Only a few years ago Teavana was flying so high that it looked like it might become the Starbucks (NASDAQ: SBUX) of tea.
Back in 2012, the chain had 300 mall-based stores and was growing awareness of its brand. People were saying that the tea chain could be the next big thing, and wondering how to invest in Teavana stock. The company answered that question by going public on the New York Stock Exchange in July of 2011 under the ticker symbol "TEA."
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Back then, if you wanted to know how to invest in Teavana stock, the answer was "buy some." In November 2012, however, that answer became a lot more complicated: Starbucks stepped in and bought the tea company in an all-cash deal for $620 million.
Why did Starbucks buy Teavana?
At the time, the coffee chain thought it could build out another set of retail locations, creating a tea version of its coffee shops. It also believed that Teavana's mall-based strategy had room to grow.
"We believe the tea category is ripe for reinvention and rapid growth. The Teavana acquisition now positions us to disrupt and lead, just as we did with espresso starting three decades ago," said then-Starbucks CEO Howard Schultz in a press release. "Teavana's world-class tea authority, coupled with the romance and theater of the retail experience that is the heart and soul of Starbucks heritage, will create a differentiated customer experience and business opportunity that delivers immediate value to shareholders."
At the time Starbucks also owned the Tazo tea brand, which it sold in its cafes. Schultz explained that the two tea brands would complement each other, which would give Starbucks "the unique opportunity to create a two-tiered market position."
What happened with Teavana?
To say that the original plans have changed may be a bit of an understatement. Starbucks did not foresee that traffic to malls would fall, which greatly hurt the prospects for Teavana as a stand-alone brand. That led to its decision to close all of the chain's stores (though actually closing them may take about a year).
"Many of our Teavana mall-based stores have been persistently underperforming," CEO Kevin Johnson said on Starbucks' third-quarter earnings call. "We conducted a strategic review of the Teavana mall-based store business and concluded that despite our efforts to reverse the trend through creative merchandising and new store designs, the underperformance was likely to continue."
The Teavana name will live on as the tea brand in Starbucks cafes. To facilitate that, the company sold Tazo, leaving it with a single tea brand strategy.
What's next for Teavana?
Unlike some of Starbucks' other retail failures, including Boulange Bakery, which disappeared after its stores closed, Teavana is not going away. The tea brand has a large presence in the chain's cafes, and the company offers bottled and packaged teas using Teavana branding.
Tea remains an important part of the company's strategy, but maintaining separate mall-based stores no longer made sense in a market where mall traffic has been declining. In fact, it could be argued that since Starbucks already has one or sometimes even two locations in the malls where Teavana had stores, the idea of stand-alone tea locations never made sense.
Going forward, Starbucks plans a larger presence for Teavana in grocery stores and other third-party sellers. That's partly why the company sold Tazo, so it could go after shelf space for Teavana. In addition, the company will also continue to offer new tea-based drinks in its stores, while also selling some loose tea as well as other tea-related merchandise.
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