Fri, Nov 16, 2012 - Page 15 News List

Starbucks bags Teavana for US$620m

AP, SEATTLE

Shoppers sit at tables while taking a break next to a Starbucks Corp store inside the Fair Oaks Mall in Fairfax, Virginia, on Monday.

Photo: Bloomberg

Starbucks wants to make the tea shop as ubiquitous as its namesake cafes.

The Seattle-based company said on Wednesday it would pay US$620 million in cash to buy Teavana Holdings Inc, which sells high-end loose leaf teas in 300 shopping mall locations. The plan is to expand Teavana’s footprint beyond the mall with stand-alone shops, adding tea bars with specialty drinks.

In an interview, CEO Howard Schultz said that Starbucks cafes only sold coffee by the pound in 1987, with the offerings of specialty drinks evolving over time. Schultz said the company would use that experience to transform Teavana over time as well.

Starbucks Corp already owns the Tazo tea brand, which it purchased in 1999. The company announced plans earlier this year to open its first Tazo tea shop, where customers can buy specialty drinks and blend loose leaf teas with the help of employees — not unlike the shops it is now envisioning for Teavana.

Schultz said yesterday that the Tazo shop would serve as a “learning laboratory” for its development of Teavana stores. He said that the brands give the company a two-tiered approach to the fast-growing tea category, since Teavana is a premium loose leaf tea, while Tazo is a bagged tea product sold in supermarkets.

Schultz said Teavana would also move into the consumer packaged goods category, meaning it would also be sold in supermarkets.

The deal marks Starbucks latest push to expand beyond its ubiquitous cafes, with the company facing intensifying competition from fast-food chains offering specialty coffees. This summer, Starbucks also bought small bakery chain La Boulange for US$100 million, after its purchase last year of fresh juice maker Evolution for US$30 million.

While the Starbucks cafes may serve as a blueprint for Teavana’s growth, Schultz said that coffee and tea have distinct cultures and that Teavana stores would not feel like the Starbucks cafes people are so familiar with.

Starbucks cafes, for example, are defined by their rush hour bustle in the mornings. Tea shops have a more serene, cerebral feel. When walking into a Teavana store, Schultz said people feel as if they have “stepped into a shrine to tea.”

Teavana shareholders will get US$15.50 per share cash in the Starbucks deal, which is expected to close by the end of the year. Starbucks says it would add a penny per share to its earnings next year.

Teavana shares jumped 52.5 percent to close at US$15.45. Starbucks shares fell 2.9 percent, to US$48.84.

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