Thursday, July 27, 2017

Starbucks Sours on Teavana Brand, Plans to Shutter All Stores

Earlier this afternoon, Seattle, Washington-based Starbucks Corp. announced it would shutter all of its 379 Teavana stores.   The company indicated that closures would happen within the next year, with most closing by spring 2018. 
Starbucks founder Howard Schultz at a Teavana Fine Teas + Tea Bar shop in New York
Starbucks reportedly indicated that the Teavana chain of retailer stores are "struggling and would likely continue doing so." Industry observers noted that many of Teavana's stores are located within enclosed malls where traffic has been declining.   "The 3,300 employees affected can apply for positions at Starbucks stores," according to a company release.  Starbucks will continue to sell crafted Teavana beverages in its Starbucks stores, as well as bottled Teavana teas in grocery stores.

Starbucks (NASDAQ: SBUX) reported quarterly profit that matched analysts' estimates, but hinted at softness in the U.S. retail and restaurant segments in the current quarter.   

The news and Teavava closure announcement came just hours after Starbucks announced plans to buy the remaining 50% share of its East China business from its joint venture partners for about $1.3 billion, its largest acquisition ever.  

Teavana, which Atlanta husband and wife Andrew and Nancy Mack started at Phipps Plaza in 1997, went public during summer 2011.  In April 2012, Teavana acquired Teaopia, then a 46 unit tea retailer similar to Teavana, for $26.9 million.  In November 2012, Starbucks announced plans to purchase Teavana for $620 million, a deal that closed in December 2012.  

Starbucks announced in February 2014 that Teavana founder and CEO Andy Mack, "having helped with the integration of Teavana with Starbucks," decided to retire from the company.  

Tea is the second most-consumed beverage in the world and represents a sizeable opportunity for Starbucks as we continue to grow around the world,” said Cliff Burrows, group president, U.S., Americas and Teavana at the time of Mack's departure.  

We are grateful for Andy’s leadership establishing Teavana as a world-class leader responsible for bringing premium tea to millions of customers over the past 17 years."

Starbucks Canada Executive Vice President and President Annie Young-Scrivner was named Executive Vice President and President, Teavana.

"Under Annie’s leadership, we plan to do for tea what we did for coffee by significantly expanding the availability of new and innovative Teavana products in Starbucks and Teavana retail stores and through other channels.” 

At the time of the Teavana acquisition and again when Mack retired, Starbucks reiterated that "Teavana is positively positioned to capture market share within the rapidly-growing $90 billion global hot and iced tea market."

During summer 2014, it was announced that Teavana would leave their Atlanta headquarters at 3630 Peachtree Road in Buckhead to join Starbucks in Seattle.

In January 2016, Starbucks announced it was pulling the plug on its short-lived  upscale concept "Teavana Fine Teas and Tea Bar."  The closures  affected New York City's three Teavana locations which were converted to Starbucks, and one in Beverly Hills, which was simply shuttered. The Seattle location at University Village remained open.    

The decision to close Teavana is not without precedent for Starbucks.  The coffee powerhouse, in search of growth vehicles complimentary to their core business, paid a reported $30 million for premium juice producer Evolution Fresh in late 2011.  In mid 2012, Starbucks shelled out $100 million on La Boulange, a San Francisco based bakery known for their artisanal products.  

Although Starbucks themselves took Evolution Fresh from purely a wholesale juice business to a stand alone retail operation in 2012, the company closed the last of the Evolution Fresh shops earlier this year.   In late 2015, Starbucks announced it would close all 23 retail outlets of La Boulange.  While the bakery concept was not developed by Starbucks, the chain had a devoted customer base predating its purchase, so the closures were a devastating loss for San Francisco, where most the stores were located.  

In both cases, Starbucks continued to offer Evolution Fresh and La Boulange products in their namesake stores. 

In an interesting plot twist, Pascal Rigo, founder of La Boulange, who was later named Vice President of Food Service at Starbucks, has resurrected La Boulange, sort of. Last year, 56 year old Rigo decided it was time for round two. La Boulangerie de San Francisco, the name of Rigo's latest venture, has six locations open in the Bay area, with plans for 20-40 locations in the coming years.   Rigo hopes to turn his new venture into a "fast-casual powerhouse" according to an interview he gave to QSR Magazine last year.  (Perhaps ousted American Apparel founder and CEO Dov Charney was inspired by Rigo as he recently launched "Los Angeles Apparel.") 

Teavana presently operates seven locations in metro Atlanta: Lenox Square and Phipps Plaza in Buckhead, Perimeter Mall in Dunwoody, North Point Mall in Alpharetta, Cumberland Mall near Vinings, Town Center at Cobb in Kennesaw, and Mall of Georgia in Buford.  The company also operates a store at Augusta Mall in Augusta.  

Of the chain's overall 379 locations, about 300 are in the United States, with a single unit in Puerto Rico and the balance in Canada, Mexico and the Middle East.  The largest U.S. markets for the chain are California with 39 locations and Florida with 23.  

Are you surprised by the decision to close all Teavana locations?  What would you like to see open in place of the metro Teavana locations due to close?  Would you like to see Andrew Mack attempt a Rascal Rigo-like resurrection of the brand?  

Please share your thoughts below.  

6 comments:

Anonymous said...

Great. So they buy what was a thriving, unique concept only to decide they don't want it and shut it down. Consumer loses.

Anonymous said...

I love tea but Teavana was a predatory ripoff. Very bad customer experience. Sbux overpaid, bigtime.

Mark said...

I'm not entirely surprised given Starbuck's history with purchases. Sadly, I won't miss Teavana. I had shopped at the Perimeter Mall location ever since it opened until Starbucks bought them and suddenly, they were all hard sell, making visits so unpleasant that I eventually told the manager they'd lose my business if they kept it up. I made one more visit and took my business elsewhere. I have no concerns for the founders as I'm sure their nests are very well lined. They can and should do whatever they like with regards to business. I liked the business they had, but I've found another tea vendor I like, so they won't regain me as a customer.

396 said...

I wonder if they'll keep teavana.com open. I enjoy their tea and I'd like to still be able to order from their site but, like Mark said, the hard sell at the stores was off the charts.

I finally learned to only go into the store at Lenox 10 to 15 minutes before closing so that the employees would be too tired and too focused on going home to bother me. Going any other time of day meant constantly telling someone "No, I don't need a tea kettle. No, I don't want your special German rock sugar. No, I don't want a $15 tea canister. I'm going to drink the tea, not store it for a year. Yes, I'm sure I only want the amount of tea I asked for." The people working there would literally follow you around that tiny store. I finally stopped going altogether when one employee implied that if the tea was stored in anything other than their magical, name brand canisters, it was almost the same as just throwing the tea away as it would quickly become undrinkable.

I'll never forget the look on one guy's face in line at the register right in front of me a few years ago, when the cashier told him the total for his order and the guy realized that he'd been talked into so many upsells that he'd spent more than $100.

Mark said...

396, Try Zen Tea in Chamblee. I don't know that they'll have quite the variety but they definitely stock the few teas I regularly drink.

Anonymous said...

"Industry observers noted that many of Teavana's stores are located within enclosed malls where traffic has been declining."


I don't know who the "Industry Observers" are, but did they observe that every one of these malls also has a Starbucks? Starbucks is simply consolidating these business and firing excess baggage (Employees.)