Site-Wide Activity Forums Tea News and Information Starbucks is buying Teavana!

12 replies, 6 voices Last updated by Profile photo of Dan Bolton Dan Bolton 4 years, 7 months ago
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  • #9077
    Profile photo of Jackie
    Jackie
    Keymaster
    @jackie

    We’re just getting the big news about Teavana’s acquisition by Starbucks via several channels. @xavier just shared it in the activity stream – wow! I’m going to drop in several article links that I found, some on twitter, some on G+. I saw that @iheartteas linked to another article there too. 

    Xavier linked to this article by 4-traders.com

    Rachel linked to this article from the Starbucks Newsroom. Teavana have also updated their facebook page. 

    Someone on twitter linked to this one on abc News. http://abcnews.go.com/blogs/business/2012/11/starbucks-sbux-acquires-teavana-for-620m/

    So Starbucks shares went down but Teavana’s went up. 

    Thoughts?

  • #9078
    Profile photo of Xavier
    Xavier
    Participant
    @xavier

    From a stock market point of view?

    My two euro cents point of view.

    People are expecting to make a profit from Teavana and are buying it but they don’t really see yet how Starbucks will really benefit from this new adventure (and are selling their stocks).

  • #9079
    Profile photo of Xavier
    Xavier
    Participant
    @xavier

    Article in the Teamag http://teamag.com/articles/starbucks-acquires-teavana

    And on a Wall Street Journal blog http://blogs.wsj.com/deals/2012/11/14/tea-time-for-starbucks-coffee-giant-to-spend-620-million-on-teavana/

    but so far they are all saying the same thing.

  • #9081
    Profile photo of Ricardo Caicedo
    riccaicedo
    Participant
    @riccaicedo

    My guess is that Starbucks is doing what Coca Cola has done before, buy up companies that sell products that indirectly compete with them.

    I think that tea will become even more popular from now on : )

  • #9108
    Profile photo of Jackie
    Jackie
    Keymaster
    @jackie

    This article in the Seattle Times mentions that Starbucks has plans for:

     Teavana teas to become available in the supermarkets! 

    opening tea bars within its Teavana stores

    Also interesting, the company:

    sees Tazo and Teavana as 2 tiered approaches, Tazo (bagged teas) Teavana (loose) 

    and believes the Tazo store will serve as a kind of guinea-pig “live and learn” tea shop. 

    We will see…

  • #9157
    Profile photo of Dan Bolton
    Dan Bolton
    Participant
    @dwjbolton

    *I was out in Seattle covering the opening of the new Tazo Tea Store when news of the Teavana sale was announced. In lengthy conversations (published in World Tea News) I discovered three important aspects to this transaction.

    1) This is the largest transaction in Starbucks history. Clearly for Starbucks to spend $620 million on Teavana it must really, really believe that it will recover that sum. Last month a German conglomerate paid $997 million for Peet’s Coffee & Tea (at which tea amounts to as much as 15% of beverage sales). Sam Zell has a big share in Argo Tea. Highland Capital is financing DavidsTea. Sales of Tazo were up 43% in grocery and revenue topped $700 million in tea sales in foodservice (tea sold at Starbucks and in restaurants). Significant amounts of investment capital is gravitating to tea.

    2) Starbucks does not buy and hold. They intend to build hundreds initially and eventually a few thousand tea retail outlets under the Teavana brand. Lounges will be branded Tazo. It is significant they brought aboard Teavana Founder Andy Mack. He is a multi, multi-millionaire today and has no need for a day job but is eager to carry his brand to a level (globally) that was not possible as a publicly traded U.S. corp (despite the fact he was growing the chain at 38%, making more per store than Starbucks does in its coffee shops and earning a much higher margin).

    3) This is the “Tipping Point” for tea retail. Teavana’s model is not quite perfect, DavidsTea is not quite perfect and the new Tazo Tea Store is not quite perfect but they are getting close to a retail solution that is going to be a hit with consumers. The demand is there, what was needed is a format that will entice consumers to try great tasting tea and excite them with its health benefits and modest cost; its social patina and its global connectivity.

    All this is good news for tea.

  • #9159
    Profile photo of Nigel at Teacraft
    teacraft
    Participant
    @teacraft

    Yes, Dan, I think this is a shrewd analysis.  Also to pitch into the pot is the groundswell (OK, just a ripple compared with the potential) of US based specialty tea growers and newbie tea growers with their eye on home production of a local, low carbon, sustainable, high quality product.  A few years ago Charleston could claim to be America’s only tea garden – now check out the pins in the map – Hawaii, Washington State, Oregon, California, Georgia, South Carolina, North Carolina, Alabama, Mississippi, and Florida – where next?

  • #9162
    Profile photo of Peter
    peter
    Keymaster
    @peter

    I have to register some disagreement with point #3 from @dwjbolton

    This is the “Tipping Point” for tea retail.

    Yes and no. The tipping point for tea retail is something else. Tea hasn’t arrived yet and its not as close as some would argue. The tipping point is actually farther out (as many as 10+ years? – but possibly closer with Starbucks Teavana acquisition) and there is an existing analog for it which I’ll explain my opinion on below.

    I agree that Teavana’s model isn’t quite perfect, and neither is DavidsTea, Tazo or the others. Teavana is the one I’m most familiar with so I’ll address that one. Teavana doesn’t really want to sell tea to tea drinkers, their model is designed around recruiting new tea drinkers. Their locations are too remote and prices too high for tea drinkers. I define tea drinkers as those who drink tea everyday. People like me (and male) who drink tea several times a day, every day. Teavana is a luxury brand, but only a brand, but only because I can get as good, or better tea online (and therein lies the problem – I have to buy it online.)

    Tea will have finally arrived when decent loose tea (specialty tea in industry parlance) is widely available in grocery stores. To the extent that it would be unthinkable for grocery stores not to stock it. Yes, some stores do, but those are specialty stores like Whole Foods. Loose tea needs to be seen as a commodity again and sold as such. The mass consumer convenience legacy of the teabag that took the world by storm in the 1950’s needs to die.

    There needs to be a change in the industrial perceptions of specialty tea – first, the concept needs to evolve and change. Loose tea in general grocery stores will not happen as long as the industry holds onto the concept of specialty tea. As long as loose tea is seen as special, it is then a luxury and the startups continue to work on that line and profit in the existing market – not branching out Blue Ocean Strategy style

    What does Starbucks and Teavana have to do with this?

    The reason that every grocery store in America these days sells bulk, loose, whole bean coffee is because of the cultural impact Starbucks had on America. Most of us can remember a time when whole bean coffee was not available in grocery stores, especially bulk coffee that you can get from a bulk dispenser and even grind it fresh in the store.

    This occurred as a reactionary movement against Starbucks expense and inconvenience. Starbucks changed coffee and people liked it, but in time, they demanded the ability to make that quality at home and they revolted against Sbux high prices. I grew up in Southern California, right in the middle of the Anti-Starbucks movement. Going to a Starbucks was bad and patronizing small coffee shops was the norm. Remember the phrase, “Real friends don’t let friends drink Starbucks”? That came out of SoCal. At the same time, grocery stores where expanding the coffee aisle, offering fresher, bulk coffee. People could get their fix, but now they could make an outstanding cup at home – and getting that coffee was as simple as going to the grocery store.

    That is the analog for the tipping point in tea retail. It’s not that Starbucks bought Teavana, it’s that Starbucks is the only company with the resources to push Teavana and the other luxury brands of tea forward into everyone’s mindset. The tipping point will come after the expansive growth of fancy corporate tea and it will be an evolving demand for the ability to run to the grocery store, pick up some good, loose tea and brew up a pot at home. Starbucks/Teavana is only the catalyst for that eventual tipping point.

    Starbucks will make tons of money in the years to come on this deal, but the eventual winners will be smaller companies that optimize their logistics chains to get loose tea in grocery stores to meet the growing demand that that the Starbucks/Teavana monolith creates. Those smaller companies, taking that Blue Ocean approach and the consumers are going to be the real winners, but it is still many years away.

  • #9163
    Profile photo of Xavier
    Xavier
    Participant
    @xavier

    @dwjbolton could you expand a little bit “the new Tazo Tea Store is not quite perfect but they are getting close
    to a retail solution that is going to be a hit with consumers”?

  • #9208
    Profile photo of Dan Bolton
    Dan Bolton
    Participant
    @dwjbolton

    Xavier:

    Teavana too pushy, expensive, teas are not highest quality for price.

    DavidsTea, friendly, chaotic, is it tea to go or tea packets or teaware.

    Argo, slick tea to go, tea lattee is a go from concentrate but TieGuanYin so-so. Good home solution for iced tea drinkers (with Third Street Chai and B.W. Coopers)

    Coffee place smells like roasted brew overpowers fragrance of Jasmine pearls.

    Which leaves Tazo… 1) most tea is consumed at home and packets are profitable so packets are the core product in tea retail. sell them for $12 not $18-24. 2) education, experiencing the tea smells and sight of tea is essential to upsell or consumers turn to same standbys 3) tasting is important so wait a minute, time it, use great water, train team to deliver superior cup… customer can wait 4) the standard chinese knock offs of japan tea pots at $100 each offend… original design, distinctive motif to extend brand think Target not Pier One… finally concentrate them in high-traffic, urban and affluent suburban locations that will attract folks new to tea. All the above is important to mix but lots of retail variations possible… I like TWG for upscale and I like Harney & Sons for down home.

  • #9214
    Profile photo of Xavier
    Xavier
    Participant
    @xavier

    Thanks for the explanations.

  • #9227
    Profile photo of Peter
    peter
    Keymaster
    @peter

    With all the news about Teavana and Sbux, there was a little bit (okay, call it a lot) of damning news that filtered out last week about Teavana. It’s from a report created by a consumer watchdog group called Glaucus Research. They are investors in Teavana, but they hold a short position (this means they make money when the price of Teavana drops – short selling is complicated to explain). Either way, the conducted some research into claims Teavana makes about the quality of their teas and what they found was quite horrible really.

    Glaucus goes so far to say that Teavana is actively engaged in consumer fraud because over 90% of their teas contained levels of pesticides that far exceed (as 2000-4000% higher) than EU pesticide limits. To the point of dangerous levels. In spite of the, the research company found that Teavana employees are trained that the teas have no pesticides making the voice of the company be that their teas are pesticide free. (Though I hardly believe that any commercial tea is really pesticide free these days.)

    You can download the report here.  It includes strong fraud recommendations about Teavana as a company in that it deceived not only the public, but also Starbucks as well and makes the claim that once Sbux really gets its head around the situation that they will likely walk away from the sale. Glaucus is predicting lawsuits and all kinds of bad magic on Teavana. (though that bad magic is going to make Glaucus some money since they hold a short position – trying to drive down the stock price of TEA with this kind of information, if it was false, would certainly land the Glaucus Execs in prison.)

    Glaucus has since released a followup in which they report that Teavana has done a complete rewrite of their sales pitch since the release of the original report. The followup illustrates that Teavana is in damage control mode now seeking to distance itself that its teas are organic, or otherwise pesticide free.

    Keep in mind that all this news is only about two weeks old at this point, so finding out how this impacts the future will be interesting.

    Additionally, here is a video produced by Glaucus with recordings of their interviews with Teavana staff.

  • #9230
    Profile photo of Dan Bolton
    Dan Bolton
    Participant
    @dwjbolton

    Glaucus Research is anything but a consumer watchdog group. They are short sellers with a very dangerous financial position in Teavana at the time the sale was announced (in recent months TEA was the most shorted stock on the NYSE). Releasing bad news is good business for Glaucus as the investors they advise face many millions in losses due to the rise in the stock’s value during the period of federal review prior to close of sale. Starbucks is maintaining its momentum and remains solidly behind the deal. I am certain they are frustrated to see the pesticide problem come to light but they are unlikely to dump Teavana… more likely to simply replace Teavana tea with their own should the test results withstand scrutiny. Glaucus recklessly uses the word pesticide (when what labs actually test is pesticide residue because pesticides rapidly degrade). Glaucus recklessly omits the fact that 121 substances for which there are no Minimum Residue Level (MRLs) are considered violations when no harm has been established; and recklessly timed their release (a journalist investigation or public service motivated examination would have released these details without the admitted attempt to manipulate the stock). Finally, a responsible party like Green Peace which performed exactly the same tests in China on well-known brands of tea taken from the shelvcs of conventional stores, took great pains to focus on the use of unregulated or banned pesticides that are suspected of harming humans. Unless the produce is certified organic, every day of your life you eat apples, grapes, celery and a host of other farm produce with traces of pesticide residue that are well below the threshold of doing harm. It is no different with tea.

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