Ask Heath Nielsen, the president of HTeaO, a Texas-based tea and iced tea chain with 150 locations with 137 franchised and 13 company-owned, its secret, and he doesn’t skip a beat when answering. “Water is at the heart of everything we do. We use a reverse osmosis water system,” he explains, used in West Texas to purify tap water.
In order to run a restaurant franchise devoted to mostly iced tea, he says “You need consistency. If you’re in West Texas compared to Dallas/Fort Worth, the water consistency isn’t there, depending on the minerals.” Its system makes its water consistent with the right alkaline balance and filters out the chemicals.
Its name HTeaO is an obvious play on words with H2O, the main component of the earth’s atmosphere. It was originally called Texas Tea when it launched in Amarillo in 2009, but Nielsen says the HTeaO name epitomizes its dedication to tea and water.
Texas dominates its locations with 114 in that state followed by Oklahoma’s 26 locations, but it’s in 9 other states from Florida to Colorado.
Justin Howe was one of its 3 founders with Gary Hutchens and his wife Kim Hutchens, and Howe still serves as a controlling partner with the Hutchens in an advisory capacity.
Private Equity Investment
In January 2023, it announced partnerships with two Dallas-based private equity firms, Crux Capital and Trive Capital. And for most independent restaurant chains, these partnerships enable them to grow and franchise without having to go in debt and taking out burdensome loans.
Its two private equity minority partners “provide industry insight, share best practices, and both have extreme knowledge inside the industry,” asserts Nielsen, who is based in the aptly named Prosper, Tx, outside of Dallas. Neither firm has spoken of a “quick exit,” he says, often the case with private equity investors.
HTeaO is also dedicated to producing offerings that are healthy and gluten-free, non-GMO, dairy free, kosher and consisting of natural ingredients.
Nielsen emphasizes that iced tea dominates its menu and generates 85% of its revenue, followed by 10% for coffee, and 5% for its various snacks. In the Sunbelt, where many of its shops are located, people can drink iced tea and sweet tea throughout the year because of the warmer weather, though some, of course, prefer coffee.
Its Competitive Edge
He points to two factors that make HTeaO distinctive compared to Starbucks and Dutch Bros, which are: 1) It has a simple menu that provides a low cost of goods, which are namely tea, sugar, water, coffee beans and a bit of dairy, 2) Its stores are mostly self-serve, which produces lower labor costs.
So guests come in and can choose any of 26 prepared teas and combine them or can order its handcrafted coffee from the counter.
Its products tend to be trendy and responsive to consumer tastes epitomized by recent launches of its cherry iced tea and lavender fizz selections. And it is the only chain where patrons can buy Free Rein Coffee, a Texas-founded company, known for its packaged goods and beans, which has an exclusive contract with HTeaO.
Its menu is streamlined consisting of tea, iced tea, a variety of coffee and then curated snacks that pair with tea, such as cupcakes, beef jerky, salty and sweet treats. Its tea prices start at $3 and go to $4 for the larger sizes and coffee drinks average around $5.29. Unlike other comparable chains, it doesn’t offer sandwiches or wraps as lunch items.
Yet within that limited offering, it sells 26 flavors of tea, and its sizes vary from a single cup to a 5-gallon jug. It stays open from 7 a.m. to 9 p.m. daily.
Nielsen does hint that sandwich items could be in the works in the future. “This is an area we are most excited to lean into,” he suggests.
He says that take-out and delivery play a huge role in its revenue, and it has partnerships with DoorDash, Uber Eats and Grubhub. In fact, its revenue is split 50/50 between mostly drive-thru sales with some delivery of large iced tea jugs, and 50% in-café sales. In addition, it invested $1.4 million into developing its own customized app, which has generated over a million downloads so far.
He describes its largest target audience as “females, who are often caregivers, or a mom who’s focused on what her kids are drinking, and men, who focus less on flavor but often choose black unsweetened tea.” Its half-gallons of iced tea are perfect for picnics, birthday parties or baseball games.
Happy Hour Boosts Business
It also attracts a crowd at happy hour, which takes place every day from 2 p.m. to 4 p.m., where patrons can buy one cup of tea and get a second one free. In fact, Nielsen says it generates from 20% to 25% of its daily revenue at that time.
Despite the craze for matcha, Nielsen acknowledges that, at this point, it doesn’t offer it for sale. But he says, “We’re working on it, and it’s part of our radar for 2026 as part of our menu expansion.”
Nielsen spent 10 years as an SVP at Starbucks in Seattle where he learned that “Starbucks was maniacal about the quality of the product. You began the day tasting coffee and ended the day tasting coffee,” which he has brought to HTeaO.
It is always growing at a very rapid pace exemplified by its plan to open 41 new locations by year’s end and then another 40 plus stores in 2026. “We’re able to grow so fast because we’re franchised; they live in the community and are embedded in it,” he explains.
Asked if he feared growing too quickly, Nielsen replies that it’s a concern but “We’ve built a strong relationship with our vendors and suppliers to support growth in a sustainable way.”
Asked the keys to its sustained success, Nielsen replied, 1) Continue to focus on the quality of its iced tea, 2) Support its franchisees and focus on economic profitability, 3) Give back to the community by getting involved in fundraisers and supporting local schools.
Source – Forbes
