Unlikely Partners Will Supercharge Specialty

In the beverage business, distributors hold tremendous sway over brands by providing or denying access to hundreds of thousands of grocery and convenience outlets.

There are thousands of brands but only three or four trucks arrive at these stores daily to deliver bottled tea and coffee.

CEO Howard Schultz and AB InBev Chief Executive Carlos Brito share a Teavana tea after agreeing on a joint venture

CEO Howard Schultz and AB InBev Chief Executive Carlos Brito share a Teavana tea after agreeing on a joint venture

Anheuser-Busch InBev NV, in a brilliant move for specialty tea, announced last week that it will partner with Starbucks to deliver its premium Teavana brand in bottles. The tea will be delivered by InBev’s 500 mix of company-owned and franchised distributors.

InBev serves a network of 300,000 convenience stores and grocers in every market in the US. The new teas will be available in early 2017.

Two decades ago, Arizona canned teas became the highest volume tea in convenience largely because the company founders were distributors.

Coca-Cola (Honest Tea) owns one of those desirable delivery slots and PepsiCo (Lipton) owns another. Critical to a distributors success is the ability to fill each delivery truck as soda and beer sales decline.

The significance to the tea industry is the convenience of convenience. Teas that are hard to brew such as oolong, which currently represents only 2% of global tea sales, make up an important number of Teavana’s selections. Teas such as bottled puer, offered by Numi Teas for the past five years, are delicious, healthful and practically impossible to find in grocery due to limited distribution. The same can be said of a highly regarded bottled tea line from The Republic of Tea and a new line of bottled teas from Harney & Sons.

Canned and bottled teas are very popular in the tea lands. In Japan, ITo En, the world’s largest bottled tea manufacturer, is producing matcha, oolong and even harvest-select sencha and gyokuro in cans for a global market.

InBev, which owns one of the largest distribution networks in North America, benefits from filling its trucks with non-alcoholic offerings at a time when the volume of beer it delivers is declining. Budweiser’s 11 regional breweries will now brew and bottle tea and its delivery trucks will arrive with full loads.

ABInBev logo lo-resTeavana sales will leap to 100 million cases practically overnight in a move that will place the brand on shelves next to Sweet Leaf, Pure Leaf, Arizona, Lipton and Honest Tea.

Starbucks built Teavana into a $1 billion tea brand growing at 11% last year.

When Starbucks purchased the chain of tea shops for $615.8 million – the largest acquisition in Starbucks history – CEO Howard Schultz said “when we acquired Teavana in 2012, we saw a unique opportunity to do for tea what Starbucks has done for coffee and expand the Teavana brand across many customer experiences and products.”

“We are excited to work with Anheuser-Busch to unlock the premium ready-to-drink market and further grow demand for the Teavana,” he said.

The Wall Street Journal reported that the line of tea would be similar to Starbucks’ ready-to-drink bottled Frappuccino® line, which the company launched in partnership with PepsiCo in 1996. PepsiCo and Starbucks’ ready-to-drink coffee and energy drinks make up a $1.5 billion business, and Schultz believes Teavana could be even bigger than the bottled Frappuccino.

“Just think of it this way – throughout our stores, millions of customers every day have a chance to see our Teavana brand every day, [and to] taste it,” Schultz told the newspaper.

“We see an amazing opportunity for tea,” said AB InBev Chief Executive Carlos Brito.

Starbucks’ decision to team up with AB InBev, not PepsiCo, may raise some eyebrows, WSJ reported. “Schultz justified the decision to partner with the beer giant by pointing to the company’s experience in distribution, corporate values, and relationships between executives, as well as Pepsi’s own place in the tea business with Lipton,” according to the newspaper.

Tea is the fastest growing refreshment beverage category, a segment undergoing sustained upheaval. RTD tea is growing by 6% annually. RTD tea sales in the US were $7.57 billion last year, according to Euromonitor. PepsiCo is the segment leader with a 29% share. As it does with bottled coffee, Starbucks might have partnered with PepsiCo, but PepsiCo has a joint venture with Unilever PLC for the Lipton, Pure Leaf and Brisk brands.

AB InBev’s distributors reach about 100,000 more stores than PepsiCo does with Starbucks’ ready-to-drink coffee products.

Health and wellness attributes of bottled waters (vitamin waters, etc.) are pushing aside soda and sugary juices, leaving space for tea and sports drinks.

Partnering with InBev, the world’s largest beer distributor, will accelerate sales of premium tea for Starbucks while providing millions of tea drinkers their first taste of something special.

Source: The Wall Street Journal