A look at Starbucks' tea shop competitors

Starbucks is taking a bigger step into the tea world with a new Tazo Tea concept to debut later this year.

Starbucks has been selling Tazo Tea in its coffeehouses and grocery stores for years, but the new concept will be the tea brand’s first outlet.

Though the coffeehouse giant is not talking about a nationwide chain of tea shops just yet, the move draws attention to the niche tea category, where a small but growing number of concepts are offering a modern take on what is becoming an increasingly popular beverage.

One of the biggest tea retailers is Teavana Inc., with more than 200 mostly mall-based stores. Argo Tea is a tea shop/café concept that is also growing its grocery store and foodservice presence. Jamba Juice last year acquired the premium Talbott Tea brand with plans to grow tea options in its smoothie shops as well as a packaged product in grocery and other retail outlets. And tea wholesaler Stash Tea is planning to open a tea bar location in Portland later this year.

Tea is among the top five fastest growing beverages on restaurant menus, according to market research firm The NPD Group. The beverage fits what research says consumers are looking for today: Tea is low in calories and has a healthful profile; it can be both soothing or refreshing; and it's becoming increasingly innovative with exotic blends and flavorings.

Tazo Tea is already a $1.4 billion brand for Starbucks, considering revenues from the sale of tea in coffeehouse locations and through Consumer Packaged Goods, or CPG, channels.

Tazo is among Starbucks’ “emerging brands,” which includes the recently acquired Evolution Fresh juice maker and Seattle’s Best Coffee, both of which also have retail locations, as well as a presence in grocery stores and in Starbucks coffeehouse units.

Scheduled to open in October in Seattle, the Tazo Tea concept will be a 1,700-square-foot shop where customers can choose from more than 80 varieties of loose-leaf tea. Guests will be able to create their own personalized blend, or find equipment or tea-related merchandise.

The shop will also have a Tea Bar that serves hand-crafted tea drinks — from iced teas to tea lattes — as well as tea-friendly foods such as pastries, baked goods, chocolates or infused sugars, said Holly Hart, Starbucks spokesperson.

“It will be a playground for tea customers,” said Hart. “But it will be just one of the ways we’re looking to elevate the tea experience because we know that’s what customers are looking for.”

In a recent report, Sharon Zackfia, an analyst with William Blair & Co., predicted that Starbucks will take learnings from the Tazo location test to enhance its tea-beverage platform within its coffeehouse units.

Here's a closer look at what brands Starbucks' new tea concept is up against.

Teavana

Starbucks’ largest tea competitor is Atlanta-based Teavana, a chain of upscale tea shops offering loose-leaf teas and accessories — as well as beverages served in house — in 223 company-owned locations in the U.S. and Canada and 18 franchised locations, mostly in Mexico.

The concept aims to translate the rituals and culture behind teas from around the world with the use of in-store “teaologists.”

Teavana is growing. Earlier this month, parent company Teavana Holdings Inc. through a subsidiary acquired Teaopia Limited, a mall-based specialty tea retailer in Canada with 46 locations, for $26.9 million.

Starbucks’ Tazo Tea store will likely have a more-hybrid beverage/merchandise mix, while Teavana currently generates less than 5 percent of revenues from beverages, noted Zackfia of William Blair & Co. Tazo will also likely focus on more street and neighborhood locations, while Teavana is largely mall based.

“It also remains a question as to how effective Tazo’s selling and educational techniques will be for a U.S. customer base that remains largely untutored in the art of tea, whereas Teavana’s intensive training processes are well proven, given incredibly high sales productivity of nearly $1,000 per square foot,” Zackfia wrote.

The publicly traded company was founded in 1997 by Andrew Mack and his wife Nancy Mack.

Argo Tea

Based in Chicago, Argo Tea could be called the “Starbucks of tea” based on its contemporary menu of hot and cold teas, and healthful food offerings, from savory and sweet pastries to tea-infused grains, salads and panini.

Among tea beverages served in house, guests can choose from a selection of signature drinks, such as a Chocolate Mint, steamed cocoa with mint and tea; a carbonated iced Tea Sparkle; or a White Tea Açai Squeeze with açai berries, white tea and lemonade, for example. A wide selection of loose teas and accessories, as well as bottled drinks, are also available.

The first Argo Tea location opened in 2003, and the chain now has about 25 locations in Chicago, New York, Boston and St. Louis. Argo recently signed a licensing agreement with Azadea Group to open 100 stores in the Middle East, with the first scheduled to open this fall in Beirut, Abu Dhabi and Dubai.

Last year, Argo launched a line of ready-to-drink CPG products, which are now sold in about 10,000 retail locations, the company said. Also new is a Bag-in-Box foodservice format product line that company officials said is being evaluated by several national restaurant chains.

“With a multi-channel distribution system in place to sell its high-quality, premium products, we believe Argo is poised for robust growth as we continue a national roll out of brand-building flagship cafes and ‘teaosks’ in world capitals and engage additional channel partners in the retail and foodservice markets,” said Dana Dimitri, Argo’s director of marketing, in a statement.

The company, which was founded by Arsen Akavian, expects systemwide sales to reach about $20 million in 2012.

Talbott Teas

The parent company to the Jamba Juice smoothie chain acquired Talbott Teas earlier this year after the Chicago-based tea brand was featured on the ABC-TV show “Shark Tank.”

James White, chair, president and chief executive of Emeryville, Calif.-based Jamba Inc., said the premium tea brand fit with Jamba Juice’s positioning as a health-and-wellness lifestyle brand.

Previously sold online through QVC, or through high-end grocery stores, salons and spas, as well as luxury hotels, Talbott Teas will soon be available for sale at Jamba Juice’s 750 locations across the country as brewed beverages and packaged products.

Stash Tea

Based in Tigard, Ore., Stash Tea Co., is primarily a wholesale tea brand sold in grocery stores and online, as well as supplying foodservice outlets around the country.

The brand’s only retail location is near its corporate headquarters in Tigard. But later this summer, the company plans to open a second retail store in Portland that will have a tea bar that sells hot and iced brewed teas, as well as a small menu of baked goods, tea and teaware, said company spokesperson Dorothy Arnold.

Contact Lisa Jennings at [email protected].
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