The Rise and Fall of Teavana

In November 2012, Starbucks announced its intention to buy Teavana, the “Heaven of Tea,” to put it at the forefront of the $90 billion tea industry. The deal would allow Starbucks to make more inroads into the tea world without having to start a tea brand of its own. The plan was simple: the coffee retailer would take over specialty Teavana shops that existed in American shopping malls.

Teavana’s beginnings were about as start-up as they come. Founded in Atlanta in the late 1990s with the life savings of Andrew and Nancy Mack, the tea company reflected the Macks’ love of tea culture and a dream of sharing it with others. With Atlanta’s population growing by 43% during the ’90s, the Macks had good reason to believe that if they built it, people would come. By the mid-2000s, there were 50 tea shops under the Macks’ care.

In 2011, Teavana went public, raking in $121 million on its IPO. When the Macks finally sold the company to Starbucks, the tea chain boasted more than 300 stores. The sale netted the Macks $335 million dollars, and Andrew Mack retained a position with Starbucks, which he held until he retired in 2014.

The purchase of the tea chain cost Starbucks over $600 million dollars. The company’s history is marked by its focus on opulent mall culture and its commitment to providing a mindful moment for shoppers before continuing on to other stores.

Starbucks had a grand vision for the world of tea, and Teavana was supposed to be the doorway to this vision. The $620 million purchase of the specialty tea chain in 2012 was seen as one of the “smartest acquisitions” by Starbucks’ leadership. The deal cost Starbucks $15.50 per Teavana share, a 50% increase per Hartford Business Journal. Starbucks intended to use the rollout of a stand-alone Tazo store in Seattle as a possible business model for the Teavana brand. The coffee retailer had reason to believe that the tea portion of its business would break new ground, as it enjoyed $1.4 billion in sales from the Tazo brand at the time of the Teavana purchase.

Starbucks also intended to introduce packaged versions of Teavana products to supermarkets and grocery stores. However, the company overestimated the size and scope of the tea market. When Starbucks bought Teavana, the company projected that the worldwide tea market held about $90 billion in sales, and the coffee giant wanted a piece of it. By the time that the CNBC story aired, Starbucks was nearly two years into its Teavana deal.

The problem was there was a $50 billion difference in the projected numbers for the global tea market. In 2012, the herbal tea market only accounted for around $40 billion of the tea market. Additionally, Americans were also having a love affair with ready-to-drink and canned teas in 2012, leading to those bevvies having a market share of over 19%. Most of those drinks were sold in convenience and grocery stores and other similar retailers.

Starbucks, which began as Starbucks Coffee Tea & Spices, hoped to correct the dearth of tea bars in the world by opening its own line of establishments that featured specialty tea drinks for the masses. In October 2013, Starbucks opened Teavana Fine Teas + Tea Bar on the Upper East Side of Manhattan, the first of its kind. The concept really was the Starbucks of tea, right down to its Teavana-themed merchandise, tea-inspired snacks, and tea lattes.

Teaologists introduced customers to the ‘Heaven of Teas’, and hopes were high that the twain would intersect in harmony. The teaologists would be on-site educators and tea drinkers extraordinaire, passing on their love of high-end tea and all the rituals that go with it. The teaologist was such an important role in the company that when the company worked with Oprah Winfrey to develop a signature Teavana Oprah Chai for the Oprah Winfrey Leadership Academy Foundation, the OWN mogul worked directly with the lead teaologist to create the creamy cinnamon- and ginger-flavored drink.

In conclusion, Starbucks’ vision for the world of tea was bolstered by the $620 million purchase of Teavana in 2012.

In 2012, Starbucks acquired Teavana, a Seattle-based coffee brand that had already introduced smoothies, green coffee refreshers, and cold-pressed juices to its line-up in 2009. The purchase of Evolution Fresh, a wellness juice brand, further bolstered Starbucks’ standing in the wellness market. Teavana teas also played a role, with healthy tea offerings like “Defense,” “Rejuvenate,” “Rev Up,” and “Purity” contributing to the zen vibes and serene quotes found in Teavana stores. However, Starbucks sold Evolution Fresh to Bolthouse Farms, changing the direction of Teavana’s business model to keep up with a restaurant and beverage market that was more trending towards interesting food choices for lunch rather than sit-down tea bars.

Teavana faced stiff competition in the tea market, as it had already purchased Tazo Tea in 1999, making the coffee retailer the owner of two competing tea brands. Between 2012 and 2018, Starbucks took the acquisition of Teavana and closed all of the tea company’s brick-and-mortar stores down. Many of these brands featured one or more business elements that were similar to Teavana’s, such as the sale of loose leaf teas out of specialty tea shops or deals to market packaged wares within grocery stores and other distribution outlets like Amazon and QVC.

Both coffee and iced tea count among the top five drinks sold in any restaurant, so the Starbucks/Teavana brand emerged into a market already chock full of competitors using a similar business model. Although Starbucks eventually sold Tazo Tea to Unilever in 2017, with few elements to distinguish Teavana from its competition, its new tea brand had difficulty standing out in the crowd.

Being sold in shopping malls didn’t help the tea company’s prospects, as competition from online retailers and blowback from store-closing hurricanes became commonplace by 2017. People who once went to the mall started shopping at home on sites like Amazon and Etsy, or gravitated toward specialty retail outlets that sold one-of-a-kind pieces. Teavana, with over 350 mall-based stores and a business setup that didn’t always encourage people to sit down and sip with friends, was in the wrong place at the wrong time.

Starbucks’ Teavana brand, which aimed to provide loose leaf specialty tea, never materialized. It took about five years for the brand to transition from mall-based stores with loose leaf specialty tea to packaged items sold at online outlets and developed a bottled beverage agreement with Anheuser Busch. This led to customers looking for boxed Teavana teas on online platforms like Amazon and Walmart. Over 300 of the 300-plus brick-and-mortar stores closed down, most of which were located in shopping malls in the U.S., Canada, Mexico, and the Middle East. At least some of the 3,000 employees who worked at Teavana stores found employment at another local Starbucks coffee shop.

The company faced numerous legal battles, including being stuck in lease agreements. In late 2017, Starbucks announced that it would close 379 Teavana locations, as over 70 mall locations housed Teavana stores were managed by Simon Property Group (SPG), which wanted all the money owed as guaranteed by the lease agreements. A judge in Indiana agreed with the property management company, forcing Starbucks to keep 70-plus locations open. The injunction meant that Starbucks had to honor the SPG leases, which were not due until 2027.

In 2018, news broke that the two companies had settled their disagreement over the leases, but Teavana stores formerly affected by the lease agreements began to close within days. This issue highlighted the precariousness of brick-and-mortar businesses in the Age of the Internet. In January 2016, Starbucks announced that its concept tea bars in New York and Beverly Hills would cease to be Teavana tea bars and become Starbucks coffee shops in their stead. Teavana tea sales in Starbucks branded stores accounted for a billion dollars in sales that year.

Despite the challenges, Starbucks still sells limited pre-packaged products in-store purchase and at-home consumption. Market rumors suggest that even these may be heading for discontinuation.

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