How Teavana could be a game changer for Starbucks

Starbucks, phase two: Classy tea

(Image credit: (Facebook/Teavana))

On Thursday, on the corner of Madison Avenue on the Upper East Side of Manhattan, Starbucks 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-based 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."

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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, says USA Today.

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.

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