Starbucks Corporation (NASDAQ:SBUX) plans to open its first tea-only store in Seattle under the brand Tazo. Tazo tea was purchased by Starbucks in 1999 for a cash payment of $8.1 million. The company will offer more than 80 varieties of loose leaf tea, tea lattes and iced teas. It also plans to serve food items, just as it does in its coffee shops.  Recently, Starbucks also purchased a bakery chain La Boulange for $100 million as part of the company’s strategy to widen its food offerings.
The company also has aggressive growth plans for South America. In Brazil, it expects to open several hundred new restaurants in the next five years. Similarly, it plans to add 300 new restaurants in Argentina and Mexico combined by 2015. Starbucks also opened its first store in Costa Rica on June 20, and launched a farmer support center in Colombia to promote responsible coffee-growing practices, which will help improve crop yields as well as help the company procure coffee beans. 
Path of Diversification
That Starbucks is looking at options beyond coffee is no secret. In the past, it had to close under-performing stores in the U.S. in order to avoid cannibalization. So, looking at alternative options is necessary. Last year, it purchased Evolution Fresh Inc, a juice company, for a cash payment of $30 million and even opened its first juice bar in the first quarter of 2012. With the recent acquisition of La Boulange, the company hopes to shore up food offerings at its restaurants, the sales of which are dominated by beverages.
However, we expect slow growth in the number of stores of Tazo or Evolution Juice initially, and this will give the company time to study consumer trends as well as ensure that sales of these restaurants are not eating into those of its traditional restaurants. Over time, as the brands become stronger, Starbucks can look forward to accelerate store openings domestically and even extend the brands internationally.
We have a $55 price estimate for Starbucks currently, which is in line with the market price.Notes: