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US: Starbucks turns to tea

It used to be in America, way back when Ronald Reagan was president, that people ordered coffee by simply asking for “coffee”. Ordering a “venti skinny chai latte” or a “grande chocolate cookie crumble frappuccino” would have earned, at best, a blank stare.

But that was before Howard Schultz took Starbucks from a single coffeehouse in downtown Seattle to a chain with more than 17,000 shops in 55 countries. The chain grew so quickly, and in some areas seemed so ubiquitous, that as early as 1998 a headline in The Onion, a satirical American newspaper, joked, “New Starbucks Opens in Rest Room of Existing Starbucks”.

After suffering through lean years in 2008 and 2009, the company is again going strong. In the 2011 fiscal year the company served 60m customers per week — more than ever. It also had its highest-ever earnings-per-share ($1.62) and global net revenue ($11.7 billion), and a British furore for paying but minimal tax in the UK.

Yet in 2011 Starbucks decided to do away with something important: it dropped the word “Coffee” from its logo.

While coffee remains as central to Starbucks’s business and identity as hamburgers are to McDonald’s, the company’s recent American acquisitions have moved it beyond java.

In November 2011 it acquired Evolution Fresh, a small California-based juice company, for $30m, giving the company a foothold in America’s $1.6-billion high-end juice market. And in June Starbucks bought a bakery, Bay Bread, and its La Boulange-branded cafes, for $100m. Starbucks’s customers “have never been as satisfied with our food as our coffee,” explained Troy Alstead, Starbucks’s chief financial officer.

On November 14th 2012, Starbucks made it largest acquisition yet, buying Teavana, an Atlanta-based tea retailer, for $620m. This is not the firm’s first foray into the tea market — its stores sell tea, of course, and it bought Tazo, a tea manufacturer and distributor, back in 1999 — but it is by far its boldest. When Starbucks bought Tazo it was simply a brand, but Teavana has some 300 shops, largely mall-based, throughout North America.

Alstead hopes that scale will allow Starbucks “to do for tea what we did for coffee.”

The plan is to expand Teavana’s footprint beyond the mall with stand-alone shops, adding tea bars with specialty drinks, AP reported.

Starbucks’ chief executive, Howard Schultz, noted that Starbucks cafes only sold coffee by the pound in 1987, with the offerings of specialty drinks evolving over time. Schultz said the company would use that experience to transform Teavana over time as well.

Starbucks also announced plans earlier this year to open its first Tazo tea shop where customers can buy specialty drinks and blend loose leaf teas with the help of employees — not unlike the shops it’s now envisioning for Teavana.

Schultz said that the Tazo shop will serve as a “learning laboratory” for its development of Teavana stores. He said that the brands give the company a two-tiered approach to the fast-growing tea category, since Teavana is a premium loose leaf tea while Tazo is a bagged tea product sold in supermarkets

Schultz said Teavana will also move into the consumer packaged goods category, meaning it will also be sold in supermarkets.

This new foray may seem, as they say at Starbucks, a tall order. Americans drink far more coffee than tea. In 2011 the average coffee consumption was 9.39 pounds per person, while tea was a paltry .9 pounds. Coffee has long been an essential part of American mornings. Tea has no comparably entrenched position, except for the tooth-shiveringly sweet iced tea served during meals in the South (85% of all tea consumed in America is iced).

That said, since 1980 America’s coffee consumption has fallen, and is forecast to fall further. Consumption of tea, on the other hand, has grown, and is forecast to keep growing — perhaps benefiting from the perception that it has health benefits that coffee lacks, perhaps driven partly by immigration from tea-drinking countries.

The Tea Association of the USA put the value of the tea market in America at $8.2 billion in 2011, up from $1.8 billion just 20 years earlier, and forecasts that it will nearly double in value again by 2014. The sharpest growth will come from tea that is green — which also happens to be the colour of money and the logo of Starbucks.

Source: The Economist