During the end of 2012, Starbucks announced its acquisition of Teavana, a high-end retailer of loose leaf tea. The coffee chain dreamed big and announced in 2014 that it was ready to conquer the 90 billion dollar tea market. In 2016 the company also decided to accelerate the brand in Asia.
Yet recently, Starbucks announced that it’s closing all its 379 Teavana stores. While most people who aren’t into tea might not find it strange, it came as a huge surprise for the tea community. See for example discussions on forums such as Reddit and Steepster.
So what happened? Why did Starbucks fail so badly in making Teavana a big success? See below our analysis:
Tea isn’t coffee. Yes, both beverages contain caffeine and are therefore often categorised together. Yet, it’s fair to say that a coffee person is completely different from a tea person, representing a different kind of lifestyle.
Starbucks expected that their coffee experience could help them, but in fact it worked against them. If it was a wine company who bought Teavana, it might have helped. Tea lovers really care about transparency, terroir, processing methods and natural flavours. These are values that premium wine companies also represent.
The company stated that they’re after a 90 billion dollar market. First of all, the 90 billion estimated market size includes herbals. Without herbal tea, the market is about 40 billion USD in size according to Statistica.
Moreover, 80% of the USA markt is cheap iced tea. Not really the stuff that Teavana intended to target. So then there’s this 20% left of which a tiny part is ‘specialty tea’. Many person with some sense would know that going so aggressive with expansion for such a small market is overkill. Yes, the tea market is a growing industry, but you’ve to get the speed and timing of the expansion right.
The booming eCommerce industry in the US obviously resulted in a mall apocalypse. Malls are dying and this trend isn’t encouraging the continuation of Teavana stores. Here’s what Starbucks shared in the latest earnings call:
We conducted a strategic review of the Teavana mall-based store business and concluded that despite our efforts to reverse the trend through creative merchandising and new store designs, the underperformance was likely to continue.
Teavana stores are mainly located in premium malls. They’ve to sell a lot of tea to break even. Yet, the malls are having a hard time maintaining foot traffic as mentioned above. Yet, this doesn’t mean that Teavana can’t do well in less premium locations. The management, however, won’t give this idea a try.
Read discussions in forums online, and you can see that the sales tactics of Teavana staff isn’t really loved. Traditionally, tea is bought in a fairly friendly environment. In China, people freely visits lots of store to try out different teas, before they buy.
Teavana staff are trained for fast conversion and purchases. To avoid such an unpleasant environment, people rather order online.
While the Teavana represents a premium brand, the tea sold isn’t that high quality. Experienced tea drinkers will know that they’re paying for the branding and packaging. It’s true that tea drinkers in the US haven’t developed a taste for quality tea yet. However, any brand has to convince this community of tea drinkers to built a reputation online.
Teavana is mainly in the tea blend business offering tea blended with other ingredients. However, it’s hard for them to diversify given that other competitors such as Davids Tea and local tea shops have a similar offering at a much lower price.
Starbucks have plans to push the Teavana brand into Asia. Most likely Teavana teas will be offered through Starbucks. Yet, in countries such as China, the locals haven’t developed a taste yet for tea blends.
If Teavana decides to sell local teas such as longjing and biluochun (which they’re currently offering in China under the Tazo brand) it’s not gonna work either. After all, how do you convince a Chinese to buy their own teas from a foreign coffee chain?
At last, they’ve also have strong competition from the bubble tea chains, offering highly tailoired and luxury iced teas. Starbucks managed to offer their coffee menu without too much changes, but will they also be able to do that with Teavana?