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Unilever acquires Starbucks’ specialty tea brand Tazo for $384m

Unilever is to buy the Tazo brand from Starbucks, a leading brand in the fast-growing specialty tea category in a deal worth $384-million.

THE BRAND has been a strong favourite amongst Starbucks’ millennial customers and is described as a “perfect fit” to Unilever’s portfolio of specialty brands. Under the asset purchase agreement, Unilever will acquire the Tazo brand and all related intellectual property, signature recipes and inventory. 

“With its strong appeal to millennials, Tazo is a perfect strategic fit for our US portfolio that includes exciting new brands such as Seventh Generation, Dollar Shave Club and Sir Kensington’s,” said Kees Kruythoff, president, Unilever North America. 

“Tazo’s solid position in the fast-growing specialty tea segment, coupled with Unilever’s tea expertise, presents a fantastic growth opportunity.”

“Tazo represents another strategic addition which strengthens our tea portfolio towards high growth segments. Its artfully-crafted specialty teas perfectly complement our global tea business, which includes Lipton, Pure Leaf, PG Tips, T2 and our recent addition, Pukka,” said Kevin Havelock, president of Refreshment, Unilever.

Founded in 1994, Tazo has a strong position in Specialty Black, Green and Herbal teas, as well as liquid concentrate focused in the Chai Latte segment. 

Starbucks originally acquired Tazo in 1999 for $8.1-million, and thus the deal marks a more-than 47-times return on investment.

Starbucks turns to Teavana

While Tazo had sales of $112.5-million over the past year, Starbucks believes that it will be better-served by focusing on further developing its Teavana business, which recorded $1.6-billion in sales over the same time period thanks to beverages sold in stores and ready-to-drink packages.

This is despite its July announcement that it would closing its 379 Teavana stores — the entirety of the fleet.

“As reported on the second quarter call, many of the company’s principally mall-based Teavana retail stores have been persistently underperforming,” the company said. A strategic review of these stores concluded that this underperformance “was likely to continue”.

The majority of Teavanas will be closing by spring 2018, though Starbucks was careful to note that the 3,300 employees affected by the closures will have the opportunity to re-apply for positions at Starbucks stores. The company is still targeting the creation of 68,000 new jobs in the US over the next five years.

The goal now, Starbucks says, is to build Teavana into a $3-billion business over the next five years.

“With our growth strategy for premium tea exclusively focused on Teavana, we are pleased to transition our Tazo business to Unilever,” Starbucks president and CEO Kevin Johnson said.

“We continue to see significant growth in our tea business through our Teavana brand, and this transition supports our strategy to elevate the premium tea experience for our customers.”

The fast-growing specialty tea segment makes up 48 percent of the total $1.6-billion (FY 2016) at-home tea category and trends suggest it will become more prominent in the future. 

Tazo is sold primarily in grocery, mass and convenience channels in the US and Canada and is offered in formats including packaged teas, K-Cup: registered: pods and bottled ready-to-drink teas.

The acquisition is subject to regulatory approval and the transaction is expected to close in the fourth quarter.

The purchase follows disappointing Q4 earnings for Starbucks. Starbucks reported revenue that was under analysts expectations which then led to a fall in shares on Thursday (November 2). 

The chain – which reported net income of $788.5-million, or 54 cents per share, in the three months ending Oct 1, while adjusted earnings came to 55 cents per share – is trying to get a handle on dwindling footfall in the US in the current challenging retail and restaurant space.