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Teavana cooperation2

US: AB InBev and Starbucks join forces on tea

Anheuser-Busch InBev and Starbucks have announced an agreement for the brewer to produce, bottle and distribute a ready-to-drink line of Starbucks’ Teavana brand tea in the US.

The move will help Starbucks broaden its reach beyond coffee, a push the company has been making in recent years in an effort to find new avenues of growth.

It will help AB InBev fill capacity at breweries while its US beer volumes have been falling and give its network of more than 500 distributors a nonalcoholic beverage to sell.

Ready-to-drink tea is one of the fastest-growing beverage categories in the US, with consumption rising 6.1% in 2015, according to data service Beverage Marketing Corporation.

Teavana cooperation“We see an amazing opportunity for tea,” said AB InBev CE Carlos Brito (right), who was joined in St Louis by Starbucks CE Howard Schultz (left) for a media call.

Brito said Starbucks stores would develop new tea flavours, and AB InBev would produce those flavours at one of its dozen US breweries for sale across about 300,000 convenience stores and supermarkets.

Schultz said he and Brito began discussing the opportunity to partner on tea several months ago. Starbucks has had a joint venture with PepsiCo since 1994 to produce and sell ready-to-drink coffee, but could not work with PepsiCo on tea because the soda and snack company already has a joint venture with Unilever for the Lipton, Pure Leaf and Brisk brands.

Starbucks in 2012 bought Atlanta-based tea retailer Teavana Holdings for $620m in cash, its biggest-ever acquisition. Schultz at the time said his company would try to bring a Starbucks-like experience to Teavana, a mall retailer that sold most of its tea in loose-leaf form for home consumption.

The coffee maker said its US locations had sold more than $1bn worth of handcrafted Teavana tea beverages over the past year, representing 11% growth in year-on-year sales.

Starbucks has increasingly been moving into supermarkets and convenience stores with packaged products in an effort to broaden its reach and reduce its reliance on its cafes, which also have begun selling more food and non-coffee beverages.

Expanding Teavana into ready-to-drink teas was designed to increase awareness of the brand and increase trial, said Schultz. He added that the companies were “sitting on a very, very large category” and said AB InBev’s distributors reached about 100,000 more stores than PepsiCo did with Starbucks ready-to-drink coffee products.

Starbucks had a 75% share of the $3.59bn US ready-to-drink coffee market last year, according to data service Euromonitor. Its partner, PepsiCo, had an industry-leading 29% share of the $7.57bn US ready-to-drink tea market in 2015, according to Euromonitor.

Starbucks has relied on other manufacturers in the past to make and distribute certain products. Although its long-term partnership with Pepsi has been a success, Starbucks has learnt that handing over control of a brand to an outside party does not always work.

Starbucks took over sales of its bagged coffee business in supermarkets from Kraft Foods in 2011 after alleging the food company was selling outdated packages and not securing enough shelf space. Kraft denied the allegations and in 2013, after it was renamed Mondelez International, was awarded $2.23bn in damages from an arbitrator.

Source: Wall Street Journal