What Happened To Teavana? Why Did It Fail?

Executive Summary:

Teavana is a manufacturer and distributor of various tea products. Customers can currently purchase sachets as well as cups distributed in supermarkets.

Teavana failed primarily because visitor number in malls, where most of its shops were based, significantly decreased over the previous years.

Founded in 1997, Teavana had been acquired by Starbucks for $620 million in 2012. Five years later, it announced the closure of its approx. 350 retail locations.

What Is Teavana?

Teavana is a manufacturer and distributor of various tea products. Customers can currently purchase sachets as well as cups distributed in supermarkets.

Example products include Lemon Ginger Bliss, Spiced Apple Cider, Jade Citrus Mint, Peach Tranquillity, and many others.

The company also used to sell hardware to consumers, such as multiple cast irons, tea tins, canister sets, and many more.

These products were then distributed via its own website and the hundreds of retail stores the company used to operate.

Unfortunately, all of its stores were eventually closed in 2017. How the company came to be as well as the reasons for its failure will be discussed in the next chapter.

What Happened to Teavana?

Teavana, formerly headquartered in Atlanta, Georgia, was founded in 1997 by Andrew T. Mack and his wife Nancy Mack.

Andrew himself possessed years of experience in the retail sector, having served as an Applebee’s restaurant manager prior to Teavana. Nancy, on the other hand, was a former Walt Disney World Resort customer service manager.

The inspiration for starting Teavana arose from a Europe trip the couple did together during which they were able to enjoy the multiple tearooms they encountered.

When they returned to America, they saw first-hand that tea wasn’t necessarily in the mind of most of their fellow countrymen and women.

To recreate that magical teahouse experience, they both decided to quit their respective jobs and pour their live savings into a store they launched in Atlanta’s Phipps Plaza.

However, the business and store were initially incorporated as Elephant Tea Co., which they eventually renamed to Teavana, a blend between the words tea and nirvana, in the early 2000s.

Being bootstrapped business owners, the couple worked days and nights to get their teahouse off the ground. Over time, their first store was making enough to be able to launch a second one. Then came a third, fourth, and many more.

In order to accelerate growth, they decided to expand vis-à-vis a franchise model. After a few years, though, the couple had second thoughts about their approach and eventually began to buy out those franchise owners.

Up until 2005, the business was largely self-funded with the proceeds from its stores. That changed when, in 2005, Dallas-based SKM Growth Investors invested millions into the business to further support growth.

From 2005 to 2008, Teavana was able to more than double its store count from 25 by the time of the investment to over 50. Around the same time, Teavana also began to expand into foreign markets with the launch of its first Mexican teahouse (where it still utilized a franchise model).

In the coming years, despite the economic downturn, Teavana continued to grow at breakneck speed. To establish itself as an international powerhouse, its executive team decided it take the company public.

In July 2011, Teavana IPO’d on the New York Stock Exchange (NYSE), which allowed the company to raise another $121 million in the process. At that point, it had close to 180 stores and was eyeing an expansion into the Middle East.

The IPO even allowed Teavana to make its first acquisition in April 2012. It spent $26.9 million to acquire Teaopia Ltd., a mall-based tea retailer in Canada, which became the company’s third overall market.

However, the real bombshell news would only drop months later in November. That month, Starbucks announced that it had agreed to acquire Teavana for a combined $620 million in cash. The Macks, who still owned more than 50 percent of the company, were able to pocket around $330 million from that sale.

The synergies between the two businesses became apparent a year after the acquisition when, in October 2013, Starbucks opened its first tea bar in New York City. The location was specifically designed to encourage customers to see and touch and ask about the tea.

Unfortunately, in February 2014, co-founder Andy Mack announced that he would step down from the role of CEO and actually retire altogether. Annie Young-Scrivner, an executive with close to 20 years of experience at Pepsi Co. and previously acting President of Starbucks Canada, became his replacement.

Starbucks continued to flag its corporate muscles in an attempt to further establish Teavana’s brand. In March, it introduced a tea in partnership with Oprah Winfrey dubbed Oprah Chai. Later that year, in July, it moved Teavana’s operations from Atlanta to Seattle to further integrate the two companies.

By the end of 2015, Teavana had grown to more than 350 retail locations across the United States and beyond as well as over $1 billion in sales. In January 2016, Starbucks also brought the Teavana brand to Indian customers under a 50:50 joint venture with Tata Global Beverages.

Despite its ongoing expansion efforts, cracks soon began to emerge. The same month Teavana expanded into India, it also closed down five of its flagship tea bars, which included locations such as New York City and Beverly Hills. These tea bars would then be redesigned into Starbucks stores.

The small setback didn’t stop Starbucks from continuing to double down on Teavana, though. In April, it launched the brand across Europe and the UK. Two months later, Starbucks announced a partnership with Anheuser-Busch, one of North America’s largest beer brewers, to create a new Teavana product line for sale in retail stores.

Teavana capped the year off by also being placed ad promoted in thousands of Starbucks stores across Asia, which had grown to one of the mother company’s most important markets. China, in particular, has a strong demand for tea due to centuries of forming tea drinking habits.

While Starbucks continued to expand Teavana’s overseas presence, it would soon come to revaluate its domestic positioning. In April 2017, Starbucks founder and former CEO Howard Schultz began to openly question whether promoting a brand through malls (who experienced declining visitor numbers for the previous years), which Teavana relied upon, was the way forward.

In July, those concerns became harsh reality. Starbucks announced its intention to close all 379 Teavana locations over the coming year, which would result in the layoffs of more than 3,200 employees. Those employees, however, would be offered opportunities at Starbucks if they were interested.

Instead, Starbucks reiterated its interest in doubling down on China by spending $1.3 billion in cash to purchase the remaining 50 percent of its joint venture business in the country. There, it would also continue promoting Teavana’s brand within its own stores.

Furthermore, Starbucks wanted to focus on distributing Teavana through its own online store as well as in supermarkets. The Anheuser-Busch partnership, for instance, already led to the sales of 2.5 million bottles within the first six months of 2017.

Not everyone took a liking in Starbuck’s decision to shutter all of its Teavana stores, though. A month after the announcement, Simon Property Group, the nation’s largest mall operator, sued Starbucks over the wrongful termination of their lease agreement.

All of Teavana’s stores at Simon malls remained open during the course of the litigation. While the lawsuit was still going on, Starbucks also decided to sell Tazo, its other tea brand, to Unilever for $384 million. Starbuck’s CEO Kevin Johnson said that they sold Tazo to establish Teavana as Starbuck’s global tea brand.

Unfortunately, the lawsuit was still hanging over the company. In December, an Indiana judge temporarily barred Starbucks from closing 77 failing Teavana stores in Simon malls, stating that the real estate operator wouldn’t be able to stomach the financial loss.

However, both companies settled out of court just a month later (in January 2018). Over the coming years, Starbucks continued to double down on its previous strategy for Teavana by further establishing the brand across retail locations as well as within its own stores. In May 2020, for instance, it upped the South Korean Starbuck’s stores selling Teavana products from 13 to 52.

Why Did Teavana Fail?

Teavana failed primarily because visitor number in malls, where most of its shops were based, significantly decreased over the previous years.

When Starbucks acquired Teavana in November 2012, people were still conducting most of their shopping in retail locations.

However, in the years that followed, more and more consumers began to fulfill their shopping needs through online portals.

Teavana, in its early days, made the conscious decision to focus on foot traffic, that is customers walking past its store while shopping for other products, instead of going after office buildings, airports, and other locations.

The demise of its stores was aided by an apparently ill-equipped staff, which many described to be pushy and even unfriendly at times.

Meanwhile, Teavana was also experiencing heightened competition from brands, such as Honest tea or David’s Tea, that build their presence solely online.   

And because these brands didn’t have to pay for expensive retail locations and staff (the average Teavana store had 9 people on payroll), they could provide higher-quality tea at often lower price points.

While Teavana hasn’t been a complete failure, especially since it is still being distributed internationally and heavily promoted within Starbucks’ own stores, it certainly hasn’t grown to become the intentional powerhouse it was expected to be.   

Who Owns Teavana?

Teavana is fully owned by Starbucks Corporation, which paid $620 million in cash in November 2012 to acquire the company.

The purchase of Teavana marked the largest acquisition in Starbuck’s history at the time. Technically, its purchase of the remaining 50 percent of its China business, for roughly $1.3 billion in cash, has now overtaken the Teavana acquisition.

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.