Starbucks Opens Its First Tea Bar As CEO Schultz Bets On $90 Billion Market
Starbucks' first Teavana tea bar opens on Manhattan's Upper East Side on Thursday.You heard it here first: the billionaire founder of Starbucks is watching his caffeine intake. Howard Schultz, CEO of the coffee chain, won't drink coffee after 5pm.
He's more of a tea man these days, having taken a liking to the Maharaja Chai Oolong blend sold at Teavana, the mainly mall-based tea retailer Starbucks bought for $620 million last November.
On Wednesday, Schultz sipped a $4.95 cup of his new favorite at the first ever Teavana tea bar, which opens Thursday morning in New York City. Next up: a Seattle outpost, opening just before Thanksgiving.
Schultz says to expect 1,000 such tea bars - complete with zen decor, grey walls and dim lighting - in the next five years as the java giant aims to do for tea what its parent company has done for coffee.
The location of the first Teavana Fine Teas + Tea Bar outpost couldn't be more perfect: on Manhattan's super-wealthy Upper East Side at 85th St and Madison Ave, steps from a branch of cult yoga outfitters Lululemon ('you've got to give us some credit,' Schultz said laughingly of the canny real estate grab) and blocks from Central Park.
Starbucks will slowly add tea bars to its 300 or so existing Teavana stores, which until now sold loose-leaf tea (two ounces of the Silver Needle blend goes for $17.98, for instance) as well as gifts and accessories like ceramic teapots and stainless steel infusers. As well as drinks like Matcha Lattes, the new tea bars will sell food to appeal to a health-conscious customer (an egg-white frittata is $5.95).
Schultz is convinced there's a market for both hot and cold tea, to the tune of $90 billion worldwide according to recent Euromonitor data. It's the second-most consumed beverage besides water. Much of this new opportunity can be found in countries where Starbucks is already well-established: the U.S., Canada, China, Japan and U.K. While Americans still consume coffee at a far greater rate than tea, their taste for leaves versus beans is growing. Data from the Tea Association USA says America's interest in tea has grown by 16% over the past five years.
Schultz isn't concerned about cannibalizing his current business, however, noting that caffeine junkies who jones for a Starbucks to start their day are unlikely to be big tea drinkers. To that end, there's no Starbucks branding in this first Teavana bar, nor will there be. There's no coffee on offer, and the drinks are sold as either 12- or 16-ounce servings rather than 'tall' or 'grande'.
'Don't you think that's the right choice?' asks Schultz, gesturing around the chai-scented room, its back wall home to a stenciled quotation mentioning 'alchemy', 'wisdom' and 'a tea journey.' Teavana's zen branding extends to its logo: a yogi, cross-legged, holding a mug of tea.
Analysts aren't convinced Starbucks can do for tea what the company has done for coffee since its 1971 debut, but they'll be watching closely. 'This is Starbucks trying to make a boring category - tea - interesting,' said Brian Sozzi, CEO of Belus Capital Advisors.
'I don't believe Teavana will ever grow into what the Starbucks brand has become for one simple reason: tea lacks the major caffeine count,' he added. 'That sounds silly, but the bottom line is that in this day and age of frantic tech-driven lifestyles, people want to run on 100 mg of caffeine, and they will trade taste to make that happen.'
Wedbush Securities analyst Nick Setyan is slightly more bullish on Starbucks' big move. 'If anyone can create a demand for a product, it's Starbucks,' he said, noting that tea has higher gross margins than coffee.
Schultz still has a way to go if he's going to sell New Yorkers on tea, as he learned on Wednesday, when he was asked whether Teavana's tea is kosher. 'It will be. It hasn't been certified,' he said. 'No rabbi has come in to bless it yet!'
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