It appears that Starbucks’ recent purchase of Teavana has some analysts and coffee drinkers scratching their heads. Considering that the coffee giant already owns a tea brand in Tazo, why would they want to purchase another tea brand?
The simple answer is that Starbucks is readying their continued evolution to a diversified beverage company. Having changed their logo to remove the words of “Starbucks Coffee” shows their seriousness of extending their brand beyond just coffee, and beyond the Starbucks name. Their past acquisitions of Tazo (1999), Ethos Water (2005), and Evolution Fresh (2011) have been instrumental for expanding their beverage footprint in the consumer’s mind and physical purchase locations. And while most of these offerings have been incorporated within the Starbucks coffee shops, other products have expanded their reach into grocery supermarkets and other consumer outlets. Products like the bottled Frappucinos, Starbucks VIA Ready Brew, Verisimo system, Starbucks Refreshers, Tazo Tea, and Evolution Fresh juices and smoothies have all permeated other channels and have seen some form of success beyond the Starbucks coffee shops.
So what can we expect the Teavana purchase to do for Starbucks? How is this product differentiated from Tazo Tea? Will there be some form of cannibalization between the two tea offerings under the Starbucks portfolio?
The Teavana purchase will undoubtedly expand Starbucks’ reach outside their branded coffee shops. Teavana owns and operates their own stores, which may soon incorporate select Starbucks products that fits into the Teavana theme and strategy. For example, selling Starbucks coffee within Teavana shops may not be appropriate, but selling Evolution Fresh juices and smoothies and Ethos Water may be a possibility. This cross-selling effort will certainly increase the reach of non-coffee beverages under their portfolio. Also, considering that Starbucks has started to open standalone Evolution Fresh locations in the U.S., those locations may also incorporate some Teavana offerings as well. Aside from the bricks and mortar stores that Teavana operates, Starbucks also acquires their online infrastructure where the loose leaf tea products are sold as well. This also significantly buffs up Starbucks online presence and can provide an entirely new set of learnings and opportunities. Starbucks has mainly existed as a bricks and mortar presence insofar to create that “third location” away between the home and office, but expanding their online presence gives them a chance to offer additional products to the consumer. How about purchasing some VIA Ready Brew with that Teavana tea tin?
With regard to product differentiation, it’s commonly understood that the Tazo-branded products are bottled or tea bags. The main opportunity does not exist in offering a different form of tea packaging, but the expanded consumption occasion. Tea bags or bottled tea are typically consumed on-the-go or at the office, because the consumer is in a rush and does not have the time to sit and enjoy the beverage. Teavana’s loose leaf tea allows Starbucks to reach the consumer in their relaxed state – at home or at the office – when they have more time to enjoy their beverage. In that aspect, these two tea brands should be complimentary to the overall “tea consumer” rather than cannibalistic. It would also make sense that Starbucks only minimally incorporates the Teavana products into their existing Starbucks establish (similar to Evolution Fresh) while maintaining the operations separately and at arm’s length.
At the end of it all, this acquisition bolsters Starbucks’ presence and further entrenches their beverage offerings into the consumers’ hands – be it at the office, on the streets, or at home.
This also signals a warning shot to the traditional beverage manufacturers (ie Coke, Pepsi, Dr Pepper Snapple Group) that the total beverage landscape is changing dramatically. Consumers are increasingly turning away from the the sodas, to coffees, bottled water, and teas. And Starbucks is leading the charge in this area. If you don’t believe me, check out their video below.