Coffee success: Starbucks buy Teavana

Nov 15 2012, 09:41 IST
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SummaryTeavana has about 300 shopping mall stores that sell loose-leaf, exotic teas.

Starbucks Corp said on Wednesday it plans to buy tea store chain Teavana Holdings Inc for $620 million, aiming to replicate the success it has had with its namesake coffee shops.

Teavana has about 300 shopping mall stores that sell loose-leaf, exotic teas. In addition to opening stand-alone Teavana stores in the United States and abroad, Starbucks will add tea bars that serve prepared drinks in existing Teavana stores, Starbucks Chief Executive Howard Schultz told Reuters.

Starbucks opened its first espresso bar inside a store in 1987, when it had 11 stores selling only whole bean coffee.

We will do something very similar over time with Teavana, said Schultz, who now oversees about 18,000 Starbucks stores around the world. We will do for tea what we did for coffee.

The deal marks the third complementary acquisition over the past year from Starbucks, which is looking for new avenues of growth beyond its core coffee business.

Calling tea the opportunity of a lifetime, Schultz said on a conference call that Starbucks plans to open more than 1,000 Teavana stores over the coming five years. The Teavana stores will not sell Starbucks coffee.

The world's largest coffee shop operator will pay $15.50 per share in cash for Teavana, a 54 percent premium to the company's closing price on the New York Stock Exchange on Tuesday.

Shares of Atlanta-based Teavana, which has stores in the United States, Mexico, Canada and Kuwait, jumped 52.5 percent to close at $15.45 on the New York Stock Exchange.

This could be one of the smartest acquisitions that Starbucks has done yet, said William Blair & Co analyst Sharon Zackfia, who covers both Starbucks and Teavana.

The valuation was great for this kind of fast-growing retailer, she said, adding that the unit economics at Teavana are exceptional and proven across every geography in the United States.

That's rare for an early-stage retailer and signals that Teavana is addressing unmet demand, she said.


This is not Starbucks' first venture into the $40 billion-plus global tea market.

Starbucks bought Tazo tea for $8.1 million in 1999. That business now brings in more than $1 billion in annual sales of products such as tea bags and bottled tea drinks through its own shops and the grocery aisles of many retailers.

On Friday, Starbucks will open its first Tazo tea store in Seattle. That store will act as a laboratory for Teavana, Schultz said.

The two brands will co-exist, Schultz said, who added that

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