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Starbucks Teavana: When Coffee Champion Forayed Into the Tea Market

TATA Starbucks Private Limited is a 50:50 joint venture and the owners are Tata Consumer Products and Starbucks Corporation. There are a total of 176 of these outlets all across India. On December 31st, 2012, Starbucks acquired Teavana Holdings Inc. , a chain of high-end tea stores, for $620 million. Despite all the efforts, the coffee market's biggest name failed in the tea market.

TATA Starbucks Private Limited was formerly known as Tata Starbucks Limited. It is a 50:50 joint venture and the owners are Tata Consumer Products and Starbucks Corporation. This joint venture owns and operates all the Starbucks outlets in India. There are a total of 176 of these outlets all across India. When we talk of Starbucks, we immediately associate it with coffee. But, the coffee giant once forayed into the tea market with Starbucks Teavana.

A Brief History of Starbucks

Starbucks history

Three partners came together to open the first-ever Starbucks outlet in Seattle, Washington on March 31, 1971. They were Jerry Baldwin, Zev Siegl, and Gordon Bowker. Their aim was to sell high-quality coffee beans. Alfred Peet was their inspiration for roasting techniques and equipment as he was a successful coffee roating entrepreneur. In the beginning, Starbucks sold roated coffee beans and did not brew any coffee.

In 1984, Starbucks expanded and bought Peet’s Coffee. They also started selling espresso around the same time. In 1987, the original owners sold the company to their manager Howard Schultz who rebranded his own Giornale coffee outlets as Starbucks. Hence, he managed to expand the brand quickly. By 1989, the company was roasting more than 2,000,000 pounds (907,185 kg) of coffee annually.

At the time of it’s IPO in 1992, Starbucks was a US$271 million company. Starting in 1996, Starbucks began expanding globally. Starting from Tokyo, it went on to mark the presence in the Philippines, Australia, U.K., Switzerland, and Mexico. On 19 October 2012, Starbucks opened its first store in India at the Horniman Circle in Mumbai.

Conquering the Indian Hearts

Alphonso Mango Frappuccino by Starbucks

When it first entered India, Starbucks expected India to eventually become one of its top five markets. And this is the reason why it adopted a long-term approach while stepping into the rapidly emerging market. At first, experts assumed that Starbucks will struggle to survive in the Indian market as the products were out of reach for average middle-class people due to the premium price.

But Starbucks had studied the Indian market for years. It had a clear vision to focus on the youth as their target group. And this is what helped it to grow. Starbucks believes that the Indian market has evolved along with the brand itself. It has gone from simple coffee and tea to gourmet coffee. Also, different brewing techniques and flavours are fascinating the customers.

The market of Starbucks in India is hugely a perfect example of a millennial-driven market. Apart from offering global favorites like Nitro Cold Brew, the mushrooming coffee chain also offered a range of local flavors like the Alphonso Mango Frappuccino to add to customer delight. Starbucks is comfortably driving the Indian market with the two prolonged strategies- expansion and innovation.

Teavana: A New Adventure for Starbucks

Starbucks Teavana

Teavana Holdings Inc. was a chain of high-end tea stores. On December 31st, 2012, Starbucks acquired it for $620 million. At that time, Teavana had about 300 stores located primarily in shopping malls across the US, Canada, and Mexico and had just expanded to Kuwait. It was Starbucks’ second foray into the tea market after the purchase of Tazo tea in 1999.

The in-store sales growth started to increase significantly ever since the Teavana purchase with the new product line of premium teas. And so, Starbucks planned a further investment that included opening 200 stores by 2015. Moreover, Teavana’s extensive distribution channels across malls added to the confidence.

At that time, the expansion strategy seemed to work. Teavana’s
value proposition and customer attachment drove many new and old customers. Starbucks added some improvements to Teavana’s business model and introduced new concepts like Tea Bars.

Failure of Starbucks Teavana

There was an increasing demand in the United States and Starbucks was well aware. But the lack of information and experience in the tea sector caused severe issues for the ‘coffee champion’ as it could not effectively integrate Teavana into its business. However, these were not the only reasons why Teavana failed to be the ‘Starbucks of Tea Sector’.

1. Using Coffee Experience for Tea

Starbucks is the biggest name when it comes to coffee. And this position is well deserved owing to the long experience this giant has. But tea isn’t coffee!

Starbucks expected the coffee experience to help with the tea market. But unfortunately, this assumption worked against them very badly. Tea lovers often prefer transparency, terroir, processing methods, and natural flavors. All these factors are the ones that the customers don’t relate Starbucks to.

2. The Wrong Market Size

The company announced that it was about to enter the 90 billion dollar tea market. But what Starbucks failed to realize is that the 90 billion dollar tea market includes herbal tea. Excluding the herbal tea, the the market is about 40 billion USD in size.

Furthermore, the tea market in the US largely consists of low-priced ice tea. This segment wasn’t Teavana’s target. So, the remaining market of “specialty tea” was actually very small. So, the rigorous expansion in a small market led to failure which was quite obvious.

3. Outdated Selling Platform

Starbucks chose malls for expanding Teavana stores. But that was the period when e-commerce was booming all over the world and malls were losing their charm. They undertook various measures like creative merchandising and attractive store designs. But nothing seemed to work.

On the same line, Starbucks shared a statement which said, “We conducted a strategic review of the Teavana mall-based store business and concluded that despite our efforts to reverse the trend through creative merchandising and new store designs, the underperformance was likely to continue.”

Moreover, the stores were located in expensive malls. So the rent of the stores was ridiculously high.

4. Poor Sales Tactics

As per many customers, the staff of Starbucks Teavana wasn’t much loved. Tea is traditionally sold in a very friendly environment. People in Asia, specifically China, are free to try out any tea varient before they buy anything at the tea stores. Also, the staff is knowledgable about various types of teas and blends.

But this was not the same at Teavana. As the staff at Starbucks outlet, the staff at Teavana was used to fast conversion and purchases. And therefore, the behavior was not appreciated by the customers.

5. Quality of Tea

Teavana was a premium brand in the tea market. On the contrary, the products weren’t of great quality. Customers felt that they were paying just for the brand and packaging and not for the tea. This was a major reason why Teavana couldn’t withstand the competition. Competitors such as Davids Tea and local tea shops offered similar products at a much lower price.

Conclusion

Starbucks failed to make Teavana the ‘Starbucks of Tea Market’ as it is clear from the above-mentioned reasons. On July 27, 2017, Starbucks announced it would close all 379 Teavana stores by 2018. It also stated that this was partly due to underperformance. But we know better.

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