What happened to Teavana?

Teavana began its life as an American tea company Teavana Corporation, founded in 1997 by husband-and-wife team Andrew and Nancy Mack. 

The first store was founded with the pair’s life savings, with its success allowing them to open subsequent stores in the following years.

To accelerate the company’s growth, the Macks used the franchise model for a while but then had a change of heart and decided to buy out all of their franchisees.

Substantial investment from SKM Growth Investors in 2005 set Teavana on a growth trajectory that allowed the company to open 50 stores and expand internationally.

Six years later, the company debuted on the New York Stock Exchange, raised $121 million, and had close to 180 stores in several countries.

In 2017, however, every single one of Teavana’s 379 locations was shut down, with more than 3,200 employees losing their jobs.

FoundingTeavana, a prominent American tea retailer, had humble beginnings in 1997. It was founded in Atlanta, Georgia, by Andrew Mack and his wife, Nancy. Their vision was to create a unique retail experience centered around loose-leaf teas, emphasizing the sensory journey of tea consumption. The company’s founders were passionate about offering high-quality teas and tea-related merchandise, setting the stage for its growth and success in the years to come.
ExpansionTeavana’s journey was marked by rapid expansion. It quickly garnered a devoted following, thanks to its commitment to quality and the novelty of loose-leaf tea. By 2012, Teavana had burgeoned into a chain of over 300 stores across North America. This expansive reach allowed Teavana to tap into the rising demand for premium teas and create a dedicated customer base that appreciated the depth of flavors and variety offered by the brand.
Acquisition by StarbucksIn a significant move in November 2012, Teavana was acquired by Starbucks, a global coffee giant. Starbucks saw this acquisition as an opportunity to diversify its product portfolio and capitalize on the growing trend of premium tea consumption. The acquisition came at a substantial price, with Starbucks shelling out approximately $620 million to take ownership of Teavana. This momentous event marked a turning point for Teavana, as it gained access to Starbucks’ vast resources, distribution channels, and an even broader customer base, setting high expectations for the brand’s future.
CompetitionAs Teavana’s reputation grew, so did the competition. Rival tea retailers, such as DavidsTea and T2, entered the scene, offering high-quality tea products that often rivaled Teavana’s offerings in terms of taste and presentation. This increased competition in the specialty tea market created challenges for Teavana in maintaining its market share and keeping its customers engaged. Teavana was forced to adapt to the changing landscape and find new ways to differentiate itself in a crowded market.
Shift in Consumer PreferencesTeavana faced another formidable challenge in the form of shifting consumer preferences. Consumers increasingly sought out healthier beverage options, including herbal teas and specialty coffee, which posed a direct challenge to Teavana’s traditional loose-leaf tea focus. The company’s reliance on classic tea offerings limited its appeal to a segment of the market looking for innovative, health-conscious choices. As consumers’ tastes evolved, Teavana found itself grappling with the need to diversify its product offerings to stay relevant.
Retail StrugglesAfter its acquisition by Starbucks, Teavana faced difficulties in integrating its operations with the larger coffee chain. Store performance began to wane, and the high operating costs associated with maintaining its physical retail locations became a significant financial burden. The extensive network of Teavana stores, often located in shopping malls, experienced declining foot traffic, primarily due to the increasing popularity of e-commerce and online shopping. These factors collectively placed Teavana in a precarious financial position and necessitated difficult decisions about its future.
Store ClosuresThe challenging retail environment and declining sales led to a pivotal moment in Teavana’s history. In 2017, Starbucks announced the closure of all 379 Teavana stores, a decision that sent shockwaves through the tea retail industry. This announcement marked the end of an era for Teavana, resulting in the loss of thousands of jobs and leaving behind empty storefronts that once brimmed with the aroma of premium teas. The closure was a strategic decision on Starbucks’ part, driven by the need to cut its losses and focus on its core coffee business, marking a somber conclusion to Teavana’s retail operations.
Legal and Ethical ControversiesTeavana’s journey was also marred by legal and ethical controversies. In 2012, Teavana faced a lawsuit that alleged it had misled customers regarding the freshness and quality of its loose-leaf teas. The company settled the lawsuit by agreeing to pay $2.4 million to affected customers and modifying its marketing practices. Additionally, Teavana encountered criticism related to its sourcing practices. Concerns were raised about the working conditions on tea plantations from which Teavana sourced its products. While the company made efforts to address these concerns and enhance supply chain transparency, these controversies impacted its reputation and consumer trust.
ClosureThe final chapter in Teavana’s story unfolded in July 2017 when Starbucks officially closed all Teavana stores and discontinued its branded products in its cafes. The closure was the result of a culmination of factors, including underperformance, changing consumer preferences, and the high operating costs associated with Teavana’s physical retail model. This momentous decision not only marked the end of Teavana’s presence in the retail landscape but also had significant economic implications, as it led to the loss of thousands of jobs and brought an end to an era for the once-promising tea retailer.

Starbucks acquisition

In November 2012, Starbucks announced it had entered into a merger agreement with Teavana to acquire it for $620 million.

The coffee giant then embarked on an aggressive expansion strategy to open new stores.

Tea bars also opened in New York City, and Beverley Hills gave consumers a tactile tea experience and allowed them to engage with the brand.

This strategy worked for a while since, at the time, the specialty tea products that Teavana sold were difficult to source and were somewhat of a novelty.

Moreover, eCommerce had not yet taken off, and most consumers shopped in malls where most Teavana stores were located.

Store closures

As early as 2016, however, Teavana’s brick-and-mortar stores started to feel pressure from online sales.

Tea bars were shut down and redesigned as Starbucks stores, but the company continued its international expansion and entered into several high-profile partnerships.

Teavana was successful in China and India, with a large cohort of tea drinkers.

CEO Howard Schultz saw the writing on the wall in April 2017.

However, he questioned whether the promotion of Teavana in physical stores was the correct strategy.

A few months later, it was announced that all 379 stores would close. 

Then VP of concept development and franchising Charlie Cain had this to say:

While tea has consistently been among the fastest-growing categories within Starbucks stores, maintaining Teavana as a stand-alone chain dedicated to bulk-tea and accessories proved to be a less efficient and profitable strategy for driving tea consumption and revenue.

Business model and consumer preferences

Aside from the obvious threat of eCommerce, most Teavana stores reported impressive early sales data but failed to sustain this level over time.

Unfortunately, it was found that most consumers purchased specialty teas as seasonal gifts for others and purchased the tea they consumed regularly at supermarkets.

This was a preference Teavana could not overcome.

Starbucks representatives also acknowledged that the business model of Teavana was unsuitable outside of a mall environment that was diminishing in popularity.

According to Cain, the retail model, product range, brand positioning, and customer expectations were simply too difficult to alter, given time constraints and market preferences.

Moreover, there was neither space nor the required food service equipment in Starbucks cafes to sell a diverse range of teas.

At the time of writing, a small number of Teavana products continue to be sold in Starbucks locations around the world.

Key takeaways:

  • Teavana began its life as an American tea company Teavana Corporation, founded in 1997 by husband-and-wife team Andrew and Nancy Mack.
  • Teavana failed for a few reasons. While initially successful, its brick-and-mortar stores reduced the novelty factor of specialist teas for consumers and suffered intense competition from eCommerce. Starbucks also discovered that it could not convince consumers to purchase Teavana tea consistently.
  • While some Teavana products are sold in Starbucks locations today, the range is limited by a lack of floor space and appropriate food service equipment.

Quick Timeline

  • Teavana was founded in 1997 by Andrew and Nancy Mack as an American tea company, initially opening its first store with their life savings.
  • The company used the franchise model for a period but later bought out all of its franchisees to accelerate its growth.
  • Teavana received substantial investment from SKM Growth Investors in 2005, enabling the opening of 50 stores and international expansion.
  • In November 2012, Starbucks announced its acquisition of Teavana for $620 million, aiming for an aggressive expansion strategy.
  • Teavana’s brick-and-mortar stores faced pressure from online sales, leading to the closure of all 379 locations in 2017.
  • The business model of Teavana proved unsuitable outside of malls, and its specialty teas faced competition from supermarket sales.
  • Starbucks continues to sell a limited number of Teavana products in its locations worldwide.

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