Taking another bold step into the $40 billion global tea industry, Starbucks on Thursday announced an agreement to acquire Atlanta-based Teavana Holdings Inc., a mall-based retail tea store chain, for about $620 million in cash.
Starbucks already owns the Tazo Tea brand, which generates an estimated $1.4 billion in annual revenues with the sale of tea in coffeehouse locations and consumer packaged goods channels. Earlier this year, Starbucks announced plans to open its first Tazo Tea-focused concept.
The nearly 300-unit Teavana was Starbucks’ largest competitor in the tea world. The publicly traded company was co-founded in 1997 by Andrew Mack, who, under the deal, will stay on as chief executive of Teavana, leading day-to-day operations.
Starbucks’ chair, president and chief executive Howard Schultz said joining forces with Teavana will complement the existing Tazo brand, creating a unique “two-tiered market position” that ultimately will “create a differentiated customer experience and business opportunity that delivers immediate value to shareholders.”
Tea — particularly iced tea — is among the top five fastest growing beverages on restaurant menus, according to The NPD Group. “We believe the tea category is ripe for reinvention and rapid growth,” said Schultz. “The Teavana acquisition now positions us to disrupt and lead, just as we did with espresso starting three decades ago.”
Teavana is an upscale tea shop where “teaologists” aim to educate and translate the rituals and culture behind teas from around the world. Less than 5 percent of Teavana’s sales come from beverages served on site, though analysts have estimated the chain’s retail sales, including tea-related merchandise, are nearly $1,000 per square foot.
Starbucks said it plans to continue to grow the Teavana concept, adding a neighborhood store variation of the brand that will accelerate the tea shop’s growth both in and outside of malls.
The move also marks a continuation of Starbucks' growth through acquisitions as the coffee company builds its product base, entering new categories and new channels of distribution, said Jeff Hansberry, Starbucks’ president of channel development and emerging brands. Over the past two years, Starbucks has acquired the Evolution Fresh juice brand, as well as La Boulange Bakery.
For its most recent quarter ended July 29, Teavana reported a loss of $146,000, compared to a profit of $1 million the prior year, in part because of expenses tied to the acquisition of a tea chain in Canada. Earlier this year, Teavana Holdings through a subsidiary acquired Teaopia Limited, a mall-based specialty tea retailer in Canada with 46 locations, in a $27 million cash deal. Those stores are being converted to the Teavana brand.
Teavana’s net sales for the second quarter increased by 38 percent to $43.1 million, including $2 million from the Teaopia chain. Same-store sales rose 3.5 percent.
Teavana also opened its first store in the Middle East, in partnership with Starbucks’ existing joint venture partner there, M. H. Alshaya. The chain plans to continue moving into new, “high-consumption tea markets” around the world, Starbucks said.
“After growing Teavana for 15 years, we are thrilled that Starbucks will be able to truly fulfill our mission of bringing premium tea to millions of people on a global platform," said Teavana's Mack in a statement. "It is with great respect for what Howard and his team have built that we join the Starbucks family.”