Teavana Growth Could be “Quite Amazing”

Teavana is the fastest growing segment within Starbucks, according to CEO Howard Schultz who told investors at the Sanford Bernstein 31st Annual Strategic Decisions Conference last week that “I’ve never been more passionate, more enthused about what we’re doing and what I think is possible.”

WTN150601_Teavana-Starbucks Logos“We believe that Teavana standalone stores will be a big idea not only in the U.S. where we have 330 stores or so, but a much bigger idea in Asia over time,” he said.

“Contribution to comp growth from tea has roughly doubled since we introduced Teavana teas into our Starbucks stores last summer, adding 1 point to comp in each of the last two quarters,” according to Schultz.

Teavana will soon open its fourth tea bar in Chicago. Individual shops continue to innovate. Beverly Hills Teavana Fine Teas + Tea Bar recently introduced an avocado matcha smoothie and serves hot matcha, and cold matcha along with a bamboo whisking set.

Unilever opened its first T2 specialty tea shop in Soho in New York City and its fourth T2 shop in London joining another 50 in Australia. Chicago-based Argo Tea now has 46 locations, up from 26 in 2011 and its bottled tea concentrate and tea-juice blends are sold in more than 3,000 grocery outlets. Six of Argo’s stores are in Dubai.

The DAVIDsTEA IPO revealed $142 million in sales last year at 154 shops. The company plans to issue 51 million shares, enough to build 300 tea shops, most to be located in the United States.

These investments appear well founded. Annual sales remain at or above $1 million per location. Sales of tea in coffee shops are not only growing at Starbucks but at Coffee Bean & Tea Leaf, Peet’s Coffee & Tea and Caribou Coffee.

During the past quarter Starbucks reported a 7% increase in sales at existing stores of which 1% can be attributed to sales of tea, mainly iced tea and since January exclusively Teavana as the company has now replaced its Tazo brand in its 22,000 coffee shops.

Starbucks reported sales of $4.6 billion, up 18% from $3.87 billion in the same period last year. It was the best financial performance in a non-holiday quarter in 20 years.

Foot traffic grew 3% overall with 10% growth in Asia-Pacific and 2% in the U.S. Starbucks opened 1,511 new stores in the past 12 months, with Asia the leading growth market with 5,000 stores.

To put that growth into perspective, an increase of 1% in store traffic at a company the size of Starbucks means that 10 million new customers found their way into its stores the past year. A 3% increase means the company added 30 million new customers, many of whom ordered iced tea, a product only beginning to find its way into the company’s Asian stores.

Sales at the company’s tea division rose 15% year-over-year, according to COO Kevin Johnson, who said the growth was driven by Teavana shaken iced teas and Teavana tea lattes. Tea drove 1 point of the Americas region’s 7% same store growth, according to a report in Fortune magazine.

The Socially Responsible Investor, commenting on the investors’ website Seeking Alpha, predicts Starbucks will sell even more tea overseas.


Tingyi logo

“Another positive we noted was the company’s work with Tingyi, a Taiwan packaging company, that would help with [Teavana branded] ready-made drinks to sell in retail stores as well as grocery stores. Starbucks did not give any update on how this work is doing, but we believe this will be a major success as Chinese consumers are not quite as ready for retail locations as Americans, and the packaged drink foray was a great way for SBUX to enter non-urban areas in the states and gain brand recognition,” according to the Seeking Alpha article.

“[Starbucks] has been able to already see tremendous success in the urban areas of China as its second largest market and Shanghai its largest single market. Yet, the worry that many analysts have had is the rural adoption of SBUX. The inclusion of Teavana is one of the ways that the company will be able to improve this scenario as it can offer more traditional tea options,” according to the Seeking Alpha article.

“Further, the Teavana growth could be quite amazing once the tea bar concept really gets rolling,” according to the analyst.

Sources: Starbucks, Teavana, Seeking Alpha, Fortune