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.
- How Is Starbucks Maintaining Its Competitive Edge?
- Is Starbucks Banking On Customer Convenience To Drive Volumes?
- Why Are We Bullish On Starbucks?
- Why Is China The Center-Piece Of Starbucks’ Growth Story?
- Why Has Starbucks’ Stock Price Stagnated In The Year So Far?
- What Is Starbucks’ Growth Strategy?
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 [↩]