is a strategy that might be beneficial in terms of developing consumer loyalty and a wider range of target audiences due to a diversity of features and flavors. However, this strategy might be challenging due to other competitors’ well-developed diversity of products (“About us,” 2023; “Our story,” 2023).
Thirdly, opening a special tea bar is another strategy, the main benefit of which is the provision of exceptional in-store experiences for consumers, which would differentiate the company from others (Toneguzzi, 2023). However, the disadvantage of such an approach is the risks associated with the lack of experience.
Given the financial challenges and the company’s relatively unstable position in the competitive environment, it should utilize a strategy based on the contingency theory. This theory holds that strategic management efforts should be aligned with the current needs of the business in the situation it is in (McAdam et al., 2019). Indeed, researchers claim that the use of a contingency theory instead of best practice approaches allows for acting with an emphasis on quality management (McAdam et al., 2019). In the case of DavidsTea, such an approach might be helpful in mitigating cost-related challenges, bridging the gap in competitive advantage, and solidifying its place in the market.
At the same time, another theory might inform the specific direction of competitive strategy development. Indeed, resource-based theory allows a company to focus on its internal resources and strengths to build a compelling strategy (Barney et al., 2021). Thus, given the implications of these theories, the company should facilitate its strengths in competencies of unique blend creation, omnichannel presence, and sustainability strategies (“Corporate profile,” 2023; Demarest, 2022). Thus, the company should focus on a product diversification strategy, which has been one of its strengths.
Competitive Strategy
The selected option allows for developing a competitive strategy focused on product and feature diversification. Strategic management theoretical implications allow for justifying such a strategy by the long-term market presence of the company due to the ability to reach a higher number of consumers via product variety. While consumer purchasing behavior is predetermined by “product quality, consumer service, in-store experience, store prestige, and store innovativeness, […] perceived healthiness has a positive influence on purchase intention toward organic tea” (Bu et al., 2020, p. 1). For that matter, the diversification of products should be based on the healthiness of drinks and their contribution to sustainable development.
According to the diversification theory, such an approach allows for improving competitive advantage and increasing the level of organizational performance, which will ultimately lead to a more solid position for DavidsTea in the industry (Ojiru, 2023). The company might increase the number of flavors and tea blends, propose customized blends to consumers both online and in physical stores, and introduce new options, such as bottled cold tea or other pre-prepared tea-based beverages. Such a strategy should be based on research and innovation that would maximize DavidsTea’s ability to introduce new products that would be lacking from competitors.
Business Risk and Mitigation Strategies
When implementing the proposed strategy, DavidsTeam might face business risks that should be tackled with caution. The company might face financial risks associated with additional costs of new product launching (Joy, 2023). It should be addressed by engaging new investors whose interest might be facilitated by the anticipated growth of the brand.
Furthermore, uncertainty in the market might be another risk, which might jeopardize the investment into diversification. It might be mitigated by proactive efforts in environmental analysis and market outlook. The mitigation of risks and uncertainties might be addressed via the use of the balanced scorecard tool. It encompasses four areas of strategy implementation, including financials, customers, internal processes, and company growth, which are aligned with the company’s mission (Tawse & Tabesh, 2023). The identification of progress and challenges in each of these areas over the time of the strategy implementation will help DavidsTea address obstacles in a timely manner.
Change Management Considerations and Approaches
The company will have to implement several changes to its current operation in order to initiate the proposed strategy. In particular, it should find new shareholders and investors, invest in its product development and design, and adopt and hire new talent. The obstacles that a company might face when implementing the strategy include employee resistance to change, the lack of resources, and the ineffective alignment of the vision with the company’s performance.
When managing changes associated with the implementation of the competitive strategy, DavidsTea might use Kotter’s 8-step model, which allows for monitoring change and adjusting practices to minimize risks of strategy disruption. In particular, this model relies on the company’s agility and allows for facilitating opportunities for overcoming challenges due to well-structured management procedures (Kotter & von Ameln, 2019). In particular, the stages of this model include creating urgency, forming a coalition, creating a vision and communicating it, removing challenges, acknowledging short-term positive outcomes, maximizing wins, and incorporating the change into company culture (Kotter & von Ameln, 2019). This model will allow for a timely amendment of resource-based issues, effective addressing of employee resistance, and vision alignment.
References
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