Starbucks Announces Ambitious Global Expansion to Operate 55,000 Locations by 2030: Tea Played a Key Role in the Siren’s Record-setting Quarter | Bangladesh May Finally Break an Elusive Tea Production Record | Research Findings Challenge the Belief that Adding Cream and Sugar to Tea Negatively Impacts Health Outcomes
Tea News for the week ending Nov. 10
Hear the Headlines | Seven-Minute Tea News Recap
PLUS | In October, Transworld, China’s first USDA-certified organic tea producer, and Firsd Tea, the US subsidiary of Zhejiang Tea Group, released the Chinese Tea Sustainability Report, a 12-page survey of perspectives and practices at Chinese tea farms and processing facilities. Jason Walker, marketing director at Firsd Tea in New Jersey and one of the architects of the sustainability report, joins Tea Biz for an in-depth discussion of the results of this ongoing survey.
Chai stands out in a record-setting $9.4 billion fourth quarter at Starbucks, which announced plans to operate 55,000 locations by 2030, with 75% overseas.
Starbucks Announces Ambitious Global Expansion
By Dan Bolton
Starbucks CEO Laxman Narasimhan announced a record $9.4 billion fourth quarter to close a $36 billion fiscal year. Revenue was up 12% year-to-year.
The company will expand to 55,000 locations by 2030, 75% overseas.
Executive Vice President and Chief Financial Officer Rachel Ruggeri said, “Our customers continue to favor more premium beverages, creating a new normal for mix and customization. To fuel this, we continue to lean in with innovation, offering our Iced Pumpkin Cream Chai Tea Latte, which boosted tea sales, and Pumpkin Cream Cold Foam, which has become a customization favorite with our customers.”
Gingerbread chai is a hit, I recommend it, Narasimhan told Mad Money host Jim Cramer. Cold beverages, including tea and coffee, are driving sales. Customers add modifiers to cold drinks at a greater rate than hot, and it’s an easier process through the app than anywhere else. These transactions raise ticket and produce personal branding for Gen Z to broadcast via social, according to Ruggeri.
During the past five years, Starbucks opened 9,000 new stores, 7,000 outside the US. In 2023, foreign locations, including 1,429 in Canada, outnumber for the first time the 16,255 US stores. There are now 6,800 stores in China. Starbucks said it will open an average of eight stores daily, many specially purposed as drive-thru only, double-sided drive-thru, and delivery-only locations. Drive-thru transactions account for 50% of US sales; delivery orders expanded by 24% in 2022. During its year-end earnings call, Narasimhan said the company will spend $3 billion in capital expenditures and grow to 41,000 locations by October 2024.
“Our reinvention [announced in September 2022] is moving ahead of schedule, fueling revenue growth, efficiency, and margin expansion,” said Narasimhan.
BIZ INSIGHT – Tea accounts for about 10-20% of beverage sales at coffee shops. Locations serving a wide range of hot and cold teas can increase that share to 20-30% or more. Beverage sales at Starbucks, including tea, generated about 75-80% of revenue, totaling $19.6 billion in FY22, with food products totaling $5.8 billion. Packaged and single-serve coffees and Teavana teas, ready-to-drink products, serveware, and ingredients contributed $6.9 billion, according to the company’s SEC 10-K filings.
Episode 142 | Starbucks Announces Ambitious Global Expansion to Operate 55,000 Locations by 2030 | Tea Played a Key Role in the Siren’s Record-setting $9.4 Billion Quarter | Bangladesh May Finally Break an Elusive Tea Production Record | Research Findings Challenge the Belief that Adding Cream and Sugar to Tea Negatively Impacts Health Outcomes PLUS Jason Walker, marketing director at Firsd Tea in New Jersey and one of the architects of the Chinese Sustainability Perspectives report, joins Tea Biz for an in-depth discussion of the results of this ongoing survey.
Complaints mount as the Tazo transition to Teavana creates shortages… a $600,000 Pu-erh… Cold tea territory… Kumaon tea project funded … U.S. Tea Growers update….
Tazo Transition
Several news reports confirm what online discussion groups have noted for months: the transition from Tazo to Teavana has been bumpy. Grumpy Tazo fans complain they can no longer find their favorites at the chain’s coffee shops while Teavana tea drinkers find their favorites in short supply. Tazo is still available at grocery outlets, natural food stores including Whole Foods and department stores but as of January is no longer sold at Starbucks. Last week
Tazo Tea
Aly Weisman at the Business Insider complained about a shortage of any tea at Starbucks. “We’ve already switched over but we’re not receiving the supply to meet the demand,” she reported being told by a Starbucks employee in New York City after asking for tea at three different stores. She settled for a cup of hot water, paying 54 cents.
The $600,000 Cake
Want a slice? A 375-gram cake of century-old Pu-erh is on sale this week from the collection of Six Mountains Tea Ltd., in Vancouver, British Columbia. The tea dates to 1910, according to tea specialist Erick Smithe. In this video he tells The Province, there are only 49 cakes remaining, all part of Kennedy Yeung’s collection. Yeung’s father is one of the foremost collectors of vintage teas, which like fine wines, improve with age. In 2013 a stack of Pu-erh cakes sold for more than $1 million per kilo at a Hong Kong auction. Brewing the first pot would cost around $150,000 Smithe estimates, largely due to depreciation that follows breaking up the cake.
Cold Tea Territory
Even in winter America is cold tea territory. Annual spending is much greater for iced and ready-to-drink teas (62%) but hot tea, driven by the specialty category, continues to grow. In the U.S. last year hot tea accounted for 30% of the $4.2 billion in packaged tea sales reported by Nielsen MarketTrack. The category grew 4% last year largely due to pricing of specialty tea which sells for three times more than commodity tea.
Sales of tea in single-serve capsules are growing in double digits.
In the U.S. upscale and specialty tea accounts for 67.2% of sales compared to 32.8% for traditional black tea, despite the fact that black tea accounts for almost 70% volume by weight, according to Nielsen Scantrack.*
*Nielsen ScanTrack National US All Outlets for the 52 weeks ending Aug. 2, 2014.
U.S. Tea Growers Update
The annual gathering of The U.S. League of Tea Growers, led by Jason McDonald, concluded this week with a simple pronouncement: “Can you grow tea in the U.S.? Yes!”
The growers are evolving from hobbyists into commercial specialists whose cutting-edge techniques will likely spread to the vast gardens overseas. Growers with at least 25 plants can join with some now cultivating tens of thousands.
The object is not to produce millions of kilos typical of African, Indian, Malaysian, Vietnamese or Sri Lankan plantations. Instead “the U.S. grown tea movement is driven in part by the increasing market demand for specialty tea and the confidence given to small farm startups created by the ‘Farm to Table’, ‘Artisan’, ‘Buy Local’, and ‘Urban Food’ movements of the past decade,” said League President McDonald who owns The Great Mississippi Tea Company.
“I am pleased with the gaining interest in the U.S. grown tea movement and think that this event gave the movement serious traction and direction going into the inaugural membership drive of the USLTG,” he said.
The conference was attended by agribusiness experts and agronomists “the goal of the Roundup was to bring together farmers and aspiring growers to discuss estate operations, Federal, State, and University resources, and tea crop production issues. There was also an opportunity to network and liaison with various research projects already underway here in the USA, according to McDonald.
Nigel Melican (orange) with USLTG members in Brookhaven, Miss.
Growers from as far as Hawaii, Nevada, Michigan and several southern states attended including representatives from Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North and South Carolina, Texas and Tennessee. There are now growers in 17 states. A highlight of the gathering was visits to select estates and research sites in Texas, Mississippi, and Louisiana. Hosts include the East Texas Tea Company, The Great Mississippi Tea Company and J&D Blueberry Farm. The gathering drew 40 to Brookhaven, Miss., during the five-day event with an additional 10 at the East Texas stop.
“This group was actually a blend of old and new folks. We definitely are attracting new folks to our mailing list weekly and are kicking off a membership drive soon,” said McDonald, who mentioned two attendees from the U.K. including co-founder Nigel Melican of TeaCraft.
“It is exciting to see more people getting interested in growing tea within the U.S.,” Dr. Guihong Bi, Assoc. Research Professor of Plant and Soil Sciences at Mississippi State University, said of the tour. “Contacts that we have made through the USLTG have been invaluable in the development of our research objectives,” he said. USLTG maintains a website (www.usteagrowers.com) a blog and can be found on Facebook.
Growers next meet at the World Tea Expo, May 6-8, 2015 in Long Beach, Calif. Learn more at: USLTG
Kumaon Tea Project Funded
Young Mountain Tea this week exceeded its Kickstarter goal ahead of schedule. The campaign has generated $26,000 with 12 days to go. It will be funded March 19. Founder Raj Vable contracted with Avani, a non-profit in the Kumaon region of Uttarakhand, northern India, to grow the bushes need to make white tea. The steep hillsides of the Central Himalayas were first planted in tea by the British who later abandoned the gardens due to challenging logistics.
Tea bushes used to make Young Mountain Tea
Avani plants tea bushes in a grid that includes indigo and madder, which are sold as raw material to make natural dye, and with sericulture trees that support silk worms whose cocoons are sold to Earthcraft to make silk. The intercropping is a pioneering type of organic permaculture. The first harvest will be in May and made teas will be available late this year.
Vable visited the region for extended stays and formed the company on his return to the U.S. He carefully planned the funding campaign aligning supporters well in advance. He first described his venture at the World Tea Expo in Long Beach, Calif.
“Participating in the New Business Boot Camp at the World Tea Expo gave us confidence and competency at a time when we needed both,” said Vable. “Equally important, it introduced us to the tea community, a welcoming and supportive group of people dedicated to combining their passion for tea with business.” To learn more: www.youngmountaintea.com.
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Tea Biz serves a core audience of beverage professionals in the belief that insightful journalism informs good decision-making in business. Tea Biz reports what matters along the entire supply chain, emphasizing trustworthy sources and sound market research while discarding fluff and ignoring puffery.
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What tea professionals need to start the week of June 9, 2014 —
We should all be drinking iced tea this week in celebration of National Iced Tea Month and out of necessity as temperatures climb… Starbucks debuts an iced tea commercial promoting Teavana shaken tea (with a national tea giveaway Tuesday)… Nestea positions for a comeback… the final count is in on India’s 2013 harvest… and coverage of this year’s World Tea Expo in Long Beach, Calif.
Single-origin, fast-chill, iced tea
This time of year dusty Kansans like me will drive to a convenience stop, race to the dispenser and gulp a giant iced tea without asking about price or refill policy. Unlike sweet tea drinkers in the Deep South, Midwesterners prefer to sweeten their tea with a teaspoon of sugar instead of a quarter pound scoop. Lemon optional. It is the blast of cold in the belly and the thirst-quenching astringency they seek.
Tea is a beverage enjoyed by more than one half of America’s population on any given day. According to the Tea Council in 2012, Americans drank more than 3.6 billion gallons of tea – enough to fill the Empire State Building more than 13 times. Since 85% of the tea Americans drink is iced, the U.S. celebrates a love of this healthy beverage every June with National Iced Tea Month.
Lately I’ve noticed that restaurants are making a lot better tasting iced tea. Thirty years ago I shunned the movement to mask the anemic qualities of restaurant tea with raspberry and strawberry and peach flavoring. Instead I’d request a pot of hot tea with two bags and a tall glass filled to the brim with ice. I would patiently brew the tea double-strength and pour it over the ice, diluting it nicely as it chilled. The fresh brew flavor was like home but the tea bag blends were typically stale.
At home I use a full-bodied loose leaf Ceylon or a malty Assam brewed in a Takeya flash-chill pitcher of ice. No sugar needed. Sometimes I drink three quarts a day.
The other day I was dining at a highly-rated Seattle restaurant that uses the fresh-brewed, flash-chill technique and I got to gulping. “Will you bring another,” I asked the waitress… “and another”… “and another.” This was a Sri Lankan Ceylon from Barnes & Watson made like I do at home.
The guys at Wilbur Curtis noticed the trend. When I spoke to them at World Tea Expo they said restaurants are filling the company’s foodservice iced tea dispensers with several pounds of ice and then brewing the tea extra strong. The tea is then released into the ice-filled dispenser to flash chill.
In April I was interviewing Janaki Kuruppu who chairs the Sri Lanka Tea Board. The topic shifted to iced tea and she revealed a strategic effort to promote Ceylon as an iced tea supplier in the foodservice segment. I assured her Americans are ready for a full-bodied, brisk flavored single-origin thirst quencher.
Blood Orange Sorbet Oolong Iced Tea
Iced Tea Tuesday
Teavana stores nationwide in the U.S. and Canada will offer one free small serving of brewed Raspberry Limeade Iced Tea to each customer who makes a purchase in a Teavana store or Teavana Fine Teas + Tea Bar. The new Raspberry Limeade Tea, available in Teavana stores today, is Teavana’s unique take on the summer favorite of raspberry limeade.
The company debuted a “Shake it Up” commercial in several markets to promote it summer teas. The ad depicts several baristas agitating colorful flash-chill pitchers of iced tea. Teavana recently released four new iced tea blends including a Blood Orange Sorbet Oolong,
Teavana is also inviting customers to digitally “toast” on National Iced Tea Day, June 10, and throughout June, by posting #IcedTeavanaSweeps photos that show how and where they are raising a glass to summer. For the chance to win a $500 Teavana “Upgrade Your Iced Tea” shopping spree, tea lovers across the U.S. will be encouraged to use the hashtag #IcedTeavanaSweeps and do one of the following*:
Forbes last week published an article on renewed efforts by Nestle Waters to revitalize its Nestea brand. Two years ago the company invested in Sweet Leaf Tea and Tradewinds bottled tea. The Nestea brand was once the king of the cooler until Lipton and Arizona seized the shelf space in most convenience outlets.
Nestea’s Rick Tanner, vp of marketing for Nestle Waters, told Forbes that the worldwide restructuring with Coca-Cola allocated Nestea to his portfolio: “We think Nestea is going to be the big driver. It’s got 95% awareness but little consideration,” he said.
“Arizona really redefined the category about 12 years ago and caught Lipton and Nestea sleeping,” said Tanner.
The company is releasing a new TV commercial updating the familiar “Take the Nestea Plunge” slogan.
“We expect to do a lot in the space of digital engagement around the plunge and work with key partners such as Facebook, Google and a few others to leverage the Nestle global partnerships we have in the digital and social media space,” he said.
World Tea Expo
The Long Beach location was great and World Tea Expo once again demonstrated the collegial affability of global tea. Attendance was 4,600 with tea lovers from 50 countries in the aisles and about 200 exhibitors on the floor.
The program was enriching with returning favorites including Jane Pettigrew, Thomas Shu and James Norwood Pratt, Bruce Richardson, Anupa Mueller, David Walker, Rona Tison and Dan Robertson with lots of new ideas from speakers including Peter Marino, Shabnam Weber, David De Candia, Emeric Harney, Elyse Petersen, Naomi Rosen, Robert Wemischner and James Oliveira.
Download the sessions on tea marketing with David Sprinkle (Packaged Facts), Lynn Dornblaser (Mintel International) and Jonas Feliciano (Euromonitor International) along with the Health Beverage overview by National Marketing Institute’s Steve French.
Cha Jing Lifetime Achievement Award
LONG BEACH, Calif. – Specialty tea import pioneer Devan Shah basked in the warmth of praise and standing applause of his peers at a black-tie ceremony on board the Queen Mary, tearful in gratitude before family and friends.
Devan Shah
In accepting the Cha Jing Lifetime Achievement Award at the 2014 World Tea Expo, Shah spoke of his heritage in the tea lands of India and the remarkable opportunity America presented 25 years ago on the founding of International Tea Importers (ITI).
His lifetime commitment to tea education and innovation was detailed by author James Norwood Pratt who cited the creation of the Chado Tea Rooms, the Los Angeles International Tea Festival and that fact that Shah was perhaps America’s most influential champion of chai. “Everyone knows black tea is the most popular tea here and that green tea is second, but few recognize that it is Devan who made chai the third most popular tea in America,” said Pratt.
As emcee George Jage, Founder & Director of The Beverage Group @ F+W Media, Inc., said “Devan helped spearhead America’s tea renaissance.”
Shah has financed books, sponsored seminars and exhibitions, given talks and presentations and hosted countless tea samplings at events that led others to the discovery of fine tea.
“Shah has extended his love of tea to thousands,” said Jage, who presented the crystal trophy.
Against life-size images of his activities projected on the big screen in the stately Queen Mary Salon, Shah humbly thanked the crowd, his daughter and immediate family and the many relatives who traveled from his beloved Nilgiris to attend the banquet.
“Tea, the most romantic of all beverages, has certainly come a long way in the United States,” said Shah. “It has seen steady growth year-over-year for the last 15 years, and I am proud to be a part of that growth, and I am very grateful for this honor.”
The Cha Jing Lifetime Achievement Award (#ChaJingAward) recognizes and celebrates individuals who have made considerable contributions to the growth, innovation and education of the specialty tea industry throughout their lifetime.
Shah received toasts well into the night in the celebration that followed on the observation deck of the historic ship.
World Tea Award Winners
Ten presentations preceded the awarding of this year’s Cha Jing recognition in categories that follow. George Jage and Gail Gastelu, publisher of the The Tea House Times introduced winners following a tally of several thousand online ballots by attendees.
“Collectively, you are all winners,” said Gastelu, “But, tonight we honor and further recognize our peers who have risen to the top to help raise us all a little higher.”
Winners include:
Best Tea Spirit: James Norwood Pratt, tea author and expert, San Francisco, Calif.
Best Tea Educator: Jane Pettigrew, tea author and consultant – United Kingdom
Tea as an Ingredient – “Ladalu Chakra” (Lumbini Tea Factory Sri Lanka)
Tea Ware – “Deluxe Iced Tea Beverage System” (Takeya USA)
Open Class – “Tea Pee – Prostate Support Tea”(Nuwati Herbals)
India Tea Production Tally
NEW DELHI, India – Final figures for the 2013 harvest reveal an increase of 6.19% to 1.205 billion kilograms, up from the 1.135 billion harvested in 2012.
The India Tea Board reports combined output of Assam and West Bengal and other north Indian states increased 7.56% to 960.96 million kg. The two states grow almost 80 percent of India’s tea. Production in the southern states of Tamil Nadu, Kerala and Karnataka rose to 244.44 million kg last year, up slightly from 241.69 million kg produced in 2012.
Here is the Tea Association of USA’s iced tea recipe:
Drink it by the pitcher. Since tea contains no sodium, fat, carbonation, or sugar, it is virtually calorie free. To top it off, there are decades’ worth of research showing that the many bioactive compounds found in tea, called flavonoids, may contribute to overall health.
Bring one quart of fresh, cold, filtered water to a full boil in a teapot
Remove from heat and add 8–10 tea bags per quart of tea you are making
Steep for three to five minutes and pour over ice cubes or into additional cold water
To serve, pour into tall glass filled with ice, garnish and sweeten as desired
*Note:This recipe uses 50 percent more tea than is used to make hot tea to allow for dilution by ice.
Whether you prefer black, green, white or oolong tea, you are in good company. Peter Goggi, President of the Tea Council of the USA recommends drinking plenty of tea, saying, “not only are many different types of teas available to suit each taste preference, but the amount of quality research being done on tea continues to support the idea that drinking tea can be a fulfilling, healthy addition to your diet.”
Tea Biz serves a core audience of beverage professionals in the belief that insightful journalism informs business decision-making. Tea Biz reports what matters along the entire supply chain, emphasizing trustworthy sources and sound market research while discarding fluff and ignoring puffery.
Tea Biz posts are available to use in your company newsletter or website. Purchase reprint and distribution rights for single articles or commission original content. Click here for details.
Hard numbers are hard to find but a year after it was sold to Starbucks Teavana appears to be on a roll.
At the company’s annual meeting in March CEO Howard Schultz introduced Oprah Chai Tea in a surprise announcement that brought the celebrity on stage to discuss her love for tea.
The audience was treated to samples and Schultz said $1 from every 2 ounce package would support Oprah’s favorite charities. He announced the construction of 20 new Teavana tea bars in 2014 with major cities including Chicago and Los Angeles. The tea goes on sale Apr. 29.
Schultz reasserted that “a year after the acquisition of Teavana, we are more convinced than ever that we have the opportunities to transform the tea category in the way we have transformed coffee all around the world.”
Earlier in the year, during the company’s quarterly earnings report, Shultz said that Teavana’s two flagship stores in New York and Seattle are demonstrating that Starbucks’ single largest investment to date is beginning to pay off.
“Recent research confirms that Teavana now enjoys the highest level of awareness of any super premium tea brand and like Starbucks, Teavana had a solid Q1,” Schultz told analysts.
Starbucks reported a record $4.2 billion in revenue during the quarter including $159.2 million in the segment that includes Teavana. Overall the company grew revenues 12% with comparable store sales rising 5% in the Americas where store traffic increased 4%.
Financial record footnotes* state that an increase of 174% over Q1 FY13, “is primarily due to the addition of Teavana retail store revenues beginning in Q2 of FY13.” The $159.2 million combines revenue from Seattle’s Best, Evolution Fresh, Digital Ventures and Teavana. The first quarter includes holiday spending and is always strong but revenue in the segment is on track to post $630 in combined sales, most than half of which will be from Teavana.
In the company’s annual report, released in September, the financial segment that includes Teavana grossed $393.7 million for the year which was up 88.7% compared to the previous year largely due to the contribution from Teavana, but the exact amount Teavana contributed was not stated. Net revenue for the segment increased $185 million during the year, “driven by incremental revenues from the acquisition of Teavana in the second quarter of fiscal 2013 (approximately $156 million),” according to the financial filings.
Prior to the Starbucks acquisition Teavana reported quarterly earnings of $43 million and estimated annual sales of approximately $250 million. The company operated 284 stores at that time so a useful guesstimate is annual sales of at least $350 million. The final number will depend on how many stores are built. Teavana’s mall venues typically gross $850,000 to $1 million in sales. Going forward analysts will be able to compare year-over-year results.
Schultz said that “one year into the integration of Teavana, we are poised to begin the roll out of additional stores on the heels of the successful opening of our first two Teavana tea bars in New York City and Seattle.” The company, which currently operates 366 stores, intends to open 1000 more in the next five years. This averages 4 to 5 stores per week, a threshold easily met by a company that currently opens 1,500 coffee shops a year.
As it did with coffee, Starbucks is building gorgeous Tea Bars to showcase the brand in highly visible locations like New York City’s Central Park and Seattle. It will then roll out smaller venues in major cities around the country. These stores are cost-efficient and designed to drive profitability.
“These two beautiful new stores are already providing us the key insights that will help us achieve our goal of combining and leveraging Teavana’s strength and authority around loose-leaf tea and tea merchandising,” according to Schultz. Starbucks understands consumers and what it takes to profit from innovative, handcrafted beverages and a retail store development to create a new retail platform and a unique international premium tea house experience.
Reading consumer response online offers a glimpse of these insights:
On Yelp! Jackie F. from Miami writes: “I had heard about this store opening and made sure that I visited on my weekend trip to NYC… love the environment, service and choices that were available. I have purchased my first three loose teas and sugar and looking forward to buying more in the future. Emily was extremely attentive and helpful during my selection process… she wasn’t pushy or overbearing. Can’t wait to get home and make it on my own.”
Nathali Z. from Brooklyn writes: “I came here led by my cousin who is a Teavana aficionado. I was excited to be in this new space and have my first Teavana Tea. The place was busy with people being helped by sales associates. When we ordered our tea the staff was very friendly, cheerful and attentive. There is an area to sit down and have our “bites”. My cousin got a chocolate brioche and I had a croissant. They were yummy but not spectacular. The tea on the other hand delicious! It was very calm and my cousin and I were excited to be one of the first people here. Definitely coming back!”
Katie R. in New York writes: I LOVE THIS PLACE! I’m so glad that Starbucks has finally opened up its first tea location… Long overdue… I’d visit this over a Starbucks coffee shop any day. I’m tea obsessed and Teavana has the best teas, hands down. The chai latte was incredible. The food selection looked great, too! I just hope they expand to other locations in Manhattan, so I don’t have to make the trek to the Upper East Side.”
This is Yelp! after all, so there were also complaints: “Plenty of cash registers, not enough tables and chairs… “NO where to sit…. and “I really wanted to like this place, but my gut is that it is a concept that won’t work… and “Because there is no coffee, it is not a place to be patronized by groups of people together, because some will inevitably prefer coffee…” comments overall were were positive or benign: “Pretty spot! I got the coco caramel sea salt latte, which ended up being too sugary and sweet for me, even after they remade it without putting any syrup in it!! The jasmine silver needle in a pot was good, though!”
Marketing is much stronger under mighty Starbucks and the public relations team that handles the account at Edelman is first-rate. In January the timely introduction of a limited edition Golden Dragon Yellow tea drew media attention and the Chinese New Year loyalty card and teaware are further evidence of integration of the brand. Customers loaded $1.4 billion onto Starbucks cards last quarter, up $260 million from the previous year. Teavana branded cards are interchangeable with the familiar mermaid which means that 40 million cardholders can conveniently charge a drink. Customers activated more than 2 million new cards a day in the week before Christmas.
Premium single cup is the fastest growing segment in at home coffee and Starbucks has grown its share to 18% of the segment over the last two years, said Schultz. The company has now sold 2 billion K-Cups. Last spring the company introduced Teavana flavors in K-Cups™ and this fall Teavana chai launched in Starbucks’ Verismo single-cup format.
Upgraded Teaware
The website has not undergone a lot of visible changes, but a close look shows an upgrade in teaware including an expanded number of exclusives. Porcelain and bone china are featured along with a packaging refresh with a QR Code and new graphics. The Teavana smartphone app has been updated to make it easier to locate stores. Teavana has 328,000 Facebook likes (Starbucks has 36 million and 5.6 million Twitter followers).
Mall-based stores as a whole were hard hit by a 15% slowdown in retail foot traffic and since the majority of Teavana stores are located in malls that had to hurt. Most of Teavana’s 366 stores in the U.S. and 62 shops in Canada are company owned. It also has 28 franchised stores in Mexico.
The tea market is a huge opportunity for the company. Globally tea is estimated at $90 billion with only a fraction of the tea sold as “value-added.” In fact, the majority is not even packaged. The success of the flagship stores means the company will expand more quickly now.
Two developments hint at the future for Teavana. During a major reorganization of the senior management last week it was announced Schultz “will expand his focus on innovation in coffee, tea and the Starbucks Experience as well as next generation retailing and payments initiatives in the areas of digital, mobile, card, loyalty and e-commerce.”
In his remarks Schultz promised “to bring breakthrough innovation to the tea category in the U.S. and Canada this spring and summer and to the international markets in the years ahead.”
A second clue is that Teavana founder Andrew Mack has retired from Starbucks. Teavana named Starbucks Vice President Annie Young-Scrivner the new President of Teavana and placed Teavana under the direction of Cliff Burrows, who is group president, U.S., Americas and Teavana. Young-Scrivner previously led the Tazo Tea division and was in charge of Starbucks Canada. Burrows, 54, joined the company in 2001 and previously worked as managing director of the U.K. division where franchising is common.
Look for Teavana to expand overseas via traditional franchising. The EMEA region now has 2,033 stores of which 1,177 are franchised. Starbucks has very strong franchise relationships in both Europe and the Middle East. Sales growth in the region was 11% last quarter with revenues of $339 million. A turn-around in the EMEA results, which were previously slack, suggests an opportunity for expansion that would include Teavana.
Financial Footnotes:
The Teavana sale closed Dec. 31, 2012. The final accounting states that Starbucks paid $615.8 million in cash. At closing the company repaid $35.2 million in long term debt. Intangible assets such as the Teavana name were valued at $105.5 million. Teavana’s proprietary tea blends were valued at $13 million. An astounding $467.5 million of goodwill represents the intangible assets that do not qualify for separate recognition, such as established global store presence in high traffic malls and high-sales-volume retail venues, Teavana’s global customer base, and Teavana’s “Heaven of tea” retail experience in which store employees engage and educate customers about the ritual and enjoyment of tea.
Starbucks has underscored Teavana’s role in the company by teaming with chai-loving icon Oprah Winfrey, who arrived to cheers at Starbucks’ annual shareholders meeting in Seattle March 19 to introduce Teavana Oprah Chai, a custom blend arriving in Teavana and Starbucks stores next month.
A year and a half after Starbucks bought Teavana, Starbucks CEO Howard Schultz is still touting the company’s commitment to tea – “the $90 billion global tea market,” as he told the shareholders several times.
“We’re going to do in the long term for tea what we have done for coffee,” Schultz said, noting that he sought a like-minded partner to promote Starbucks’ refocus on tea.
The introduction of Oprah Chai is not only promoting a love of tea, but also reinforces Starbucks’ charitable efforts. (At its annual meeting Schultz emphasized its recent support for veterans’ groups and hiring veterans and veterans’ families.) Because Winfrey is also known for her charitable work, sales of Teavana Oprah Chai will benefit the Oprah Winfrey Leadership Academy Foundation, which supports education programs for youth. For every two ounces sold, $1 goes to the charity.
The blend goes on sale April 29 in Teavana and Starbucks stores in the U.S. and Canada. It is described as an infusion of cinnamon, ginger, cardamom and cloves, blended with loose-leaf black tea and rooibos. Winfrey developed the blend with Teavana teaologist Naoko Tsunoda.
Baristas at the meeting offered samples of sweetened and unsweetened varieties to good reception, even for this generally coffee-focused crowd. (Starbucks annual meetings are appreciated for their generous spread of coffees and bakery items – which this year were all from La Boulange, which Starbucks acquired a year ago).
Winfrey and Schultz settled into overstuffed chairs on stage to discuss their deal.
Schultz related that he had observed Winfrey drinking tea at a wedding they both attended. “You didn’t think much of the brand,” she reminded him wryly. He didn’t, and so he sent a sampling of Teavana Chai to her hotel room, which began a conversation that led to her designing Teavana Oprah Chai with the Teavana development team.
“Starbucks is not just a coffee company. It’s about nurturing the human spirit,” Winfrey said. “And that has been my goal in life. This felt like something I really loved and I really cared about and that would be fun to do.” She said she is a longtime chai drinker and welcomed the opportunity to develop her own blend. Teavana Oprah Chai will be served to guests on “Steep your Soul,” a new segment on the OWN Super Soul Sunday show, when guests share their recharge rituals. “I offer them my chai, and they take it whether they like it or not,” Winfrey declared.
Schultz referenced both the common ground of commitments to social causes and having gone through difficult times as businesses. Headlines flashed on the display at the shareholders meeting referenced both lucrative times for Starbucks and the rocky start of the OWN cable network. He said he sought a partner who “loves tea” and “is committed to giving back.”
The packaging is distinctive, too: the canister is an attractive light olive tone with copper lid. The clever box design has an orange base but that same olive-green lid, short enough to show the orange base.
Teavana Oprah Chai will also be featured in a new store design, Teavana Fine Tea + Tea Bars, open now in Seattle and New York and scheduled to open 20 additional locations in the coming year including Chicago, Los Angeles, and New York City.
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