Starbucks says: It’s teatime in America

Just how much tea does Starbucks think people will drink?
Just how much tea does Starbucks think people will drink?
Image: AP Photo/Ted S. Warren
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Starbucks has been toying with tea for a while, especially in India where tea is the hot brew of choice. But the announcement that the US coffee giant will buy Teavana Holdings, a tea-shop chain based in Atlanta, Georgia, sent Teavana shares surging more than 50% today.

So does this deal suggest Starbucks thinks tea’s time has finally come in the land of the latte? Starbucks has owned the Tazo tea brand since 1999, which it bought for $8.1 million and now brings in at least $1.4 billion a year in revenue, out of the company’s total of $13.3 billion. In a conference call back in April, an analyst did bring up tea, saying that “it continues to feel like a little bit of an untapped opportunity.”

But Starbucks Chief Executive Howard Schultz countered that he thinks “the medicinal qualities and the efficacy of tea will play a very large role in the overall category of health and wellness at Starbucks.” It was a less than full-throated forecast on growth in tea.

And probably for good reason. For one thing, Teavana itself has been looking outside of the US for growth, buying Canadian tea chain Teaopia back in May. Canadian per capita tea consumption is  more than double that of the US, Teavana executives told analysts on a conference call outlining their plans to buy the chain. But Starbucks investors seem less than thrilled by the idea of depending for revenue growth on Canadians, however much tea they may drink: in contrast to Teavana’s huge bounce, Starbucks shares are down by more than 2%.