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Starbucks To Enter $90 Billion Market With First Teavana Tea Bar

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Starbucks Corporation (NASDAQ:SBUX)’s CEO is often quite high-strung, which makes a certain amount of sense given the availability of his coffee for both himself and for large parts of the world. However, the man who often makes coffee nervous is trying to cut down on his coffee intake and is no longer imbibing the beverage after 5:30 in the evening.

While I don’t trust people who drink a lot of tea, the industry is worth $90 billion worldwide annually and it is the most drunk beverage outside of water on a global scale. Looking at the United States’ citizens and obesity rate I would have assumed it was Coke Extra but those are global numbers.

Starbucks investment in Teavana

Roughly this time last year, Starbucks Corporation (NASDAQ:SBUX) invested in Teavana Holdings, Inc. (NYSE:TEA), the primarily mall-based tea retailer which Starbucks paid $620 million for last November.

Now, Starbucks Corporation (NASDAQ:SBUX) is adding tea bars to Teavana sites, the first of which is set to open tomorrow morning in NYC. And not just New York City, but in Manhattan’s super-wealthy Upper East Side at 85th St. and Madison Ave. The location puts it clearly in the heart of wealth and steps from Central Park.

Now, the retailer will simply need to train its employees properly when it comes to answering whether or not the tea is kosher. That’s not anti-Semitic, that’s common sense and something CEO Howard Schultz is keenly aware of based on a recent interaction with a potential customer.

Schultz himself was asked this question just today to which he replied, “It will be. It hasn’t been certified, but no rabbi has come in to bless it yet!”

Teavana expanding business

The second Teavana Holdings, Inc. (NYSE:TEA) location will open, fittingly, in Seattle where Starbucks Corporation (NASDAQ:SBUX) is headquartered.

So that’s two down, and 998 to go. Starbucks Corporation (NASDAQ:SBUX) is planning on opening 1,000 new tea bars in the coming years, each replete with zen decor, dim lighting, and grey walls. It will cost Starbucks a fair chunk of money, but then again, a 12oz. tea in the bar costs $4.95. Customers will have the choice of 12 ounce or 16 ounce teas and gone will be the “tall” or “grande” distinctions. Additionally, Teavana Holdings, Inc. (NYSE:TEA) will offer healthy food options for the, well, tea drinker.

Teavana presently has over 300 locations and you should expect to see each of them with a tea bar installed before the company begins building new locations.

Analysts’ expectations for Starbucks

Few analysts expect Starbucks to do for tea what it has done for coffee, but its efforts are being applauded in a number of circles and, let’s face it, it’s tough to put a Starbucks on five corners of a busy intersection.

“This is Starbucks trying to make a boring category — tea — interesting,” said Brian Sozzi, CEO of Belus Capital Advisors.

“I don’t believe Teavana Holdings, Inc. (NYSE:TEA) will ever grow into what the Starbucks Corporation (NASDAQ:SBUX) brand has become for one simple reason: tea lacks the major caffeine count,” he added. “That sounds silly, but the bottom line is that in this day and age of frantic tech-driven lifestyles, people want to run on 100 mg of caffeine, and they will trade taste to make that happen.”

Wedbush Securities analyst Nick Setyan is considerably more optimistic. “If anyone can create a demand for a product, it’s Starbucks,” he said, noting that tea has higher gross margins than coffee.

That said, data from the Tea Association USA says America’s interest in tea has grown by 16% over the past five year; so anything is possible.

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Brendan Byrne

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