Move Over, Coffee: With Tazo Store, Starbucks Aims to Reinvent Tea

Starbucks TeaIs Starbucks (SBUX) about to do for tea what it's done for the cup of joe?

With the launch of Tazo, its first tea-only store, the coffee giant is aiming to turn tea into the Next Big Thing. "We want to elevate the premium tea experience and grow the tea category, just as we've done for coffee," said Holly Hart Shafer, Starbucks communications manager. The store is set to open in October in Seattle, the heart of coffee country.

Tazo--named for the Starbucks-owned brand that is also sold in supermarkets, drugstores and cafes--will offer an "immersive" and "interactive" tea-shopping experience "that's differentiated from other folks in the retail space," Shafer said.

The signature feature of the 1,700-square-foot store will be its "blending stations," a showcase for 80 varieties of loose teas, where employees will guide customers through creating their own personalized blends. The loose teas will be sold by the ounce at prices comparable to specialty grocery stores.

In the Tazo café, customers "can slow down and learn about tea ... and can immerse themselves in a sensory-rich experience," Shafer said. "We're creating a tea playground for customers that are looking for that experience."

Tazo will also sell hand-crafted teas, bagged teas and iced teas at a tea bar, and a variety of pastries and goodies, not to mention brewing equipment and a collection of merchandise like tea cups and sets.

Tea Stores to Dot The Nation?

The time is ripe for Starbucks,which bought the Tazo brand for $8.1 million in 1999, to tackle tea, Shafer said. '"We realized there's a $95 billion global [tea] market out there, and tea is a pivotal business opportunity."

Tea has been thrust into the spotlight in recent years, fueled by the drink's perceived health benefits, the popularity of specialty teas and tea shops, and young people discovering the beverage.

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In turn, the wholesale market for tea has quadrupled from 20 years ago, growing from $2 billion in the early 1990s to an estimated $8 billion today, according to the Tea Association. Over the same period, tea houses and shops have mushroomed from about 200 outlets to 4,000 today.

Although tea stores like Teavana (TEA), the largest tea chain, with 233 stores in the U.S. and Canada, are expanding, Starbuck's move into tea is a game changer, said Joe Simrany, president of the Tea Association.

"Today, you can find Starbucks on nearly every corner," Simrany said. Down the road, he predicts, "you'll be able to find Tazo on at least every other corner."

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Move Over, Coffee: With Tazo Store, Starbucks Aims to Reinvent Tea

Nucor (NUE)  A company in a cyclical industry like the steel-making business could certainly be excused for paring down its workforce during tough times. During the Great Recession, Nucor's revenues were cut in half -- and yet the company didn't lay off a single worker.

Following a plan instituted by his predecessor, F. Kenneth Iverson, CEO Dan DiMicco has the company carry out a "pain-sharing" program when business is slow. Executives are the first to take pay cuts -- and they can be steep. After that, hours are reduced. That can hurt, but in the end, everyone keeps their jobs.

Whole Foods (WFM)  Sure, it's great that this grocer is encouraging Americans to eat smarter, but that alone isn't enough reason to celebrate it. The presence of Whole Foods has encouraged the proliferation of organic foods, which are unquestionably better for the environment. The company's color-coded seafood sustainability index encourages customers to consume responsibly, and it has taken huge steps to encourage sustainable farming in Costa Rica.

But it doesn't end there: Whole Foods also has an admirable approach to salaries. Co-CEO and founder John Mackey gets a $1 salary and took home just $78,000 in 2011 in accrued vacation time; no executive is allowed to earn more than 19 times the average worker's total pay.

Berkshire Hathaway (BRK-B)  Warren Buffett's baby makes it on to the list for how it's run: with an uber-long-term horizon and the utmost respect for shareholders. Arguably the greatest investor the world has ever seen, Buffett has also set the standard for transparency when it comes to communicating with the financial community.

Case in point: the David Sokol fiasco of early 2011. Sokol, one of Buffett's top charges, convinced Berkshire that Lubrizol -- a chemicals company -- was worthy of acquisition. The problem: Sokol held a substantial amount of Lubrizol shares that stood to appreciate upon the acquisition, and he didn't disclose the holding.

Sokol left the company around the time this information became known. Buffett was quick to give a full account of the situation, baring all for outsiders to see -- including his later bewilderment with Sokol's behavior.

Starbucks (SBUX)  Sure, it's easy to see this coffee king as a symbol of all that's wrong with corporate America. Satirical newspaper The Onion once joked that the stores were so ubiquitous, a new Starbucks was being opened in the restroom of an existing Starbucks.

All jokes aside, the company has been a model employer and partner with suppliers. Any employee who works just 20 hours per week is given health-care coverage. During the economic downturn, the company spent more money on this benefit annually than it did on all the coffee it bought. Starbucks has spearheaded the move for fair-trade coffee as well. It is the world's largest purchaser of fair-trade coffee, and it often pays above market value to its producers in developing countries.

And this past year, CEO Howard Schultz launched a drive to kick-start American job growth. In the program dubbed "Create Jobs for USA," the company collects donations from customers. All of the donations are poured into a fund that facilitates micro-loans to spur small-business job growth.

Costco (COST)  Competitor Walmart (WMT) has been in the headlines a lot lately. Whether it's for bribing officials in Mexico or not allowing employees to form unions, there seems to be a dark cloud hanging over the company. So why doesn't Costco get any bad press when the majority of its employees don't have union representation either?

It's actually quite simple: The company believes in its employees, and it backs that up with its actions. Employees are paid an average of $17 per hour and have generous health-care and retirement benefits -- two things Walmart employees certainly can't claim.

And customers are huge beneficiaries as well. Costco has razor-thin margins -- which means nearly every penny of savings Costco can squeeze out using its size and efficiency is passed on to customers. The company's profits, in fact, are almost entirely accounted for in membership dues -- not sales. The approach has worked out well for shareholders, too; including dividends, Costco shares have returned 131% over the past decade, doubling what the larger market has offered up and quintupling Walmart returns.

Starbucks already knows "the tricks of the trade of running a coffee and tea operation, and they've got the financial backing to make [expansion] happen," he said.

While there are currently no plans for more Tazo stores, you can bet those plans will change quickly if the first one succeeds.

"I'm sure Starbucks has contributed to the overall consumption of coffee in the country. They romanticized it and made it the thing to do," Simrany said. "They're going to do the same thing with tea."

Stay tuned.

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