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Is Teavana Nirvana for Starbucks?

Starbucks has purchased Teavana, a 300-unit retail tea brand based in Atlanta, GA for $620 million dollars. My tribal knowledge about Starbucks tells me this acquisition is not a blue ocean sales growth move but rather, a protective competitive move and a surefire growth story to tell Wall Street.

In announcing this acquisition, Howard Schultz, Starbucks ceo and chairman, said, “We will do for tea what we did for coffee.”

Hmm…

Let’s take a ride on the wayback machine and go back in time to 1999, that’s when Starbucks purchased the TAZO tea brand. At that time, I’m certain Howard Schultz said something like this, “We will do for tea what we did for coffee.”

According to reports, TAZO has become a $1.4B business for Starbucks. That’s a nice size business. However, Starbucks never fully capitalized on the TAZO tea opportunity. If Starbucks was able to do for tea what it did for coffee, then the TAZO brand should be bringing in revenue far greater than $1.4B.

TAZO has never been able to gain a noticeable presence inside Starbucks retail locations. Yes, its product can be found on the shelves at Starbucks but TAZO has never been able to become a major item on the beverage menu. (The real money at Starbucks comes from drink sales, not merchandise sales.)

When Starbucks purchased TAZO, there was much discussion about opening up a TAZO branded retail store. It’s taken the company 13 years to open a TAZO retail store.

If Starbucks was able to do for tea what it did for coffee, then TAZO should have become Teavana. Instead, Starbucks is buying Teavana.

From my perspective as a dusty former Starbucks marketer, the acquisition of Teavana is a competitive move designed to protect Starbucks market share in the tea category.

Teavana has 300 retail locations, mainly in shopping malls. A good percentage of these mall locations probably compete with a Starbucks nearby. That is bound to cause some competitive hiccups if Starbucks locations start selling Teavana products.

Another competitive hiccup is Starbucks now has two tea brands in its portfolio. Both TAZO and Teavana are upscale tea brands competing for the same customer. One of these brands will need to be repositioned as a downscale tea brand in order to create a competitive difference.

(Starbucks has experience here with Seattle’s Best Coffee. Since acquiring it in 2003, Starbucks has clearly positioned Seattle’s Best Coffee as a downscale option compared to the Starbucks coffee brand.)

I can’t imagine Starbucks being able to do for tea what it did for coffee with the acquisition on Teavana. If Starbucks couldn’t do it with TAZO, why should we believe they can do it with Teavana.

Starbucks clearly has cornered the upscale retail tea market. I’m not sure how much revenue it will bring the company. However, I am sure Starbucks will continue to use this acquisition as a growth story for the analysts working on Wall Street.

Almost every move Starbucks makes these days from its acquisition of Evolution Fresh to its purchase of Bay Bread to the introduction of its Verisimo brewer to its purchase of Teavana can be viewed less as a surefire sales growth opportunity and more as a surefire growth story to tell Wall Street in order to keep the Starbucks stock price trending upward.

Every publicly traded company plays two games. One game is to please customers. The other game is to excite Wall Street. With the acquisition of Teavana, Starbucks is playing the game of exciting Wall Street more than pleasing customers.

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