What happened to Teavana?

Teavana began its life as American tea company Teavana Corporation, which was founded in 1997 by husband-and-wife team Andrew and Nancy Mack.  The first store was funded with the pair’s life savings, with its success allowing them to open subsequent stores in the years that followed. To accelerate the growth of the company, 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. A 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.

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, with tea bars also opened in New York City and Beverley Hills that 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. What’s more, 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 bricks-and-mortar stores started to feel the pressure from online sales. Tea bars were shut down and redesignated as Starbucks stores, but the company nevertheless continued its international expansion and entered into several high-profile partnerships. Teavana was particularly successful in countries such as China and India where there was a large cohort of tea drinkers.

CEO Howard Schultz saw the writing on the wall in April 2017, however, questioning 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. What’s more, there was not the 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 American tea company Teavana Corporation, which was founded in 1997 by husband-and-wife team Andrew and Nancy Mack.
  • Teavana failed for a few reasons. While initially successful, its bricks-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 on a consistent basis.
  • While some Teavana products are sold in Starbucks locations today, the range is limited by a lack of floor space and appropriate foodservice equipment.

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