Starbucks was not kidding around when they dropped the word “coffee” from the logo. As of Wednesday, November 14th Starbucks Corporation has acquired Teavana Holdings Inc. for about $620 million. Entering the tea market is the latest strategy of the company to satisfy a growing global consumer demand for caffeinated beverages. In the words of Starbucks CFO Troy Alstead, “[tea] is the second-most consumed beverage in the world, second only to water. We should be leading in tea.”
Expanding into different beverage markets is a logical next choice for the company, which has seen a drop in domestic store presence by 440 locations within the last four years. Teavana marks the largest of a string of acquisitions by the coffee giant, including a $30 million deal with fresh juice brand Evolution Fresh Inc. and a $100 million purchase of La Boulange Bakery (Bay Bread LLC) last year. This is not the corporation’s first foray into the tea market. Tazo Tea was acquired in 1999 is now worth approximately $1.4 billion annually in pre-packed tea bag and drink sales. The two brands, however, will not create an Apple-like cannibalism of sales; Starbucks maintains that the two brands are “complementary” and company leadership has yet to decide if they will both be sold in Starbucks locations.
The company has released a plan to open 1,000 new Teavana stores in the US within the next five years. Will these new locations maintain Teavana’s trademark brand image loose-tea and its pottery shop ambience, or will the consistent packaging of a Starbucks experience be present in the new Teavana stores? While this remains to be seen, company heads have stated that their coffee will not be sold within Teavana shops.
This is likely to be an image and not a monetary decision for the corporation. Besides ownership of the entire drink experience- coffee, tea, juice- and the pastry on the side, Starbucks also earns billions each year in sales of its retail bottled beverages and juices at grocery stores and quick stop shoppes. Furthermore, the coffee king is planning to extend its reach into far-flung markets favoring tea, particularly in China and India where tea is consumer up to 16 and 7 times more often than coffee, respectively. Teavana, having recently expanded past North America and into Kuwait, will certainly get more face time on the global market as a result of one of Starbucks’ “smartest acquisitions” yet.
Posted by: Sophia Higgins
Sources: Bloomberg News, Reuters, Starbucks Corporation
Photo credit: Black Coffee and Tea in White Cup is Hot @ epSos.de’s photostream courtesy of Flickr user epSos.de