Teavana could be a game changer for Starbucks

'This is not your mother's Lipton,' CEO Howard Schultz says.

By The Week Oct 25, 2013 2:11PM

A Starbucks employee shows the new Teavana 'tea bar' in New York. © Candice Choi/APOn Thursday, on the corner of Madison Avenue on the Upper East Side of Manhattan, Starbucks (SBUX) opened the first store of what it hopes will be a booming new chain: Teavana, a specialty tea bar totally void of green chairs, Italian sizing, and even coffee.


Starbucks bought the Atlanta tea company in December of last year for $620 million, a purchase that included about 300 shops in the U.S., Mexico, Canada, and Kuwait, that sell a variety of loose-leaf tea blends to take home.


Starbucks' Teavana, however, sells a range of tea drink options to sip while you sit, as well as a selection of food, like a chocolate brioche and a shiitake mushroom and kale flatbread.


At a press preview Wednesday at the new store, Starbucks CEO Howard Schultz said, "This is not your mother's Lipton tea, just as Starbucks wasn't Folgers. The difference between the quality of tea at Teavana is the difference between fresh-squeezed juice and concentrate."


Also similar to Starbucks, Teavana is on the path for aggressive expansion. Plans are already in place to open at least 1,000 Teavana bars in North America and many more internationally, USA Today says.


That's quite a push, even for the biggest coffee company in the world. With around 20,000 branches worldwide -- and still room to grow in markets like China -- what is Starbucks doing opening a new chain of hot, caffeinated drinks?


One reason may be that tea is having a moment on the international beverage market. Globally, it's a $90 billion a year industry, says Reuters, which adds, "according to the Tea Association of the USA, tea is the most widely consumed beverage in the world next to water."


And even though coffee beats out tea in the U.S. -- $75.7 billion versus $40.7 billion for their respective industries -- America does seem bitten by the tea bug. Sales are up nearly 32 percent since 2007, reported The Los Angeles Times earlier this year, and are expected to grow.

The tea-drinking demographic is widening. Aging baby boomers and Red Bull–swigging youngsters are expected to buy more tea. Asians, long a key revenue source, form the fastest-growing racial group in the country. Rising interest in ethnic cuisines is drawing foodies to Japanese matcha, Indian Darjeeling, and African Rooibos teas. [Los Angeles Times]

All this does present one potential snag for the 'bucks: Part of the recent growth in tea sales comes from the chain's own Tazo tea line, which it bought 14 years ago, and sells at supermarkets, bodegas, and Starbucks stores around the world. With some percentage of Starbucks' customers ordering tea already, how will Starbucks avoid direct competition with itself? Quartz's Lauren Davidson says it likely won't be a problem:

The answer might be in the price. A 16 oz. chai tea latte at Starbucks costs $4.05, but will set the customer back $4.95 at Teavana. That’s a 22 percent uptick. The most expensive drink on Teavana’s menu is 25 percent pricier than the costliest drink of the same size at Starbucks. [Quartz]

So with Teavana, Starbucks isn't only expanding, but reaching for a more exclusive market.


More from TheWeek.com

 

Tags: SBUX
49Comments
Oct 25, 2013 4:44PM
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Get a life people, quit being such haters.  If you don't like Starbucks that is fine, but they obviously have a few more followers that any of you with "good" taste. 
Oct 25, 2013 5:28PM
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I'm an avid tea drinker, but Teavana's loose tea is ridiculously overpriced and the sale people are beyond pushy. Better off buying out of the bulk bin at your local health food store- same product, 1/4 of the price!
Oct 25, 2013 5:22PM
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$4.00+ for a cup of tea ?

There should be no sympathy for any of the middle class that steps into a Starbucks or the like.

Oct 25, 2013 2:37PM
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I'm sure dumbing down tea for the masses with a thousand different flavors, gimmicks  and what they consider good tea will make them a huge amount of money. I'll pass and get my teas from the quality merchants located around the country and hope people will learn what real tea is all about.
Oct 25, 2013 5:53PM
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I very seldom ever go to a Starbucks...really don't care what goes on there....
Oct 25, 2013 5:22PM
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Thanks for an informative article.  I like the Teavana acquisition. SBUX looks strong going forward.  According to money.msn, "Starbucks Corporation, a large-cap growth company in the consumer services sector, is expected to significantly outperform the market over the next six months with less than average risk."  

I ilke to make money, so I'm buying the stock.  But I'll make my coffee and tea at home.  With the money I save, I'll buy more stock.  And every time I drive past a Starbucks, I'll savor that warm fuzzy feeling.
Oct 25, 2013 8:23PM
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I'm just amazed at what "some people" will pay for coffee or tea in some places...

 

I had 2-3 cups of coffee in a Casino last night....IT WAS EXCELLENT, and it was FREE..

We make a Latte at home later in the day sometimes, think it cost us .10-.15 cents a cup.

Oct 27, 2013 7:51AM
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"... it has always amazed me how people line up to pay four to eight bucks every day (sometimes more than once) for flavored water when instead you can make your own for a few cents. Invest the same daily amount and after a few decades have something tangible to show for. This would work even for the lower wage service workers the economy is doing a great job producing.

 

Why do people do it? Groupthink? Sheep? Financial ignorance?"

 

BEST quote about this-- ever. Generations of IDIOTS ruining America.

Oct 25, 2013 3:20PM
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Starbucks was slow to take off, but does well.  Teavana may do the same, especially in other countries where tea is more popular.  Will they keep some of the tea they sell in starbucks?
Oct 25, 2013 3:41PM
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this makes me glad I do not drink tea or coffee. I save alot of money that way.
Oct 25, 2013 4:01PM
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In twenty years, people will not be surprised to have a $20.00 a day tea habit. 
Oct 26, 2013 10:23PM
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Buy some "Ceylon Tea" from an ethnic store, they are the best in the world grown in an island nation.  Just get some loose tea mix it with hot water and save your money from donating to Starbucks.  
Oct 25, 2013 5:54PM
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I wish regular brewed tea with milk was more readily available.  Tim Horton's had "steeped tea" in the US for a while but doesn't have it in Ohio anymore.  Bring on Teavana!
Oct 27, 2013 9:21AM
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V_L you said $700 trillion .This is an absurd amount of money as they keep pumping I would not be surprised to see A QUADRILLION soon .I think I am going to make myself a cup of tea now   ...Chamomile for a calm morning.......Oh V_L you are right about the iphone either they are hunched over texting  blabbing oblivious to what is  going on around them or they are just holding it up to show all how important they are with their I phony in its bedazzled  diamond case 
Oct 27, 2013 7:54AM
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Even though I like Starbucks, the prices are outrageous.

Oct 25, 2013 11:26PM
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Coffee;   .30 cents make 8 cups.  .04 cents per cup... Latte mix, about .08 -.10 per cup.

Throw in purchase time, fuel, mix time and sometimes washing?

Yup, still think that puts it all under .20 cents per, and we make it to taste; Yummy.

Black coffee less then .10 cents per; Makes sense to me.

Oct 27, 2013 7:54AM
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THINK-- you can't cook or look up from your I-Phone for more than a few minutes. Your entire life is self-absorbed stupidity wrapped around technology that has us $700 TRILLION in debt through credit derivatives. You produce NOTHING, you generate ZERO profits... just banner ads and debt.

How long before we hit the wall at a zillion miles an hour and leave you standing there like zombies?

Oct 27, 2013 1:25PM
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They lost my business when my right to open carry (Arizona) is questioned
Oct 27, 2013 4:03PM
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$5 for a 10 cent cup of tea.  Stupid is as stupid does.

 

Oct 27, 2013 7:49AM
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"Get a life people, quit being such haters.  If you don't like Starbucks that is fine, but they obviously have a few more followers that any of you with "good" taste."

 

Get a clue, idiot... people with genuine skills have lived in destitution for 5+ years now, while the paper and button pusher generations build Big Brother. You WASTE money on Starbucks, but you don't help your parents, relatives, friends and neighbors out of suppression. May you choke on that crap and text junkies WATCH as you struggle.  

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