A month ago, Howard Shultz, president and CEO of Starbucks, announced his company would pay a whopping $620 million to buy Teavana Holdings Inc., a publicly traded loose tea retailer. If you live in the U.S. chances are good you’ve seen a Teavana store awash in color and fragrance at your local mall. You may even have been sucked in with a free sample of Guava Papaya Passion White Tea.
The press release was all business. The deal (it was cash) paid $15.50 a share (a 54 percent premium on the closing price of the stock) and gave Starbucks (which already owns Tazo, a new-agey tea subsidiary) a “two-tiered” position in the domestic tea market. To read the document, one might think this was a move to define the hot beverage industry for years to come.
In an interview after the announcement Shultz offered the kicker, “We can create very unique brewed teas,” he said, “customized hot and cold beverages analogous to the espresso bars we introduced in the mid-’80s—and do for tea what we did for coffee.”
Let us, for a moment, gloss over the fact that Shultz modified the absolute (remember, always, Strunk and White’s “unique eggbeater”), and take the second proclamation. What has Starbucks done for coffee, after all, but burn the crap out of it, drown it in syrups, and make it synonymous world over with free wireless, acceptable seating, and a dearth of electrical outlets?
It’s easy to hate on Starbucks as a harbinger of Americanization, as a global pusher of the expensive and mediocre, as a brand for squares. But all of this ignores the fact that Starbucks’ domination brought coffee culture to the masses—that, as a company, Starbucks can take credit for enlightening consumers and intriguing the palettes of coffee drinkers on six continents, ushering in as it did so a whole new movement in the industry.
Starbucks has secured coffee’s position as the American drink, cementing the bean as a top global commodity. And it has, in the inevitable backlash, created a market for the small-scale, hyper-local response.
To quote Jonathan Gold in LA Weekly:
The first wave of American coffee culture was probably the 19th-century surge that put Folgers on every table, and the second was the proliferation, starting in the 1960s at Peet’s and moving smartly through the Starbucks grande decaf latte, of espresso drinks and regionally labeled coffee. We are now in the third wave of coffee connoisseurship, where beans are sourced from farms instead of countries, roasting is about bringing out rather than incinerating the unique characteristics of each bean, and the flavor is clean and hard and pure.
In other words, without Starbucks, without the people who grew to hate it, I’d have nowhere to drink locally roasted coffee. Which is why I’m so excited they bought Teavana.
Cards on the table: My family started The Little Red Cup Tea Company just under a year ago, so I’ve got skin in this game. We’re small, and pretty well locally focused, but this kind of market movement makes me sit up and listen. I attended the World Tea Expo in Las Vegas in June, and there the declaration of growth potential practically reverberated from the walls of the convention center.
Tea is up, in the U.S. especially, in several key categories. Bottled tea (Ready-to-Drink, jargonwise, or RTD) sales are reportedly hot and companies are scrambling to present consumers with thirst-quenching, antioxidant-rich, soft drink alternatives. Or, iced teas that taste just a little bit more like tea than they have traditionally. According to the most recent Euromonitor “RTD Tea in the U.S.” report, the segment grew 7 percent in value during 2011, and it’s forecast to grow 24 percent by 2016. “This growth,” writes the report, “parallels the increase in health awareness among consumers in the U.S. As such, they are looking for alternatives to high-calorie carbonates and RTD teas offers a unique refreshment beverage with lots of natural health benefits but very few calories.”
If Starbucks is willing to do the heavy lifting, willing to suggest to a populace that Chinese teas are more than a complement to General Tso’s chicken, willing to point out the difference between an oolong and a pu-erh, I will be much obliged.
Specialty teas are booming too, though exact numbers are hard to pin down. Premium teas account for nearly 60 percent of the industry, according to World Tea Media, though in other documents Kim Jage, sales and marketing director for the organization suggests that tea sellers are “still a bit behind here.” Many accounts suggest that premium teas are second only to RTD products in terms of growth, and it is into this category that Teavana falls.
Teavana’s loose teas span the spectrum from Monkey Picked Oolong ($25 / 2 oz) to Pineapple Kona Pop Herbal Tea ($7.20/ 2 oz). That is, from high-grade traditional teas grown in China, Japan, and India to blended concoctions worthy of our good friend’s young daughter Clara, who, seeing no reason to compromise, was a “kitty cat fairy princess” for Halloween two years ago.
The tea industry as a whole has seen remarkable market growth in the last few years. According to the Tea Association of the USA, the domestic market has grown from $1.84 billion in 1990 to $8.2 billion in 2011. That’s conservative: the Sage group suggests the domestic tea market is three times larger. Whatever your metrics, this is a good time to be in tea. Palates are developing, and good tea is valued enough in the United States to make importing it a worthwhile endeavor. At the same time, blended teas, hardly new to the market, have grown in popularity. They are a canvas for self-expression, an opportunity for western tea purveyors to claim craftsmanship.
With U.S. tea markets opening up so rapidly, Starbucks’ acquisition makes total sense. Teavana has a huge operation built up already, a supply chain, and a distribution network. And they know tea. Starbucks can use what it has learned about global domination, and start serving $4 specialty tea drinks. The company has already proved adept at selling coffee to the Chinese (no longer a “when pigs fly” situation); I have every confidence they will be able to sell astounding amounts of what Teavana has called “nature’s most delicious resource.”
Since I’m in the business, this is great for me.
Our teas are all traditional Chinese varieties, and we’ve kept the original names out of deference to a verbal tea culture dating back to the 700s. But offering friends a cup of “green eyebrow” has raised a few. We’ve done well with people who already know they’re a fan of Keemun-style black teas, but if we are to succeed, that population has to grow.
This is to say: If Starbucks is willing to do the heavy lifting, willing to suggest to a populace that Chinese teas are more than a complement to General Tso’s chicken, willing to point out the difference between an oolong and a pu-erh, I will be much obliged.
I don’t know if one can say that the Teavana acquisition means we are seeing the Second Wave of American tea culture. Surely Lipton tea can be equated with Folgers coffee, but then I’m no marketer. The same cannot be said of Schultz. On the subject of his company’s rise: “We would take something old and tired and common—coffee—and weave a sense of romance and community around it. We would rediscover the mystique and charm that had swirled around coffee through the centuries.”
If nothing else, Teavana’s acquisition stands as proof that Americans may be ready to rediscover tea. We once felt strongly enough on the subject, remember, to black our faces with coal and riot over a tax. Perhaps we’ve been tea people all along.