Sophomore year of college I had an assignment to write a paper about any person in the food industry. My obsession with tea originally gave me the idea to write about David of DavidsTea. After a bit of research, I learned that David Segal no longer held a large part in the company and there was not much to write about him. There was however, enough to write about his cousin and co-founder Herschel Segal, who has caused some commotion in the company recently. The “tea” that I learned while writing the paper was very interesting to me, so I thought I would “spill it,” for those of you who enjoy DavidsTea as well.

Beginnings

DavidsTea was founded in 2008 by cousins David and Herschel Segal. However, David stepped down from brand ambassador of the company in March 2016 to “dedicate more of his time to exploring other entrepreneurial interests,” though he is still a shareholder in the company, according to The Financial Post.

Prior to DavidsTea, Herschel founded the clothing store Le Chateau Inc. in 1959. He served as Chief Executive Officer until September 2006 and Executive Chairman until February 2007, and is still a directior. Segal has also been President and CEO of investment company Rainy Day Investments, Ltd. since January 1969. As of May 2018, RDI controlled about 46% of DavidsTea shares.

Herschel Segal was also a member of the DavidsTea Board of Directors until he resigned on March 5, 2018 because of differing opinions on the future of the company than the current Board members. He wanted to turn the company around by improving operations, while the Board wanted to continue a strategic review process. Segal stated about the board, “They’ve lost touch and lost rack of what I think is needed. The basically want to sell and realize what they can today. And I say it’s ridiculous because we have a good business.” His plan was to build on DavidsTea’s strengths of being well-known and having a loyal customer base across Canada by reviving a “tea culture” that he claimed had been neglected. He also planned to find a new partner for the US stores, and to cut product and organizational costs.

Changes

Segal eventually believed that the best option was for his company RDI to propose a new slate of directors who agreed with his ideas on the future of the company, which they did on April 25, 2018. The proposed slate would include Segal as Executive Chairman of the Board of Directors of DavidsTea. Among the other board members is form President of Tim Horton’s Canada Roland Walton, retired professor Dr. Ludwig Max Fisher, and President of Le Chateau Inc. Emilia Di Raddo.

Most of this board seems very experienced and competent, Tim Horton’s is a very famous coffee company in Canada, so Walton likely has a lot of knowledge about the beverage industry that could be beneficial to DavidsTea. Additionally, CNBC notes that Dr. Fischer has “an interest in holistic nutrition and herbal medicine.” This interest could be beneficial to the company as many tea drinkers are also interested in these areas.

However. Di Raddo may be a questionable pick for the board. She is the President of the clothing company Segal founded and is still a director of, which could be a point of contention. Besides that, the company had to turn to Segal for a $15 million loan in 2015, on top of a previous $10 million loan. The comapny repeatedly turns to him, even though companies typically only turn to owners for funding as a last resort. The need for this likely desperate move calls Di Raddo’s leadership and competence into question.

On June 14, 2018, it was announced that Segal and his slate of directors won the election and would take control of the company. Segal pledged that DavidsTea will become profitable within a year. He also said they would focus on their Canadian roots, since the brand has failed to find a market in the US. Some US stores may be closed eventually, but for now Segal wants to clarify the brand’s mission and make it more efficient to restore profitability.

Aftermath

However, not everyone was happy about the change in leadership. One shareholder, TDM Asset Management, attacked Segal’s “erratic behaviour,” claimed he was unable to lead employees, and cited his track record with Le Chateau. While I did not find any other mention of this behavior in my research, and the only information I found about Le Chateau was the aforementioned loans, TDM Asset Management is not the only dissenter.

For example, Chief executive officer Joel Silver was later elected as an eight board member but quit because he did not want to work with Segal. Segal took over as executive chairman and interim CEO as the company looks for someone to fill the position permanently. Other executives may quit as well, and a lack of support for Segal will likely make the new board’s job more difficult than expected.

On July 31, 2018, it was reported that Herschel Segal and Rainy Day Investments were being sued by shareholders of DavidsTea who would want Segal removed as executive chairman and a new board of directors elected. Theses shareholders are three Highland limited partnerships that own a combined 12.8% of the company. DavidsTea says the lawsuit is baseless and the allegations are old. The company, although not named as a defendant, also says that it will “defend against efforts that affect the election of directors or appointments of management.” It also seems that this lawsuit replaces one that was filed before the June election and later withdrawn. Unfortunately, we do not know what the lawsuit is based on, or why the original lawsuit was withdrawn. However, a lawsuit definitely does not look good for business, regardless of the end results.

My Thoughts

First, while I admire that Segal wants to keep ownership of his company and has a sensible plan for improving it, I think he may want to consider selling it eventually. Many companies greatly benefit from selling, and their owners/founders often remain a large part of the company in some way.

From a personal perspective, I hope that DavidsTea does not close their US stores. I am a big fan of their tea and enjoy the experience of buying it in the sotre. I also know that increasingly more people are becoming interested in tea and would be interesting in DavidsTea if they knew more about the company. However, I also can’t deny the facts. DavidsTea lost $30 million on $224 million of sales in 2017. Though there are other reasons cited for the losses, it is reasonable to believe that the US sotres are not very profitable. HuffPost Canada points out that Starbucks closed all their Teavana stores in January 2018, five years after buying the company for $620 million. Most people in the US prefer coffee over tea, and that doesn’t seem to be changing any time soon. Therefore, I understand Segal’s desire to halt and possibly pull back from the US market.

In conclusion, Herschel Segal has managed to take control of DavidsTea, the company he founded ten years ago with his cousin David, despite a Board of Directors who did not agree with his vision for the future of the company. Many people in the company do not like him, but he remains optimistic and pushed forward. Although not completely clear why he refuses to sell the company, Segal has a plan that just might help make DavidsTea profitable again on its own. I, personally, will continue to buy and drink DavidsTea products for as long as I can. I just hope that Segal and the company do not decide to pull out of the US, and even consider eventually expanding the market here. I don’t know what I would do without the company that started my tea obsession. And while I may not have a cup of tea to console me if that happens, I least there will always be tea to sip and spill.

2020 EDIT: Likely encouraged by the COVID-19 pandemic, DavidsTea has closed all stores in the United States, as well as many locations in Canada.