HTeaO Aims to Prove Iced Tea Popularity Isn’t a Fad

“But I don’t think this is a fad. It’s a long-term trend, just as coffee has proven to be.”

—Justin Howe, CEO, HTeaO

It started simply as an idea to bolster restaurant sales during the Great Recession.

That’s the humble origin story of Texas-based HTeaO, a specialty beverage concept that has surged in units and sales in recent years as its products delight the tea-drinking tastebuds of customers in an expanding number of regional markets.

HTeaO’s performance in 2023 was enough to land it on the Top 400 this year, coming in at No. 359 with $80 million in sales.

Back in 2009, the brand’s co-founders, Gary and Kim Hutchens, began selling fresh-brewed iced tea at Buns Over Texas, their burger restaurant in Amarillo, Texas, to help drive sales. The six flavors they introduced quickly impressed their clientele, with customers buying the tea by the gallon. Sales increased by 15 percent that first year.

The Hutchens, in working with son Justin Howe, leveraged that popularity into a new brand that today has 117 units. Howe, who has a background in construction and real estate, said he partnered with his parents in 2012 to develop the prototype, which opened in 2014 as Texas Tea.

The first location under the HTeaO name would open four years later, in Midland, Texas, as the brand prepared to build a franchise system.

“As a brand that’s potentially first to market and ahead on a trend, to try to grow it corporately as a national concept would have been very difficult,” said Howe, now CEO. “I was also familiar with franchising as a concept and I loved the model. It gives you the ability to move fast and nimble, and there’s no way we could be here with this store count now if we had just expanded with company-owned units.”

“If you want to go fast, go alone,” said HTeaO President Heath Nielsen. “If you want to go far, go with others. I think that mentality of shared ideas, thoughts and building that community is exactly what we’re trying to do with franchising. We seed markets with corporate stores, and then start to move the franchisees in. The idea is to maintain a total of eight to 10 corporate stores.”

HTeaO sells freshly brewed, large cups of iced tea, which can be customized with 26 different flavors and varying levels of sweetness, such as sweet mango fresco and Texas chai. The brand’s small size is 24 ounces and the largest, Huge Tea, is 51 ounces. Gallon and half-gallon jugs are also available.

Of the 117 stores open in late August, 110 were franchised. Most of the locations are in Texas and Oklahoma, though the brand’s presence in Arizona, Arkansas, Florida and New Mexico is quickly growing. Average sales in 2023 were $1.4 million.

Related story: Where Are They Now? HTeaO Doubles Store Count in 18 Months

“The eight states where we are primarily in still have an enormous amount of white space where we can grow in,” Nielsen said. “What’s next, I think, is going to be Florida and South Carolina. However, the regional aspect of Texas and Oklahoma is where we remain focused on.”

Finding the right franchisee

With growth accelerating early, Nielsen said HTeaO is not only becoming a regionally recognizable brand but one that’s gaining awareness within the franchise community. Its development pipeline is starting to swell: it’s signed 49 franchise agreements since the start of 2024 and has 183 units sold.

Especially promising with the recent deals is the number of multi-unit developers joining the system, Nielsen said.

“We love franchisees that are in the 10-to-20 number,” Nielsen said. “That’s who we’re looking for. When we look at markets like Orlando, Nashville or Phoenix, you want somebody that can take it and really roll with it, penetrating that area right away. Ending up with just one or two here and there isn’t the best strategy.”

One of those multi-unit franchisees is Bryan Benson, who was so enamored with HTeaO that he wanted to become an owner before the franchise program was even live.

With a career that’s wound its way through lending, insurance and real estate development roles, Benson was traveling often when, in 2016, a Texas Tea location in Amarillo caught his attention. Its drive-thru, Benson said, regularly had a line of cars wrapped around the building.

“We started calling them in 2017 and kept reaching out quarterly,” Benson said. “They would tell us, ‘We’re not franchising now, but we’re thinking about it and working on it.’ In 2018, when they announced they were franchising, we were the first to apply and first to sign.”

Benson now owns six units in Texas, with three in Lubbock, where he attended college at Texas Tech University, and the others in San Angelo, College Station and Fredericksburg.

For Howe, Benson’s connection to the area with his alma mater is another reason he feels franchising was the right choice for the brand’s growth.

“I would say eight out of 10 franchise partners have a local collection to their markets, and it’s absolutely a differentiator,” Howe said.

Nielsen said the brand ramped up its public relations efforts to further expand the system, but expansion remains largely driven by word of mouth.

“It’s phenomenal,” Nielsen said. “I think we have a good story with a great product and that’s what’s feeding our development right now.”

Meeting challenges, building sustainability

The timing of the franchise launch in 2018 put the growth of the brand on a collision course with the coronavirus pandemic. Howe said it was an experience that kept the leadership team on its toes throughout.

“We were fresh out of the gate when the pandemic hit, with a handful of stores,” Howe said. “Part of our charm is also the ability to walk in the stores and participate in the experience. That was taken from us in an instant.”

“Thank God we had a drive-thru, but we still had to figure out how to bring that experience to the guests,” he continued. “I think now, it was a blessing to be challenged with that so early in our career, so we don’t take those guest experiences for granted.”

The franchisor’s ability to handle the issues that have come its way earned praise from Benson, who said upper-level management maintained a good relationship with operators.

“We’ve seen growth, and we’ve seen growing pains,” Benson said. “But they’ve handled all of it appropriately. I’ve seen them take every challenge head on.”

For Howe, the strategy for handling problems at restaurants and planning for the future is inspired by what he learned growing up in the restaurant industry his parents were part of.

“All restaurants operate with the same sort of categorical metrics,” Howe said. “We have what we call prime costs. Those are essentially occupancy, labor and the costs of goods sold. With my family, early on, I learned that these were not things that we discussed lightly. These were hard and fast rules that could not be violated. Understanding these targets and achieving these targets is absolutely life or death for unit-level profitability.”

To enhance the profitability of HTeaO’s model and push top line sales, Nielsen said the brand is incorporating a mix of promotions and adding to its product lineup.

“It seems like there’s a chase for promotions right now and we love promotions,” Nielsen said. “We have a happy hour every day from 2 to 4 p.m., and we love the buy-one, get-one strategy. But that’s only one angle.

“What we’d also like to do is continue line extensions. This year alone, we released a lip balm and we’ve designed new tea bags which are going exceptionally well, as our customers can enjoy beverages at home.”

Nielsen said HTeaO partnered with “Yellowstone” actor Cole Hauser’s Free Rein Coffee for hot coffee beverages, and works with Rubicon Bakers to offer pastries in its stores. The company is also evaluating the purchase habits of customers and their preferred ordering channels.

“We identified that an app development was much needed for us,” Nielsen said. “We’re excited about launching our HTeaO app on December 10 of this year. It’s going to be a fully integrated mobile order and pay app, with our loyalty program included. We have some very loyal customers today, and we’re looking forward to interacting with them on the app.”

Following the app, the next digital project for HTeaO is a new inventory control program. “It will be a system that allows us to look at auto-shipping opportunities and trends,” Nielsen said. “We can then follow that all the way through from sourcing, to inventory, to our warehouse, and finally to the sale of it at the store level.”

As for where the CEO sees the brand in the future, Howe said he isn’t the type to look too far down the road.

“I live in the here and now, looking at our shorter-term goals,” he said. “We’re looking at 2026 right now and talking about 2027. We’re focused on doing what we’re doing right and continuing to look at how to grow the brand strategically. But I don’t think this is a fad. It’s a long-term trend, just as coffee has proven to be.”