While Teavana is home grown, generating virtually all its sales within the U.S. and Canada, tea is not. The global market for tea is largely concentrated in Asia, with premium and super-premium brands experiencing strong sales, according to market research firm Euromonitor International.
Last week Starbucks, during presentations at its annual meeting, made it clear that Teavana is to be counted among the largest global brands by announcing a five-year plan to achieve $2 billion in sales.
Key to that success is overseas expansion into 21,000 locations beginning with the powerful marketing advantage of simply placing Teavana in 12,000 of its U.S. coffee shops while promoting Teavana on TV.
Starbucks’ transition to Teavana from Tazo, since 1999 the tea of choice at Starbucks, was completed in January. Some regions reported shortages and other logistical hiccups, and there has been griping online about the change as some customers find the Teavana selections wanting, but the year-long transition has ended. Tazo remains a very strong grocery brand with redesigned packaging and new flavors. Teavana is suddenly in front of the 54 million coffee drinkers in the Americas who visit Starbucks each week.
Starbucks, the largest coffee retailer in the world, is very pleased with the shift as Tazo (in teabags) was difficult to position as a premium brand. On the menu board Teavana drinks sell for 25 cents to 50 cents more than the equivalent Tazo blends.
During the transition in-store displays and marketing like the splashy introduction of Oprah Winfrey Chai last spring raised the awareness along with the Teavana “Shake Up” TV commercials. Tazo was always more widely identified as a hot tea. Starbucks never branded offerings other than coffee but now they promote a whole line of beverages including water (Ethos) juice (Evolution Fresh) and Teavana teas.
Starbucks wisely featured Teavana’s cold selections over hot tea. Not only is iced tea the drink of choice at lunch and a favorite of 85% of Americans – the heavy fragrance of coffee distracts hot tea drinkers seriously contemplating a quiet cup.
Coffee shops are not well suited to upselling a loose leaf buyer to buy a $37.50 pouch of oolong or rare Chinese yellow tea.
The national roll out of Teavana shaken iced tea proved to be the perfect complement to lunch where soda has fallen into disfavor and calorie-conscious consumers have moved away from sugary juices.
Food sales now account for nearly 20% of total revenue at Starbucks.
In the past quarter, breakfast sandwich sales grew 30% year-on-year. Lunch was up 14% in the fourth quarter of last year. “And midday remains our fastest growing day part, where we are not only adding great food, but an increasingly broad refreshment platform,” said Starbucks Executive VP and CFO Scott Maw. “This includes Teavana hand shaken iced teas, which grew 40% in the fourth quarter of 2014 driven by the addition of new items, such as my personal favorite, the Blackberry Mojito Tea Lemonade, it’s good,” Maw told stockholders at the company’s annual meeting.
“Beyond breakfast, the biggest opportunity for us is without doubt lunch,” adds Cliff Burrows, Group President, Americas and Teavana
“We have a very small share of that today, but we are well on our way to capturing more. Our beverages anchored in iced Starbuck coffee or the recently introduced Teavana iced teas give us the confidence that together with the convenience of our stores we can meet the customer demand for convenient high-quality delicious lunch options,” said Burrows.
At the same time, many Americans are “gravitating” towards the snacking culture. “We an opportunity – I mean take this opportunity to introduce into our stores this summer a curated and elevated assortment of delicious snacks especially for that afternoon day par,” said Burrows.
“In the lunch day part we're starting to see people come in for a lunch and with a refreshment platform… with iced teas and refreshers and Fizzio we have more refreshing drinks that they can attach food to. And on the flip side, if they come in the afternoon for a drink there is some better snack and lunch options for them to choose from,” Maw told attendees at the UBS Global Consumer Conference last fall.
“Whether its Fizzio or Teavana Iced Tea or Evening's Program, it's really in that lunch and later day part where there is a lot of capacity in the store,” according to Maw.
There is also a developing opportunity with Green Mountain “where we can take some of our products like tea and perhaps Fizzio, explains Maw. He said that he has not seen the new Keurig Green Mountain cold brewers “but I think cold is interesting to us and time will tell whether there is something there.”
Teavana continues its brick and mortar expansion with six Fine Tea + Tea Bar locations (three in New York) and new shops overseas. Teavana first launched in Kuwait in 2012 and now has seven stores scattered across the Middle East including Bahrain, Lebanon, Dubai and Abu-Dhabi in The United Arab Emirates.
Store count is nearing 400 with remodels underway in malls across the country. The new store layout, exemplified by the Pacific Place Teavana Store in Seattle, is less apothecary-like with a wall of unfamiliar teas, and more exploratory, with sample stations and staff ready to pour any of the firm’s 110 flavors. The canisters are positioned at the back of the store front. Service counters along the typically narrow mall configuration invite customers into the shop where staff are more likely to teach you something new than push the daily deal. Merchandise on display is higher-end than Teavana sold prior to the acquisition.
Best sellers include Gyokuro Imperial, Blueberry Kona Pop, Monkey Picked Oolong, Youthberry Wild Orange Blossom and Jasmine Dragon Phoenix Pearls. The company continues to innovate with a steady stream of new blends like Scarlet Jasmine, Flowering Pineapple Blooming White and Mint Majesty Herbal.
There are now 63 stores in Canada, most were converted to Teavana locations following the 2012 acquisition of Teaopia. In Mexico there are 16 franchise locations, an increase of three in the past few years.
High-profile stores in Beverly Hills, Seattle and Chicago are spacious, offer the complete line of teas with food sections enhanced by tea. These six stores and overseas locations like the store located in the Dubai Mall are showplaces designed to attract a breakfast, lunch and afternoon crowd. The remaining stores have small footprints of necessity due to the high cost of operating in Tier 1 malls where retail operations must generate at least $300 per square foot in retail sales. Landlords welcome Teavana where sales top $1,000 per square foot and stores gross more than $1 million a year.
Small mall and store front locations are concentrated in a half dozen states. Teavana operates 43 stores in California and 25 in Florida. New York is home to 21 locations including three Tea Bars. Texas has 18 locations. Illinois is next with 15. Massachusetts is home to 14 stores; New Jersey, 12, Pennsylvania 10, Maryland 6, and Connecticut 5. The Northeastern seaboard and West Coast account for most of the store count. Arizona has six locations and Nevada has four locations
Teavana has spread from sea to shining sea but very thinly. There are no stores in several states including Montana, Wyoming, North Dakota, and Mississippi. Colorado has four stores with two in Louisiana but there is only one store each in 14 of the states including Alabama, Alaska, Kansas, South Carolina, South Dakota, Delaware, Rhode Island, Vermont, and Maine.
Atlanta, where Teavana was founded, has five stores among the eight located in Georgia.
States with at least 10 stores
New Jersey, Ohio
On March 18 Teavana President Annie Young-Scrivner told investors “we realized a large portion of the business is actually outside of North America. Out of the 66 countries that Starbucks does business in today Teavana is only in 7, a large portion of the $125 billion category actually resides in Asia,” she said.
“We are so excited to bring our innovation to that region of the world while respecting its heritage. I am pleased to share our Starbucks stores in China, Japan and throughout Asia will convert to Teavana teas in 2016,” she told a crowd of 2,800 shareholders, employees and financial analysts.
“We will offer premium ready to drink beverage and capture a large share of the $50 billion category,” she told investors keen to know more about a monumental distribution deal with Tingyi Holding, a Taiwan food and beverage distributor that will manufacture Starbucks coffee beverages in China beginning in 2016. The initial focus will be ready-to-drink Frappuccino currently available in 6,000 locations. Frappuccino has a growing following in country that is fond of milk tea. In China RTD in 250ml PET bottles and 200ml cans is much more popular than freshly made coffee.
China and Asia-Pacific president John Culver told Forbes the tie-up would "unlock the massive ready-to-drink market and grow local demand for Starbucks.” RTD is a $6 billion business in China expected to grow by 20% during the next three years, according to Euromonitor.
Coffee consumption in all its forms is growing. Starbucks operates 1,500 stores in China and employs 25,000 in 90 cities but that represents only a tiny slice of the beverage market in tea-drinking China. The agreement with Tingyi is significant because Starbucks is venturing into a bottled tea segment vacated in 2013 by a joint Coca-Cola and Nestle (Nestea) joint venture dating to 2002. Tingyi Nestle (China) Ltd. had dominated the domestic market for RTD coffee with its Nescafe line and in 2013 introduced the SmoovLatte brand in multiple flavors. The company held 53% total volume share in 2013, according to Euromonitor International.
Tingyi experienced setbacks beginning in 2012 amid rumors the firm was under the control of Japanese nationals. Chinese consumers organized a boycott incited in part by rival Uni-President, a maneuver that dampened sales, according to reports in the Taipei Times. Tingyi acknowledged Japanese investment but showed that Taiwanese investors retain control.
Teavana sales, though not broken out by Starbucks, exceed $500 million. Annie Young-Scrivner, 45, who was named Teavana president last February, is popular with staff and aggressively growing the brand.
“We are also on a mission. We want to up-level every single filtered tea bag out there to the full leaf Teavana sachet,” said Young-Scrivner.
Will they reach their $2 billion a year within five years? During a Teavana presentation last year at the UBS Global Consumer Conference Scrivner promised to “explode iced tea” and “up-level the hot tea experience” and she said Teavana would leverage its chai platform inspired by Oprah Winfrey.
All that has come to pass.
“As we are building the Teavana brand across the globe we are thinking through innovation for today’s customer with the focus on ice tea, tea latte such as Chai and Mojito and just imagine what we can create with 100 blends of tea,” she said.
“We will expand our footprint beyond our mall stores and truly leverage the size and scale of Starbucks to create that third place experience for tea. We will offer premium ready to drink beverage and capture a large share of the $50 billion category” said Young-Scrivner who clearly enjoys the challenge.
“Building the super-premium tea business has been fantastic and meaningful in Canada and in the U.S.,” she told stockholders.
Sources: Seeking Alpha, Starbucks, Taipei Times