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STRATEGY

Case Study: Business Was Booming, But the Richardsons Were Seriously Burned Out

Was shutting down their thriving tearoom really the answer?
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Business at Elmwood Inn Fine Teas had never been better. The tearoom, set in a stunning Civil War-era Greek Revival mansion in Perryville, Kentucky, was booked nearly solid. Some 15,000 people a year streamed through the doors, where they were served a formal, four-course British tea by owners Bruce and Shelley Richardson. After enjoying their sandwiches and scones, many guests stopped in Elmwood's two gift shops and art gallery. Revenue was climbing nearly 20 percent a year and the Richardsons were busier than ever. And yet by 2003, they were seriously considering shutting the business down.

Sure, the tearoom was thriving. But their wholesale division, which imported, blended, and sold Elmwood Inn-branded teas to retailers nationwide, was growing even faster. And the Richardsons were just as excited about a fledgling book-publishing venture. Serving tea, on the other hand, was beginning to feel like a chore. Every guest expected a hearty dose of genuine Southern hospitality from the owners. But with a staff of about 20, there simply were not enough hours in the day to manage the business's hydra-headed growth--and to do it all with a smile. "We were starting to get burned out," says Shelley.

When the Elmwood Inn opened its doors in 1990, this was hardly a problem the Richardsons expected to face. Perryville has a population of just 750 and is precisely in the middle of nowhere; the town's main claim to fame is its proximity to the site of one of the largest battles of the Civil War. The chances of their inn--which, despite its name, has never provided overnight accommodations--drawing crowds seemed just as remote as their location. But the couple's timing was perfect: Consumers were going crazy for gourmet beverages and the Web made it easy to reach them and entice them to make the trek to Perryville. In 2001, Elmwood Inn became the first North American tearoom included in the British Tea Council's Best Tea Places, a guide to a select 103 tearooms throughout the world. Throngs of visitors followed, and Elmwood Inn Fine Teas went from a cozy little curiosity in a backwater town to an internationally recognized destination, with tea aficionados paying $21.95 for a four-course English-style tea.

The Richardsons moved to capitalize on that success. A publishing imprint released a cookbook and a book about the inn, while a wholesaling business sold Elmwood Inn teas to restaurants, hotels, cafés, gourmet stores, and gift shops. By 2002, for the first time, revenue from those two divisions surpassed retail revenue. This was an exciting development. The trend toward gourmet beverages showed no signs of slowing down, and many fancy hotels were even hiring tea sommeliers. Indeed, sales of specialty teas are projected to hit $2 billion by 2010--a far larger market than the one the Richardsons were courting in Perryville. Besides, they liked the idea of a new challenge. The question was whether they could--or even wanted to--manage both businesses simultaneously.

Since the tearoom was swallowing their time and stamina, it became the obvious candidate for a radical change. They first considered bringing in a manager to run the facility. But Bruce knew his own personality would make it hard to truly hand things off. "I'd always want to stop in and see how it was going," he says. And Shelley wondered how the retail operation would do without the couple's constant attention. The Richardsons also considered selling the tearoom outright, but they feared that new ownership might harm the brand, which in turn would hamper the wholesale and publishing operations that they intended to continue.

That's when they started to contemplate the unthinkable: simply shutting down the tearoom. It seemed crazy. The retail operation accounted for 40 percent of the business. Plus, there would be considerable costs involved in shifting to wholesaling. The mansion would have to be remodeled and they'd have to invest in equipment to ramp up their book publishing production schedule. They'd probably have to get a bank loan to make up the shortfall. And then there was the question of brand equity: "Would our products be able to sustain their sales without the background of the Elmwood Inn Tea Room?" Bruce wondered. On the one hand, it was hard to imagine separating the two. On the other, many of the company's new customers had never visited the inn.

It was a difficult conversation that continued over the course of several months. Shelley Richardson became convinced that closing the tearoom was the right move. "It's time for a change," she told her husband.

The Decision

In March 2004, the Richardsons made up their minds: The tea party was over. The couple's initial plan was to close the tearoom before the holiday season. But the inn had a number of regulars who celebrated their holidays at the Elmwood. "We didn't want to be the scrooge who took away Christmas," says Bruce. They pushed the close date to the following summer: The last tea would be served on July 31, 2005. The announcement went out in the inn's newsletter and in a press release.

The response was swift and passionate. Customers called to complain about the closing and to secure final reservations. Indeed, the phone rang so much that the Richardsons had to install an extra phone line. Local townspeople weren't happy either. The Elmwood Inn brought 15,000 people a year to the town. What's more, Richardson, who had lived in Perryville for some 15 years, was serving as the town's mayor. The decision to close the tearoom had both an economic and an emotional impact on the town. His term is up in 2006, and he does not plan to serve again.

The days leading up to July 31 were especially difficult for the Richardsons, who realized just how attached their customers had grown to the teahouse. "One day during the last week, we had a harpist playing in the parlor, and there were fresh flowers in the hallway, and I was meeting people at the door and many of them were all weepy-eyed and hugging me," Bruce recalls. "I felt like it was a wake, and I was the funeral home director." Finally, after the last customer said goodbye, the Richardsons locked the door for the last time. Making the move even more difficult was the fact that the inn still had a waiting list of more than 500 names.

Then the real work began. The Richardsons were no longer in the hospitality business and the staff had to be retrained. With no more cash coming from retail operations, the couple secured a bank loan to expand their facilities to handle the publishing and wholesaling operations. Meanwhile, the couple began traveling to meet with retailers, attend trade shows, and teach seminars to tea aficionados.

Unfortunately, the old mansion didn't seem to be cut out for the new business. The packaging and shipping operations were already based in a nearby building and communication proved difficult. The only solution, they decided, was to move out of the mansion entirely. In November 2005, they put it on the market. The building, however, will continue to serve as the company's logo. The Richardsons retained a pencil sketch of the mansion's façade, and they've put a stipulation in the sales contract prohibiting the buyer from opening a tearoom or a tea business in the mansion. The asking price is $540,000, capital that Bruce Richardson admits would be mighty helpful right about now.

Once the mansion sells, there will be no going back. But both Bruce and Shelley have no regrets and say they are sure that the company is on to bigger and better things. Says Shelley: "When you let go, another door opens up that would not have otherwise." The couple's hard work is beginning to pay off: They now sell tea to nearly 1,600 retailers, restaurants, and tearooms in the United States and Canada, and wholesale revenue is projected to grow 35 percent this year. The publishing division will publish three books this year, including a series called Tea in the City, a guide to the best tea places in New York and London. Meanwhile, the Richardsons' newly liberated schedule also allows them to make scouting trips to places like India to look for new products--which has given them a new passion for business. "The tearoom was a great adventure for us and a great opportunity," says Bruce. "I miss the people who came to see us, but there are just too many other exciting things going on in our lives to miss that daily routine of running the tearoom."

The Experts Weigh In

It was a smart move
Elmwood Inn Fine Teas has a strong emotional connection with its customers, which means it has brand equity. That's worth more than a physical asset. Since many people who are buying the teas have never been to the inn, the brand can now expand. The only problem would be if they used the tearoom to test products on customers. As long as it doesn't become too mass market, they can preserve their brand and leverage it.

Sarah Kracke
Principal
Kracke Consulting
New Orleans and Baton Rouge

Seek the middle ground
Becoming a destination can be a big factor in boosting sales; here in Vermont, Vermont Teddy Bear and Green Mountain Roasters have experienced that effect. I would have advised the Richardsons to hire another party to run the tearoom. Even now, they should look for a way to continue the attraction part of the business. Could they keep a gift shop open, set up a visitor center adjacent to the property, or open a smaller café or restaurant that would feature teahouse memorabilia?

Bruce Hyde
Commissioner
Vermont Department of Tourism and Marketing

I wouldn't have done it
They absolutely should reopen the tearoom. Maybe the Richardsons thought they were selling tea, but they were selling this whole relationship. They were developing a brand with a unique story; the tearoom was that story. Elmwood Inn had an icon in the tearoom, and they stopped giving people who were in a relationship with the icon the opportunity to participate. They need to find a way to still be in a unique relationship with the people who had enjoyed the tearoom.

Pierson Clair
CEO
Brown & Haley, maker of Almond Roca candy
Tacoma, Washington

What do you think? Should the Richardsons have closed the tearoom? Sound off at casestudy@inc.com.

Last updated: Apr 1, 2006




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