Teavana Fine Tea + Tea Bar Opens in NYC

MANHATTAN, New York  — Starbucks unveiled a comfortable, tea-focused Teavana Fine Tea + Tea Bar that dazzled local and national press Wednesday night.

The shop is a prototype for 1,000 North American locations, according to Starbucks CEO Howard Schultz. The Teavana tea bar is devoid of any Starbucks branding and does not serve coffee. However, Starbucks outlets in Atlanta are currently selling Teavana tins, a new line of Verismo capsules featuring Teavana chai and Teavana blends are replacing Tazo Tea on coffee shop menus at a price increase of about 50 cents per cup.

Tea Biz reporter Linnea Covington arrived at the pre-opening to discover a trendy store front at East 85th & Madison (in a residential neighborhood near Central Park), with a comfy, sophisticated ambiance and immense selection of loose leaf tea.

The shop is super sleek, though with muted purples, oranges, and greens, it almost like a yoga shop, according to Covington. There is a giant wall of tea in short canisters and a service area that is sleeker than a Starbucks with food behind a glass counter, like some pizza parlors display their by-the-slice pies.

It feels more like a to-go place, though the “leather” chairs are comfortable, she writes. The menu includes many loose leaf teas and a selection of sweet, consumer-friendly drinks.

The most unique thing about the space is the tea ceiling, observes Covington. There are tubes filled with a hundred types of loose leaf tea in clear beams stretching across the lighting fixture, she said.

A half dozen carafes are displayed on a long light panel in the bar. Prepared teas are priced from $2.95 for 12 oz. to $4.95 for 16 oz. and rare teas are $6.95 for a teapot. Flights of teas are offered to encourage sampling.

Drink selections include Maharaja Chai, Youthberry + Wild Orange Blossom, Gyokuro Imperial, a Matcha Latte and Golden Monkey Black tea. Customers seeking dry tea weighed in pouches are separated from tea drinkers to speed transactions. There is cafe seating at tables and in thickly padded lounge chairs.

Food is an important new addition with small plates, salads, flatbread sandwiches and pastries. A breakfast menu lists Chicken Sausage + Spinach Strata $5.95 and Bacon, Egg + Cheese Flatbread for $5.95 with Honeyed Granola $3.25 and Cage-free Hardboiled Eggs with tea-smoked salt $2.45.

There are sweets like Earl Grey Profiteroles and Lemon Thyme Macarons. Tea time for two is $14.95 to $17.95.

The store is open from 6 a.m. to 9 p.m. Lighting, music, menu and mood are adjusted as the day progresses.

Dinner items include Mushroom + Kale Flatbread at $8.85 or a Four Cheese Flatbread with Parmesan, Provolone, Asiago and Fontina at $6.95. Fresh tossed salads include Glass Noodle Chicken Salad and Butternut Squash Couscous Salad $9.95.Click here to see entire menu: front and back.

The tea lounge is larger than Teavana’s 350 mall locations and designed to encourage customers to see and touch and ask about the tea. Dry tea is displayed next to the carafes while customers across the room are encouraged to sniff a tin from the tea wall. Wooden shelves with glass partitions show off the tea and teaware.

The neutral gray walls are accented with colorful display shelves with merchandise in gift boxes stacked on modern curved blonde wood tables. Tea wall tins were upgraded but retain the same bright color coding devised by Teavana to identify categories of tea. Wait staff is dressed in black caps and charcoal aprons with an orange Teavana logo.

“Americans have always have drunk tea,” said Naoko Tsunoda, Teavana’s Director of Tea Development. “At Teavana, we bring a higher quality of loose leave tea because customers are getting more sophisticated palates.”

Investors placed a $1 billion bet on tea retail in the past year, acquiring brands like Teavana (Starbucks) and Australia’s T2 (Unilever) following a 2012 round of venture capital investment in Canada’s DAVIDsTEA (Highland Consumer Fund) and private investment in Chicago-based Argo Tea (Terzian Enterprises).

Earlier this summer Starbucks CEO Howard Schultz told investors that “we are leveraging all of our unique internal assets – including our knowledge in creating best-in-class retail experiences and handcrafted beverages –  to create a premium tea experience for our customers, just as we have done for coffee.”

On Thursday Schultz told CNBC’s Jim Cramer that Teavana will “leapfrog internationally” with locations in Asia within the next couple of years.

The tea bar will establish a new breakfast occasion that is not based on speed of service, Schultz explained. Tea needs to be nurtured, taught and sampled, he said. Teavana’s higher average sale ($40 per transaction) means tea bars can emphasize service and spend more time with each customer, customizing tea, for example, or demonstrating merchandise.

Tea is a $90 billion global industry, twice the size of coffee that we strongly believe is ripe for innovation.”Tea is not a distraction, this is part of our core strategic plan,” he said.

“I love this concept and think it can drive long-term growth,” exclaimed Cramer.

The new format is likely to accelerate development of retail tea in the U.S. and globally where the growing affluence of the middle class and familiarity with tea combine to welcome America’s unique take on tea.

The number of tea and specialty coffee outlets in the U.S. is static at 30,000. Coffee shops currently outnumber retail tea outlets 7.5:1. There was lots of churn and a net loss of 500 to 600 specialty coffee shops in the mix since 2009 due to consolidation and attrition. Led by chains, the number of tea retailers increased during the recession to approximately 4,000, according to the Tea Association of USA. The association reports 1,800 tea rooms in 2004. That count is comparable to the 1,650 specialty coffee shops operating in 1991. At that time most coffee shops were small chains and independents, much like tea retail today. In 1992, twenty years after its founding, Starbucks operated only 165 stores, with a growth rate comparable to Teavana.

A rapid influx of investment changed the game and by 2006 Starbucks was building 2,571 stores a year.

A similar pattern is expected in specialty tea. Thousands of new tea shops are not going to suddenly appear. After all, more than half of the nation’s 4,000 tea outlets are small ventures, grossing less than $350,000 per year per store. Specialty tea merchants and tea rooms together grossed $1.43 billion in 2011, according to the Tea Association of the USA.

DAVIDsTEA is approaching 125 stores in the U.S. and Canada and Taiwan’s Ten Ren Tea operates 81 stores in seven countries with 23 shops in four U.S. states and six stores in Canada. Argo has opened 40 U.S. shops, earned $25 million in 2012 and plans to build 20 stores next year.

“By selecting only the finest premium loose leaf teas and botanicals to be sold in Teavana mall stores, Teavana has built a strong reputation among tea enthusiasts and introduced casual tea drinkers to new experiences in tea,” said Cliff Burrows, Starbucks group president, Americas, Europe, Middle East and Africa, and Teavana. “We are excited to work together to help create new and innovative ways to delight tea drinkers and continue growing the overall tea category in a variety of ways. The Teavana Tea Bar is a critical first step for us to meet the needs of tea drinkers everywhere by providing a place where tea enthusiasts and casual tea drinkers alike can learn about, enjoy and share in the tea experience.”

Starbucks Chief Financial Officer Troy Alstead describes tea “at the core, in the heritage of Starbucks” yet tea represented only 8 percent of store sales in 2012.

“It was part of the original name of our company, Starbucks Coffee, Tea, and Spices, and yet it’s been a category that we have not put enough focus into.  We have a fantastic brand in Tazo, but we recognize we have opportunity both through our stores and through the CPG channels and globally to really reignite what tea means to us,” he said in a video interview with Motley Fool CEO Tom Gardner.

“Tea is wonderfully complementary to coffee. If you think about the U.S. consumer, coffee is about that morning experience. It’s get up and go, it’s moving fast, it’s on your way to work, it’s on the way to taking the kids to school. Coffee is more of a morning experience in the U.S.,” he said. “Tea is a slower, Zen-like experience for people. It tends to skew to the afternoon. It skews to the evening. It skews to the weekend.”

Will tea retail surpass the $41 billion earned globally at coffee shops?

Wall Street welcomed the expansion but Starbucks traded flat at $80 per share. Analyst Brian Sozzi, CEO of Belus Capital Advisors told Forbes that Teavana is unlikely to grow as large as Starbucks coffee.

“The bottom line is that in this day and age of frantic tech-driven lifestyles, people want to run on 100 milligrams of caffeine, and they will trade taste to make that happen,”said Sozzi.

Linnea Covington contributed photos and on scene reporting.