Starbucks: Tea Is the New Coffee


Tea is making a comeback in the U.S. beverage market, a trend that has not gone unnoticed by coffee giant Starbucks (NASDAQ:SBUX).

The tea industry has grown 32 percent since 2007, with domestic tea sales up to $15.7 billion last year. The market is expected to grow to $18 billion in the next two years as Americans are seeking a more healthful and less caffeinated replacement for coffee. The rising Asian demographic and increased interest in ethnic food options are being cited as other reasons for the rise in tea sales.

Starbucks has jumped on the trend by expanding its Tazo Tea business, including an opening of its first Tazo Tea shop. Starbucks also purchased the mall-based tea retailer Teavana with plans to expand its current 300 locations to 1,000. Chief Executive Officer Howard Schultz has made it clear the company is banking on tea’s growth, saying, “We could do for tea what we’ve done for coffee. This is a big, big opportunity.”

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Tea sales still come behind coffee, bottled water, soft drinks, milk, and juice, but are expected to grow as coffee and soda face a backlash caused by health concerns. Tea drinking in the U.S. is growing at a much faster rate than coffee, and some have suggested that tea could surpass coffee by 2017. The tea market has been diversifying to draw attention to the many options tea can offer, including non-caffeinated teas, speciality iced teas, and tea lattes.

Starbucks currently offers a variety of tea options through its acquisition of Tazo. Iced tea is available in green, black, or passion options, sweetened or unsweetened, with a variety of flavor additions offered. There are also several different tea lattes, available iced or hot, and even a green or chai tea based frappuccino. Just ordering a Tazo tea bag with hot water is one of the least expensive beverages on the menu, and many different varieties are available.

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Starbucks has also been looking to improve its notoriously lackluster pastry options. Despite skepticism from foodies about the ability for anyone to produce truly good pastries on a mass scale, Starbucks purchased San Francisco bakery La Boulange last summer with the intention of offering high-quality croissants and other baked goods to Starbucks customers around the country. By the end of the year Starbucks is hoping to offer high quality French pastries from La Boulange in 3,500 stores in the U.S.

The company that changed the way the world drinks coffee is attempting to diversify. If successful, Starbucks could challenge coffee shops to start offering higher quality tea and pastry options.

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