SEATTLE — Five years ago Starbucks acquired La Boulange bakery and Teavana Holdings, Inc. with the expectation that the companies would allow it to innovate with new products, enter new categories and expand into new channels of distribution. By next summer, Starbucks will have moved on from trying to operate both businesses as retail operations.
Starbucks closed all 23 La Boulange retail bakeries and 2 manufacturing plants that supported the retail locations in 2015, and on July 27 the company announced it will close all 379 Teavana stores over the coming year, with the majority closing by spring 2018.
|Kevin Johnson, president and c.e.o. of Starbucks|
“We have big plans for tea in Starbucks retail and C.P.G. globally, but as we shared with you on our last call, many of our Teavana mall-based stores have been persistently underperforming,” Kevin R. Johnson, president and chief executive officer, said during a July 27 conference call with analysts. “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. As a result, we will be closing all 379 of our Teavana mall stores over the coming year.”
Starbucks acquired Teavana Holdings for $620 million in late 2012. At the time of the acquisition, Howard Schultz, then chairman, president and c.e.o. of Starbucks, said Teavana positioned the company to “disrupt and lead, just as we did with espresso starting three decades ago.”
In some respects, Mr. Schultz was correct in his prediction, with tea becoming a large, fast-growing category and a key addressable market and core focus for Starbucks. Mr. Johnson spoke to the many pluses of the tea business during the July 27 conference call.
“Since acquiring Teavana, we have built the business into a well-recognized, super premium global brand,” Mr. Johnson said. “We expect to sell over $1.6 billion of Teavana-branded handcrafted beverages through Starbucks stores around the world this year. Overall, our tea business has grown 40% since we launched Teavana in the U.S. five years ago, and it is up over 60% since launching in China and Japan roughly one year ago.
“Innovation is key, and we continue to innovate around tea, just this month introducing Teavana Infusions, a flavor platform made from real fruits and botanicals that strengthens our lineup of healthy, less indulgent premium cold beverages. Through our partnership with Anheuser-Busch, we have extended the Teavana brand into a ready-to-drink platform that will create even greater brand awareness and fuel further growth.”
Starbucks plans to launch Teavana-branded packaged tea in grocery channels by the end of fiscal 2018.
As a result of its decision to close all of its Teavana stores, Starbucks said it incurred asset impairment and goodwill charges of approximately $100 million during the third quarter. Additional charges are expected to be incurred over the next few quarters.Net income at Starbucks in the third quarter ended July 2 totaled $691.6 million, equal to 47c per share on the common stock, down 8% from $754.1 million, or 51c per share, in the same period a year ago. Revenues increased 8% to $5,661.5 million from $5,238 million.