Teavana Trumps Tazo at Starbucks

In September 2013 Starbucks first replaced Tazo on the retail wall and menu boards of several Atlanta locations. Upscale and more expensive Teavana loose leaf selections vied for attention with die-hard Tazo teabag devotees during a trial period. Eighteen months later Tazo is vanquished.
On January 6 Starbucks announced that Tazo will no longer be sold at 12,000 of the nation’s 52,000 coffee and snack shops. Tazo was banished to restaurants, big box outlets including Wal-Mart and grocery locations including Whole Foods.

Teavana_Royal_English_Breakfast“We are already seeing lift in revenue generated by the sale of handcrafted tea beverages in Starbucks retail stores driven in large part by the very strong customer response to the launch of Teavana branded Shaken Iced Tea and Teavana Tea Lattes,” Starbucks CEO Howard Schultz told investors last week.

In January “we launched Teavana Hot Brewed Teas in Starbucks stores in U.S. and Canada to extremely favorable early results. We will be sharing additional specifics around our plans for Teavana in the months ahead,” he said.

Atlanta is the birthplace of Teavana which grew to a national chain of 300 stores before it was acquired by Starbucks in November 2012. Six months after the Teavana acquisition Starbucks CEO Howard Schultz announced “that over time, many unique hand-crafted Teavana tea beverages will also find their way into Starbucks stores.”

The initial reaction on the StarbucksMelody.com thread included cheering Teavana fans but the tide gradually turned as the rollout continued. There are now a hundred wailing Tazo fans. “You’ve got a lot of unhappy customers over this corporate decision,” writes Melanie Ormand (Jan 2015). “The moment the local Starbucks switched to Teavana it was horrible!” wrote Steven (July 2014). “Teavana teas are very sensitive to proper brewing temperate and time for optimal flavor. Not going to work well with the drive-thru crowd,” wrote Dad Cooks (September 2013).

Starbucks hates to alienate paying customers. The decision to replace Tazo was strategic, well-reasoned and similar to the successful (CPG) path blazed by Seattle’s Best, another Starbucks brand you won’t see on sale at Starbucks.

The $620 million Teavana acquisition was by far the largest in Starbucks history. In comparison Tazo, a quirky hippy inspired, whole-earth favorite, was purchased for $8.1 million in 1999. Starbucks then built Tazo into a $1.4 billion brand during the dozen years that followed ending with a move from Portland, Ore. to Seattle. At the time of the Teavana purchase Tazo’s nationwide presence on coffee shop menus made it one of the best known teas in America. A solid foundation in health food and conventional grocery generated annual sales approaching $750 million. The brand had a solid reputation in loose leaf but remained in the coffee shop shadow until Teavana stole the limelight.

Photo_TBD-320x411_1A lot was riding on Schultz’s ability to demonstrate the profitability of big bet on tea. Few predicted the immense retail expertise and marketing dollars Schultz would expend on Teavana, culminating in a public endorsement by Oprah Winfrey, likely the most world’s most valuable celebrity endorsement.
Tea now accounts for 10% of Starbuck’s U.S. retail sales, up from 8% in fiscal 2009. The majority of this rests on Tazo but once Shultz announced that Starbucks will do for tea what it did for specialty coffee the spotlight was on Teavana. Since then Starbucks has opened high-profile tea bars in Manhattan, Beverly Hills and Chicago and is redesigning hundreds of mall locations to encourage beverage and dry tea sales.

Some will say that Tazo achieved its apex in November 2012 as the company opened a spectacular tea boutique in Seattle. Tazo was instantly transformed from a box of teabags to a loose leaf palace with an on-demand blending station, custom teaware and a trendy spigot hot-water dispenser filling carafe-brewers displayed on a light table. That showcase was merely a hedge against the possibility Starbucks’ negotiations with Teavana would fail. It was clear from the unveiling that Starbucks intended to go head-to-head with Teavana in high traffic mall locations. Teavana founder Andrew T. Mack knew it was time to sell.

As the sale was announced, the air quickly exited Tazo as a boutique brand but it also breathed new life into the brand as a two-tier CPG powerhouse. In the latest earnings report Starbucks announced a 10% increase in premium single-serve, packaged coffee and premium tea. Tazo remains a billion dollar brand, half of the winning formula.

“Tea represents a massive, strategic opportunity for Starbucks around the world,” according to Schultz, “And with the integration of Teavana complete, we are now executing our plan to double our key business to $2 billion over the next five years.”