After water, tea is the world’s most popular drink. So Starbucks (NYSE: NASDAQ) placing its bet on Teavana is a sure thing, right? Well, not so fast. Americans may like their iced tea, but when it comes to hot beverages, coffee is the thing. Even when Oprah herself endorses a product like Oprah Winfrey Chai Tea sold exclusively at Teavana (and introduced last month by Starbucks CEO Howard Schultz at the future New York Teavana store), there’s no guarantee that success will follow.
Part of the $620 million Teavana purchase plan by Starbucks is the corporate roll-out of 1,000 stores worldwide. Schultz is eager to tap into the $90 billion worldwide tea market, and there’s plenty of room to grow this beverage, although perhaps not in the United States.
Americans and tea drinking
It’s not that Americans don’t like tea, but gaining a strong foothold in the tea market (unlike coffee) is unlikely to happen in Starbuck’s home country. Why? First of all, most Americans when they drink it, drink iced tea. And when they drink iced tea, they tend to purchase ready to drink (RTD) iced teas, such as Arizona, Lipton, and Snapple. Even that market is only $5.1 billion in sales annually, a tiny fraction of the $90 billion tea market.
As for past tea sales at Starbucks and Teavana, the figure looks even smaller, a mere $1.7 billion for 2013. When it comes to US sales of hot tea (tea bags or loose tea), the figures drop to the millions, not billions. In 2013, the top tea brand for hot tea drinking was Lipton, hardly the upscale type of tea drinking that Schultz hopes to promote at Teavana.
As the largest brand of hot tea, Lipton sold a mere $266 million, and Tazo, the Starbucks elite brand ranked seventh in the category, with a mere $37 million in sales (and 3 percent share of the hot US tea market). Clearly Starbuck’s Schultz has his work cut out for him in convincing Americans that tea is the drink they need.
Drink of the Millennials?
In part, Starbucks and Schultz are betting on the Millennial generation (those aged 24-35), who are more worldly and open to other cultural traditions (like tea drinking). But this may be barking up the wrong tree, as this group itself suggests. Only 24 percent of those aged 24 to 35 drink tea or coffee several times a day. The largest group of those drinkers are aged 55 and older.
(Hot) tea drinking is popular around the world, so Starbucks does have the potential to sell the concept of Teavana to other cultures and nations. However, as for Americans, it will likely be a long and disappointing road for Schultz if he’s counting on Teavana to become the household name that Starbucks has in this country.