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Starbucks to Open a Tea Store

June 22, 2012

Starbucks has become synonymous with coffee in a big way over the years. Now, the coffee company is looking to branch out and its next act will include tea.

The company has verified that it plans to open its first coffee-free/tea-only store in October under the Tazo brand near its headquarters in Seattle. According to reports, the store will offer over 80 varieties (Who knew, right?) of loose-leaf teas. The Tazo partners (not associates) can work with customers to create customized tea blends for consumption in the store or to take home.

"It's very much about personalization and interaction and immersing yourself in all-things tea," said Holly Hart, a spokesperson for Starbucks, told CNNMoney. "It's not going to be the typical grab-and-go experience."

Ms. Hart said the experience should be enough to differentiate it from competitors, including Starbucks, which also sells Tazo tea drinks, and drive traffic to the store.

"If you think about going to wine tastings where you're standing up, sipping and talking about the flavor profile, that's what this store will look like," she told CNNMoney. "It's about the interaction, talking about the flavor and the blend of the tea."

While Starbucks is taking the Tazo tea shop one step at a time, the company has made clear that it sees the "$1.4 billion brand" as a vehicle for growth.

According to a Bloomberg News report, CEO Howard Schultz said on an April conference call, "We've recognized the unique opportunities we have with Tazo in multiple channels of distribution as part of our health and wellness initiative."

FINANCIALS:     [NASDAQ:SBUX] [ ]

Discussion Questions:

Discussion Questions: What do you think of the coming Tazo store experience as described in reports? Do you see widespread growth potential for this or some other tea-based retail concept similarly to what we've seen with coffee, if not to the same degree?

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Instant Poll:

How would you rate the size of the tea parlor opportunity in the U.S.?

Comments:

Teavana has been expanding and an experimental store is something a large brand can do without much downside. Lipton tried this back in Pasadena in 1997 but it didn't go anywhere.

Seeing how customers would mix and match much like a soft serve ice cream store is right on trend.

The big question still out there is, is there enough demand for designer/gourmet tea houses? I'm still not convinced anyone has gotten the vibe right in the stores.

Tea is quiet, reflective and pensive vs. coffee which represents energy, exotic areas of the world and travel -- though I'm sure tea makers will disagree. I hope to see Tazo/Starbucks getting it right so others might follow as, even though I was CMO of a coffee franchise, I'm a strong ice-tea drinker.

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Bob Phibbs, President/CEO, The Retail Doctor

As one of the most dedicated and committed self-proclaimed groupies of Starbucks, and their elite management team, I find it difficult to second guess or worry about any decisions they make because frankly, everything they do turns to gold. However, in as much as I realize the growing popularity of tea, I kind of wish that Starbucks would stick to selling tea in its traditional coffee shops. The Starbucks brand means so much and always will unless the brand is allowed to become overly diluted and spread too thin.

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David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates LLC

Finally a job even I can do. A Tea Barista job description goes something like this: take the tea bag, place in hot water, add lid and collect $8.00. I just hope the 80 varieties do not include lattes or mocha. Seriously, it is a natural extension of the brand and I think they will do well, but not nearly as well as the coffee outlets are doing. Heck, we even got the Brits drinking coffee now!

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Frank Riso, Principal, Frank Riso Associates, LLC

First of all, full disclosure. I love Starbucks as a company. When my second book came out they arranged for a reading and book sale event in their corporate headquarters. So, I'm obviously not totally objective here.

That said, my loyalty has never extended to actually drinking too much coffee at Starbucks, It seems to me they "push the beans" too far and that the result is a cup of coffee way too bitter to be drinkable minus the addition of ingredients more commonly associated with ice cream sundaes.

So, I already drink tea at Starbucks -- Earl Grey, not the odious rooibos varieties.

It occurs to me that this is either (a) the brightest idea Howard Schultz ever had or, (b) the dumbest. Let's look at the teacup is half full theory first.

Starbucks has already convinced customers they are special because they can order a "Skinny triple red-eye latte -- tall in a grande cup -- 99.347 degrees," with a perfectly straight face, despite the fact that it tastes awful and that they probably wouldn't know what a really good cup of coffee was supposed to taste like if they were drowning in it.

Given the mystique Starbucks has built around coffee just think what they could do with individualized tea formulas. The possibilities are -- in an almost literal sense of the word -- infinite. Customers could customize to their heart's -- and ego's -- content.

On the teacup is half empty side Teavana already exists. Real tea snobs will go -- as they currently do -- to real tea purveyors where a kilo of the right tea can cost more than a kilo of cocaine. Also, too much choice might confuse those poor wannabee foodies. But, my real problem with this is that America just isn't a tea drinking nation.

We'll see what happens but reading the tea leaves today, it kind of looks like a long shot.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

Tea rooms already exist in many urban areas around the country. Starbucks could take them mainstream. With new information appearing almost daily about the benefits of drinking tea, this is an idea whose time may have come. I look forward to seeing how Starbucks implements this concept and how consumers respond.

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Max Goldberg, President, Max Goldberg & Associates

What Howard Schultz did to upgrade coffee from a pedestrian beverage into a premier morning requirement is a great foundation for trying to create an American tea tsunami. So, Howard, move on and multiply the long deprived tea-thirsty American ones. Make your kettles boil, bubble and sing beautiful notes -- financial notes that is.

But the paradox of cautiousness arises. There is just so much expensive liquid the American body can withstand.

A Tazo tea shop is a smaller growth vehicle in the colonies. Keep that in mind if your first tea shop is a glaring success -- it might be a benefit from a novelty effect.

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Gene Hoffman, President/CEO, Corporate Strategies International

For some Starbucks customers it is about the coffee and others the experience. Starbucks is doing a brand extension of the experience it provides its customers. Seems this is a logical move. The question is, are there enough tea drinks to make it a business with any scale?

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Steve Montgomery, President, b2b Solutions, LLC

When I moved to Arizona 14 years ago and invited friends over for BBQ'd ribs I was told flatly that "Canadians don't know how to BBQ."

In unapologetic revenge let me now declare: "Americans simply do NOT know how to do tea!" There, I said it and I'm glad.

Tea is the ultimate alignment of nature, science and art. Restaurants bring this lukewarm tin pot of water with a nondescript tea bag (asking 'what kind of tea do you have' is pointless - the answer is cold or hot) lying unloved on the saucer. Should you want milk in your tea (and never add milk to good tea) they bring you a CREAMER! Oh, the humanity!

The water MUST boil, but you let it quiet down before pouring it with intention over the tea bag (or better, tea infuser) which is in a china pot or cup. Never pour angry water over tea, not good karma. In the US we fear boiling water because some idiot will pour it on their crotch.

SO - IF Starbucks actually learns how to make tea, it will be a beautiful and profitable thing!

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Ian Percy, President, The Ian Percy Corporation

Ian is of course right although -- shockingly I might add -- he omitted the de rigueur steps of scalding the tea pot and the cups. And, there was no mention of a tea cozy at all. Ian, perhaps you've been in Arizona too long.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

Baristas will tell you that there are certain demographic profiles for the various beverages Starbucks sells (tall coffee = older person.) I wonder what the tea demographic is.

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Cathy Hotka, Principal, Cathy Hotka & Associates

I love the concept, but see it working best in a store-within-a-store model. Why? Unlike coffee, tea is a product that can sit on the grocery shelf for months at a time. You just don't use as much when making a cup of tea as you do a pot of coffee. Also, Starbucks is a destination location. Could a tea shop pull this off as well?

What I love is a Tazo custom blend tea shops inside another store. For example: Whole Foods, Wegmans or Trader Joe's. These formats lend themselves to trial, consumer loyalty and passion for unique items. I would also test a store in Times Square, NY. This is a great place to share the concept (educate the market), get feedback from not only New Yorkers, but tourists from all over the country.

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John Boccuzzi, Jr., Managing Partner, Boccuzzi, LLC

We found out that current tea retailers only do about 5% of their business in walk-out cups. Which is no doubt around the opposite of what Starbucks does in coffee. Therefore, it'll be very interesting to see how and what they sell of this very different product to a very different customer.

Starbucks has an amazing retail track record, so I trust they will win. But as a born retailer, I'm peak-curious to see how this all goes down.

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Lee Peterson, EVP Creative Services, WD Partners

Tsk, tsk, Admiral Mathews. Me thinks you're a wee bit cynical not only about the Starbucks move into "Teaism," but Starbucks devotees per se. Hmmm. Tea houses are growing by leaps and bounds in popularity, and there are fewer large "chains" to contend with at this time. The environment, culture, and vibe of tea houses is quite different than that of coffee shops, and if Starbucks' brand is extendable (through Tazo), then they have a great opportunity to DOMINATE the space, much like they do in coffee.

Mark Baum, SVP & CCO, Food Marketing Institute

One can go into a Starbucks and have a variety of drinks, allowing for the in and out customer (their biggest audience) or the sit-down audience who may have a mixed choice of drinks.

As the sit-down tea drinker audience is smaller, it will be more difficult to find pairs or groups where both or all drink teas. It will not be merely finding one, as this will be a social activity. One can still drop in a diner or Starbucks to pick up a cup of tea on the way to work.

The classic Tea Room is one model, but the focus is on the experience and it has a slow table turnover, requiring a high price point. That is a restaurant and not the way this should go.

The Starbucks tea stores will need to sell a lot of bulk teas with high margins with the experience being constant samples of a variety of teas served by tea-masters rather than machines. A cup of tea does not have the variations in format that coffee has -- there's sugar, cream, or lemon, and perhaps ice cream.

Rick Grossman, Owner, na

I am having a problem visualizing a Starbucks tea parlor next to or across from a coffee location. Somehow I think this can become a part of the existing coffee locations. Separate locations do not make sense to me. But how can we argue against the success Starbucks is having selling coffee? Who would have imagined selling coffee for mega bucks would prove successful?

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

To my good friend Mark Baum's point, independent tea shops are growing in popularity, in large part no doubt, as a reaction to Starbucks' seemingly ubiquitous presence and the broader trend toward the "chainification," of coffee. But that doesn't necessarily mean that tea will work at Starbucks.

As to being cynical, I guess I have to plead guilty -- perhaps the result of living in a society that consistently refuses to distinguish between real teas and herbal infusions. For the uninitiated, if it doesn't have any tea in it you shouldn't call it tea.

The mass popularization of wine -- and wine writing -- in America resulted in shelf upon shelf choked with "fruit bomb," reds passing themselves off as the sophisticated choice of an educated palate. I can't stand the idea of the same thing happening to tea.

Again, I agree with Ian.

The best place I know to get a decent cup of tea is in my own kitchen -- unless of course I happened to be visiting Arizona. I'll take it as an article of faith that Ian knows how to brew a proper cup.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

I see it as plausible, but I think with a group, some like coffee and others prefer tea so why try to separate them by store? I think simply advertising the tea would be much more efficient than adding a new store and new staff.

Kent Bryant, sys admin, Sutherland Lbr. Co.

This is a compliment to the coffee concept of Starbucks, but certainly not a replication of the same success. More people drink coffee (in the USA) than Tea, and are willing to pay the excessive prices for a cup of coffee. This concept will be an interesting foray for Starbucks, but should serve more as a a reflection that the Starbucks concept should not be limited to just coffee....

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Kai Clarke, CEO, American Retail Consultants

Okay, I am a tea drinker so of course I love the idea of a wider selection but...lots of my friends and colleagues are coffee drinkers. In fact, I am always out numbered in this country so...Is this great place going to be for me to go by myself? That really doesn't sound so good to me, but let's leave it to Starbucks to work that out.

Lee Kent, Let's meet share and succeed in Retail, YourRetailAuthority

I have read through the remarks and have yet to see (what is to me) the obvious question: why? As in "Why do you need separate venues for tea and coffee?" I don't envision the same concerns expressed with their saloon idea (it was feared that javaheads and boozers would get into some kind of tiff at the napkin bar) and have never heard of a beans vs. leaves cross-contamination problem ("We clean our stirrers after each use!"). To paraphrase the late Mr. King, can't we just ALL get in line?

'notcom'

Tazo represents an exciting growth vehicle for the Starbucks brand. Teavana and Tea Source have build successful businesses by embodying the Starbucks approach of highly engaged passionate employees selling products they use and love. If Starbucks is able to harness the strength of their coffee store employee mission to tea, there is no reason they should not be successful.

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Mark Price, Managing Partner, LiftPoint Consulting, Inc.

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