Starbucks teams up with unlikely partner to enter a $1 billion business

Starbucks Partners With a Beer Giant, But It's Not For Coffee or Beer
Starbucks Partners With a Beer Giant, But It's Not For Coffee or Beer

Starbucks just took a huge step to take over the tea business, with an unlikely partner.

The coffee giant announced on Thursday that it is partnering with Anheuser-Busch InBev to launch a Teavana ready-to-drink tea in the US. The new product line will debut in the first half of 2017, on the shelves of the roughly 300,000 stores in AB InBev's distribution network.

"When we acquired Teavana in 2012, we saw a unique opportunity to do for tea what Starbucks has done for coffee and expand the Teavana brand across many customer experiences and products," Starbucks CEO Howard Schultz said in a statement. "We are excited to work with Anheuser-Busch to unlock the premium ready-to-drink market and further grow demand for the Teavana brand."

Starbucks reports that in the past year, the chain has sold more than $1 billion of Teavana beverages at locations across the US, an 11% growth in year-over-year sales.

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Currently, the premium ready-to-drink tea business generates $1.1 billion in sales, a quickly growing part of the global $125 billion tea industry. It is a category that Starbucks and AB InBev believe Teavana is perfectly positioned to tap into.

"We know... that there is a great demand for this product," Schultz said on Thursday on a call with reporters.

According to Schultz, the popularity of tea, especially premium and iced tea, among young consumers indicates an opportunity to grow the category at a faster rate than coffee. Executives at AB InBev, a company with far more experience in beer than tea, agree.

"We see an amazing opportunity in tea, when you look at tea on a global basis, but especially in the US," said AB InBev CEO Carlos Brito.

Schultz indicated that the line of tea would be similar to Starbucks' ready-to-drink bottled Frappuccino line, which the company launched in partnership with PepsiCo in 1996. PepsiCo and Starbucks' ready-to-drink coffee and energy drinks make up a $1.5 billion business — and Schultz believes Teavana could be even bigger than the bottled Frappuccino.

"Just think of it this way — throughout our stores, millions of customers every day have a chance to see our Teavana brand every day, [and to] taste it," said Schultz.

Starbucks' decision to team up with AB InBev, not PepsiCo, may raise some eyebrows. Schultz justified the decision to partner with the beer giant by pointing to company's experience in distribution, corporate values, and relationships between executives, as well as Pepsi's own place in the tea business with Lipton.

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