Starbucks Corporation (NASDAQ:SBUX) purchased Atlanta based Teavana in a deal worth $620 million, signalling yet another move that the company is serious to grow its business beyond coffee. Starbucks has already acquired Evolution Juice and La Boulange bakery chain for $30 million and $100 million respectively in the last twelve months. 
Teavana currently has 300 shopping mall locations where it sells high-end loose tea leaves. Starbucks eventually plans to open tea bars under this brand name which will sell prepared drinks as well. Adding tea to its existing menu (in its traditional Starbucks coffee stores) is not a difficulty but there is a good chance that the tea sales will cannibalize that of its coffee drinks. Thus, selling tea and other non-coffee drinks through a different brand in an altogether different ambiance will help expand the consumer base.
- What’s Starbucks’ Fundamental Value Based On Expected 2016 Results? (Updated After Q2 FY’16)
- Where Will Starbucks’ Revenue And EBITDA Growth Come From Over The Next Three Years? (Updated After Q2 FY’16)
- Starbucks’ Expansion Plans in China & Digital Channels Drive Growth In Q2 FY 2016
- How Significant Is The South African Market For Starbucks?
- Where Will Starbucks’ Revenue And EBITDA Growth Come From Over The Next Three Years?
- Starbucks Q2 FY 2016 Earnings Preview: New Developments In China/Asia Pacific Region To Steal The Limelight
Starbucks already owns Tazo tea which has mostly been sold as a packaged product but the company will open a tea bar under the brand very soon. The tea bar will offer specialty teas as well as sell high quality loose tea leaves. It is not clear yet how Starbucks plans to position these two tea brands (i.e Tazo and Teavana), whether these two will continue to maintain their respective identities or be merged into one brand.
Leveraging Distribution Networks
Another thing that Starbucks will benefit from with this acquisition is by selling the tea brand as a consumer packaged product. Even Evolution Juice is available in supermarkets and grocery shops as a packaged bottle besides having juice bars opened under its name. In fact, the revenues for its channel development line, consisting of packaged products sold through grocery and other retail outlets totaled $1.3 billion in the last 12 months. So, Starbucks has already got its distribution networks set up and adding one more product really shouldn’t be a problem at all.
Paying $620 million for a tea store having only 300 locations might sound a tad expensive but Starbucks is in a unique position to exploit the situation given its successful history of operating restaurants as well as possessing country wide distribution networks.
We have a $58 price estimate for Starbucks, which is about 15% higher than the current market price.Notes:
- Starbucks buying Teavana, eyes repeat of coffee success, November 15, 2012 [↩]