Starbucks to ‘reinvent and transform’ the $90bn tea market
Starbucks is preparing a global marketing blitz in an attempt to dominate the tea shop market, as it has with coffee, as part of a wider plot to double its commercial value to $100bn (£60.4bn).
The world’s biggest coffee chain by sales made the announcement at its annual shareholder yesterday evening (19 March) when it claimed the tea market was “ripe” for innovation. It added the business was well positioned to exploit the $90bn (£54.4bn) hot and iced tea category through its Teavana brand.
Starbucks acquired the tea retailer at the end of 2012 and has opened around 20 stores in the US since, ahead of launching a further 20 later this year. Future investments will take the tea brand global as the retailer looks to stretch revenue from its non-coffee products such as food, juice and alcohol.
It is hoped the plan can bolster the brand in Europe, particularly in the UK where it faces tough competition from established players such as Costa and Pret a Manger.
Starbucks chief executive Howard Schultz, who recently stepped away from the day-to-day running of the business to concentrate on its digital strategy, promised upcoming initiatives will “reinvent” the market for tea. The company teased at how future promotions would cut through to customers by partnering with US talkshow host Oprah Winfrey to launch the “Oprah Chai” tea. The exclusive beverage will be sold at Starbucks and Teavana stores in the US and Canada with the proceeds supporting the self-confessed tea enthusiast’s charity.
Schultz adds: “You’d be hard pressed to find a retailer today who has a business of this scale, in relation to the fact that our average ticket value is $5 (£3).”
Starbucks’ total value has rocketed from $5bn (£3bn) in 2008 to over $57bn (£34.5bn) today, reflecting a 948 per cent increase in its share price in the period. Sustaining the growth is a challenge, according to the business as it looks to offset saturation in its core markets with innovation and expansion into China and India.
It unveiled its revamped smartphone app yesterday to kick off its innovation spurt, letting users pay and tip directly from their handsets. The company revealed plans to shift more spend to mobile and loyalty cards in a bid to drive repeat purchases around its products. Mobile transactions now account for 14 per cent of US store sales, revealed Starbucks, with 5 million made every week. It plans to introduce mobile ordering by the end of the year.
“The growth of mobile payments in our stores is significantly bigger than the core of our business”, added Schultz. Starbucks has previously outlined its digital plan to address what it claims is the “seismic shift” in retail towards ecommerce, and sees its mobile offering as a way to increase footfall into its stores.
The retailer also said it would extend its beer and wine evening offerings to multiple cities and added “over time, they will become a bigger part of the business. It will never be coffee, but it will be incremental”.
Despite efforts to broaden its positioning, Starbucks vowed to maintain coffee leadership by sourcing “higher quality coffee than at any other time in company history”.