Starbucks acquires Teavana

With its first shop at Seattle in 1971, selling coffee, tea and spices, standing true to their words, Starbucks has since continued to expand their consumer-goods segment-both organically and through acquisitions. Last year they bought Evolution Fresh Inc. for $30 million and announced its own single-serve espresso brewer, Verismo along with the coffee capsules earlier in March this year. They also bought the Bay Bread LLC for $100 million followed by $8 billion 60-calorie energy drinks, Refreshers, made with fruit juice and green-coffee extract. What took me by surprise was the latest $620 million feather they adorned their hat with. They already own a tea brand, Tazo. Then why toss in a second brand of tea in their kitty, especially when the brand association is with Coffee more than tea. Is it simply because Teavana has a better brand recognition than Tazo? Or is there more to it? Ironically, it has not yet been decided if these two complementary brands will be sold together in the Starbucks cafes.

Starbucks strategizes to add a high-profile environ store concept to hasten Teavana’s domestic and international marks. Sure I understand that retail being Starbucks' core business Teavana store concept will add to their advantage by providing them immediate access to prime storefronts and thus cater to an entirely new consumer base. But the same core business is defined exclusively by the experience they craft in their stores! And as far as the customers are concerned, this acquisition will build a different customer experience and business opportunity for Starbucks, delivering instant value to the shareholders, thus complementing their Tazo brand, giving them the prospect of creating a two-tiered market position.

Looking at their expanded segment, dropping off the word "Coffee" from their logo last year was a smart move but dropping off their Brand Name from its symbolic identification is so not cool! Of course Starbucks is a brand that doesn't need to sanction their name on the logo, but with the rapid and the kind of products being added to its portfolio, am not sure how far can they stretch it.

Since 1995, Starbucks has also moved into the aisles of grocery stores by selling coffee flavored ice cream, packaged coffee, bottled drinks and Tazo brand tea. CEO Howard Schutz plans to uphold the revenue growth with instant coffee, energy drinks, juice, a single-serve brewer and food to sell in its shops and in grocery stores. He aims to take Starbucks beyond coffee and namesake shops and expand Teavana’s current mall-based store pattern with a widespread strategy to include Teavana vicinious locations.

Lets focus on Teavana. Teavana is a specialty retailer offering 100 plus assortment of premium loose-leaf teas and other tea-related merchandise like authentic artisanal teawares, etc. It has more than 300 stores in the US, Canada, Mexico and recently, Kuwait. Along with selling Teavana in the grocery stores, Starbucks also intends to sell these Teavana products in it’s own StarBucks stores as well. It'll leverage by integrating its core competencies of real estate, design, infrastructure and store operations with Teavana’s top-notch tea influence, global sourcing potential, merchandising and best-in-class retail store unit economics. The acquisition of Teavana might not really help Starbucks' grow by entering new categories or with new products, but it'll certainly add to their existing distribution channels.

Starbucks’ investment in Teavana is matched by its commitment to continue to grow the Tazo business — giving Starbucks a two-tiered market position for tea. Its plan is to define a new elevated platform of tea experience and education, and for both-Teavana and Tazo brands to grow and complement one another while at the same time uplifting the entire category through a permutation of expertise and assets.

With it's recent acquisition, Starbucks not only intensified its portfolio but also have plans of entering new, high-consumption tea markets around the world. There is a tremendous expansion prospect in developing nations like India and China, where Tea is consumed more than coffee. Growth potential in China for tea is much better than that of coffee. Starbucks has recently entered the Indian Market in a Joint Venture with Tata Global Beverages Ltd., with their first cafes in Mumbai in October and another one to be unwrapped in New Delhi early next year

If we have a quick look at this process of strengthening their foundation brand by adding more brands to widen their core offering, Starbucks' added their Juice line and better-for-you food with the intention of pursuing health and wellness. Tazo and Energy Drinks were all a part of their plan to get healthier, thus contributing towards their within-the-company mission to look at health and wellness. With the increasing concern on High-Calorie foods amid a national obesity epidemic, they too have been trying to improve their image, exactly the way McDonalds and Dunkin Donuts did. 

Starbucks’ true value and growth latent lies in its brand and 91% of their revenue still comes from its cafes. Hope they don't lose the sight of what's important and get distracted from their true profit and revenue driver