Starbucks puts a greater emphasis on tea

Selling tea and other non-coffee drinks through a different brand in an altogether different ambiance will help expand the company's consumer base.

By Trefis Nov 20, 2012 10:18AM
starbucksStarbucks Corporation (SBUX) last week purchased Teavana in a deal worth $620 million, signalling in yet another move that the company is serious to grow its business beyond coffee. Starbucks has already acquired Evolution Juice and La Boulange bakery chain for $30 million and $100 million respectively in the last twelve months.

Teavana currently has 300 shopping mall locations where it sells high-end loose tea leaves. Starbucks eventually plans to open tea bars under this brand name which will sell prepared drinks as well.

Adding tea to its existing menu (in its traditional Starbucks coffee stores) is not a difficulty but there is a good chance that the tea sales will cannibalize that of its coffee drinks. Thus, selling tea and other non-coffee drinks through a different brand in an altogether different ambiance will help expand the consumer base.

Starbucks already owns Tazo tea, which has mostly been sold as a packaged product but the company will open a tea bar under the brand very soon. The tea bar will offer specialty teas as well as sell high quality loose tea leaves. It is not clear yet how Starbucks plans to position these two tea brands (i.e Tazo and Teavana), whether these two will continue to maintain their respective identities or be merged into one brand.

Starbucks Global Consumer Products Revenues

Leveraging distribution networks

Another benefit to Starbucks from with this acquisition is selling the tea brand as a consumer packaged product. Even Evolution Juice is available in supermarkets and grocery shops as a packaged bottle besides having juice bars opened under its name. In fact, the revenues for its channel development line, consisting of packaged products sold through grocery and other retail outlets totaled $1.3 billion in the last 12 months. So, Starbucks has already got its distribution networks set up and adding one more product really shouldn't be a problem at all.

Paying $620 million for a tea store having only 300 locations might sound a tad expensive but Starbucks is in a unique position to exploit the situation given its successful history of operating restaurants as well as possessing country wide distribution networks.

We have a $58 price estimate for Starbucks, which is about 15% higher than the current market price.

Tags: SBUX


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