After five years of searching, I have seen The Starbucks of Tea.
I formally joined the tea industry in 2004. Since that time, I have attended dozens of trade shows, participated in trainings and tastings, had tea with numerous entrepreneurs and executives, and visited well over 100 tea shops from New York to San Diego. I’ve seen roughly a dozen companies make a concerted effort to become the “Starbucks of Tea”, and another two dozen or more who were planning on doing so.
In my humble opinion, none have much of a chance of achieving the national success and prominence suggested by that title.
There are a host of reasons why I don’t believe any of today’s leading tea companies has a real chance at becoming The Starbucks of Tea, but the main reason is that Starbucks has always had the option of claiming the title themselves. For years, Starbucks has been watching and waiting for the moment that tea offered a significant enough opportunity for profits to warrant the investment.
Starbucks purchased the trendy tea company Tazo back in 1999, but because they’ve stuck to a tea-bag strategy, the purists have tended to dismiss Starbucks as a competitive threat. This summer, though, Starbucks officially served notice that they are testing the profitability of tea.
The Starbucks of Tea has arrived, and it is Starbucks!!
In July, Starbucks opened the first of four new concept stores under the name “15th Ave Coffee and Tea” in Seattle. The menu offers pots of tea brewed with loose leaves and includes teas like Silver Needles, Dragonwell, Jasmine Pearls, Genmaicha, Ti Kwan Yin, First Flush Darjeeling, and Pu-Erh.
I think it’s safe to assume that if the venture is successful, Starbucks will dive head first into the loose-leaf tea business. If Starbucks is not able to turn a sufficient profit…well, that may be the worst news of all!
Interesting observation Charles. I’m not a coffee drinker but I’m told by many who are that Starbucks does not have the best coffee. What they were excellent at was marketing. They created a brand that people responded to. I think the mindset of today is quite different than it had been. As Starbucks is discovering, everyone’s going more local. Can a chain, of coffee or tea, be wildly successful in this current market place? I just don’t know. I don’t want to hold the future of specialty tea in the hands of Starbucks however.
I’m not so sure I want there to be a ‘Starbucks of Tea’ no matter who it is. Will a skyrocketing demand for loose leaf be good or bad for the industry? Maybe in terms of profits, but maybe not so good for continued good quality products. For example, less and less hand-made teas could result from demand, and everything being machine operated. I don’t know…
I’m glad that Starbucks has its concept right by offering Puerh. That means a lot about what they’re doing . Sure, it’s going to be a “ripe” or “cooked” Puerh and not the highest quality. But it’s a start in bringing the coffee chain out to cater to whatever eclectic taste comes through their doors.
Charles, what do you think of MB’s comment? I’d value your comments here.
When I interviewed Steve Smith, he reports producing “small batched” teas. When I asked him how that will change when his demand increases, he held to that concept of small batch teas – essentially only blending 10 pounds at a time. Time will tell I imagine. IF people are willing to pay for labor intensive production, be it blending or hand crafting, I imagine there will be people willing to perform the labor. America’s tea consumption is still pretty low based on international standards. I do wonder how it will affect the industry when we REALLY start consuming tea.
I, for one, support and encourage Starbuck’s decision to embrace loose leaf tea in the realm of these concept stores. It’s nice to see a company that has lived with the stigma of sacrificing quality for the sake of pushing more coffee-flavored, over-sweetened caffeine to the masses attempting to better itself by increasing the quality of it’s product. Despite this support, however, it is my opinion that the concept stores is where loose leaf tea will begin and end for the company. Even Starbucks will not be the “Starbucks of Tea.” Though more of these Street Level Coffee shops may emerge in a wider geographic area, I don’t believe that Starbucks will come back from full-auto espresso machines and tea bags indiscriminately steeped at 100 degrees C that are at the core of it’s business. The company has simply maneuvered itself too tightly into the business model in which it currently exists to move away from these techniques and technologies. It strives to create an environment where people feel at home—where they feel appreciated and known—that also happens to serve a decent, consistent, hot beverage as quickly as possible. Starbucks’ goal is not to produce the highest-quality beverage. Furthermore, it is my opinion that, as a whole, our societies pallet has been cultivated to prefer strong flavors and has little patience for the subtlety that loose leaf tea demands in order to be fully appreciated. In whole, I’m not sure that the consumer here in the States wants or is ready for a “Starbucks of Tea” and, without that demand, it will not emerge.
Also, please step back for a moment and consider the repercussions of being as successful in the realm of tea as Starbucks has become in the espresso world. When you realize that even Starbucks has figured out that being Starbucks is not necessarily the best way to do business, do you really want to follow in it’s footsteps? Sure, it’s important, as entrepreneurs, to keep moving forward and hope for financial success; but please, let’s not lose focus on what makes tea so special. Tea is about more than delivering caffeine in a paper cup. It is neither realistic, nor fair to expect tea to fit into the model that Starbucks has created. Tea is about slowing down, if not stopping, for a brief moment to purposefully and patiently enjoy tea to the full level of experience. Business owners, I wish you great financial success, but please, don’t forget why you fell in love with tea in the first place.
Like you, Charles, I got ‘into’ specialty tea before attending Take Me 2 Tea, now World Tea Expo, in 2004. And could name at least 3 companies off the top of my head whose goal is to be ‘the Starbucks of tea’. The one who has stated that most publicly now has approx. 15 stores since the first opened in 2004. We never wanted to be that. We wanted to find a way to brew tea that tasted at least as good or better as a traditional steep so that it could be served as quickly as brewed by the cup coffee, which we also serve. We have that ability and professional tea people have cupped and agree.
As for Starbucks and tea, really, Starbucks now is competing with McDonalds, Dunkin’ Donuts et al. They are just in another world than everybody else, even Peets, Caribou and Coffee Bean & Tea Leaf. For all the big guys, it’s all about keeping shareholders happy, and keeping customers happy is part of that but can THEY (the big chains) compete with truly passionate and dedicated artisan shops? I don’t think so.
There will always be a market for top quality product passionately delivered. Why try to be the ‘Starbucks of anything’?? You become simply at the mercy of venture capitalists and accountants and handlers. Ah well…
P.S. How well has Wal-Mart done with their small neighborhood corner grocery store concept? Do you have one near you? Starbucks owns Seattles Best Coffee and has named the more tea-friendly stores a different name as well. I remember when Amway took on another name..people still found out it was Amway. A rose by any other name still smells like a rose.
Well said Diane…..
I must say that Zach has some excellent points. It does concern me that the American pallet is currently demanding strong flavors with sweet being such a problem contributing to obesity.
I’m curious though if you’ve been to the 15th Avenue shop in Seattle Zach. If so, can you share your personal experience?
Good morning. Sorry to have missed the conversation yesterday, but it just so happens I was looking for a location for a new Tea Shop. ;)
Lots of feedback, so I’ll just respond in brief to some of the components:
1. I’m not at all worried about the chains getting into “good tea”. I would be if I were in the tea café business most certainly, but for me on the retail side (and for the consumer) this will only introduce a new audience to our favorite beverage and grow the market. The more people drinking tea the more people will graduate to premium tea.
2. Skyrocketing demand for loose leaf tea will be hugely beneficial to all aspects of the industry. Over the past 20 years the demand for wine in the US has doubled several times over. The market is now flooded with cheap wines, but the production of premium wines has ALSO boomed. At the end of the day, a small percentage of the customer base for any product will be willing to pay top dollar. I’d rather get 10% of 75% of Americans than 10% of 30% of Americans. ? The growers will respond and increase production. It might not happen overnight, but if the demand is there more tea will be planted. The farmers will grow whatever commodity is most profitable for them. The market will take care of it.
3. In response to Steve’s theory, there is a market niche for everyone. Some people buy hand made handbags because they are hand made. Are they really “better quality”? (When was the last time someone wore out a Prada purse anyway? Don’t they usually just fall out of style?) Point is, as the market grows there will be numerous business models in search of points of differentiation. This is good for the consumer and good for the market. Some will succeed and others will fail, but the customer will be presented with options as the competition tries to outdo each other. This will result in BOTH higher quality products coming to market and lower cost products coming to market.
4. Zach: I agree completely. I figured out real early that I did not want to be in the café business, I wanted to be in the tea business. Few people realize how different those two are until they are knee (and sometimes neck) deep.
5. For what it’s worth, Starbucks purchased Seattle’s Best after they were well established. They subsequently have been re-naming and or closing many stores in favor of the Starbucks Brand. I know many companies role out different brands to target different markets, but I believe this IS an interesting first for Starbucks.
Love the debate! ?
To Charles: Teavana started doing the loose leaf tea retail thing years ago and has what, about 80 stores now. They started to franchise and pulled back. They early on picked up a large backer who helped them get into commercial spots in malls, as I recall. I’m sure they are the largest of many such concepts all over the world. The tea or tea-centric cafe concept has also been around for some time but most have done the ‘formal’ thing and Argo (actually there were a few earlier but not as successful) started the ‘Starbucks of Tea’ mantra in interviews, etc.
The company you were with has been highly successful in Europe and it remains to see how far it will go here.
Tavalon targeted the hip young crowd in a limited cafe concept; haven’t heard alot about them lately. I’m sure such concepts are on the drawing board all over the U.S.
There are so many variables for success it’s hard to pick any winners at this point. Money isn’t always, but too often, a deciding factor. Time is necessary for all.
As for Starbucks, it is what it is and, from what I understand, they are now attempting to franchise Seattle’s Best. And, of course, the Subway two down from us carries it as a branded ‘lure’ which hasn’t worked for this particular Subway at all.
Bottomline, I believe there is always room in the market for something of real quality value if it has the backing, timing and/or time, and management to give it legs. It’s going to be an interesting decade for specialty tea and I bet there will be some real surprises. Unless any retailer, cafe or otherwise, has some unique selling proposition (as opposed to gimmicks),
it will become another ‘Teavana of Tea’ most likely…just more or less teas with different names and always ‘better quality’ than the competition.
P.S. Sorry..thought I was logged in above. :)
Anyone remember Koots Green Tea in Bellevue, WA? He owns about 400 Tully’s in Japan, so the money was there. Then there was Infuze in Canada, which is/was now Muzi. Concepts usually evolve and, sometimes, devolve.
Ah, the mysterious and secretive Diane! LOL. Well said regardless. I completely agree with your main point, to say that concepts will come and go and there is a LOT of room for competition.
The underlying message in this article and, if I’m to be honest, most of my lectures in this industry, is that the small businesses currently in and considering entering the tea business need to think a lot more critically about their business model. Example: every business needs a point of differentiation. Why will the customer choose you? Too many tea businesses differentiate themselves in ways that are not defensible. Too many new tea shops are simply cafes that are different ONLY because they serve loose tea. It is WAY TOO EASY for the 26,000 existing coffee shops with the best locations nationally to serve loose tea and really hurt the competition. The reason most consumers choose a cafe is comfort and convenience, not product quality.
I’ll pick on the online retailers as well. Most have joined the fray with no discernible point of differentiation and, therefore, no chance of long term success.
There is TREMENDOUS opportunity for growth in the tea business. In my opinion, the opportunity is simply not in cafes. Teavana exploded because they offered more than 100 loose teas and myriad tea accessories. This is a business model that Starbucks will NEVER compete with, and few of the tea shops out there are really much competition either. Teavana has its weaknesses to be sure. They actually have quite a few of them, but they are DIFFERENT both in terms of their model and in the amount of money they can spend on the best locations.
My aim is not to discourage people out of tea, but to encourage them to think a little more creatively about how to get into tea!
I’m currently creating a completely new tea “experience” as part of Adagio Teas, and I’ll write more on this and our plans soon.
For what it’s worth, TeaGschwendner is actually still the largest by solid margin with more than 145 stores in 9 countries on four continents. They have certainly extended their success outside of Europe (fast growth in the middle east most recently) but have stalled in the US thanks to the difficulty of franchising during a recession characterized by lack of small business lending. I’m no longer part of the TG team, but after 5 years of blood sweat and tears I’m still forced to defend their honor. ;)
By no means did I see anyone attack Tea Gschwender here. They are highly successful and I have never heard anything but positive about them. However, they are in the cafe concept as well as selling loose leaf. And there is a reason for that. As well, Teavana does or did start to add specialty drinks in at least some of their stores. They also have stopped franchising but, I don’t believe, for the recessionary reason you mention alone, because they stopped before the stuff hit the fan in the economy. Argo also apparently has pulled plans on franchising. The franchise model is a can of worms that is costly and full of legalities and models are tossed out (not in tea but in general) that are not even ready to be duplicated, but because people want to make money as quickly as possible (they believe by doing so.
What I like about your posts is that they always get me going and thinking.
I think there is always a hybrid of any ‘model’, or I should say–multiple hybrids. What works for one company doesn’t usually work the same way for the next guy, even if another tries to copy it, which is one reason I never understood why the statement “we want to be the Starbucks of Tea” made sense, although it’s the exact statement tossed out by someone not in the business that got me looking into specialty tea and wondering why no one had put it out there in the same way as coffee. That revealed many reasons why.
To simply state that the cafe model is not the way to go is, in my opinion, a generalization.
Passion is part of any model, or should be, although often people try to go simply by what looks good on paper. Paper quickly turns into real-life, and one reason for a concept store is to let the concept evolve based on customer input, product movement, and a host of other things.
I don’t care how much money a company has, it cannot compensate for a working and profitable concept store/model.
Teavana, as I recall, picked up a real estate backer very early on, the mall owner who put them in what, 40 upscale malls? Their concept is a mall concept, and many others who have opened tea shops in malls have not made it. That doesn’t nullify the mall retail tea store concept.
The cafe concept can be successful and may well work better than the retail concepts if done well. People like to eat and drink, they like to socialize. The ‘very limited food and beverage’ model can be a draw to get people in the door and convert them to purchasers of a whole host of loose leaf and accessories without becoming a full-blown back-breaking prep restaurant/cafe with salads made on site, etc.
No generalized model is ‘right’ or ‘wrong’, more or less profitable or even ‘easier’. It usually boils down to location, hard work and good management and, of course, great product. Well…great product doesn’t even play in in some cases we can all think of, does it? Average will sometimes do when location, good management and great marketing are in place.
The fun is…every decent concept in specialty tea right now is positioned for a chance at success because the demand is there for the product. We just want to do it giving specialty tea the respect it deserves in the market..it’s not coffee’s poor cousin.
I can’t wait to read your new experience of part of Adagio teas, Charles, I agree with you that we need Tea company giant to educate the market and get tea more popular.
Tea is a very special and personal-focus stuff that don’t worry the market will be controlled by a few big companies. Even in China, still a lot of men don’t know the name of Tianfu who owns over 900 chained stores :)
I am sooooooooo glad I sold my stores. Time to re-group and re-freshen. Ahhhh, but here I am working in the industry again. This time, whole new perspective….
Loose tea blended in small batches?!? I was doing that in store 6 years ago, and just as I thought, the competition is getting to be “steep”…. I was not ready for a show down or throw down with Starbucks.
I am ready to see this all play out….but I have to say how humorous it is that I once was the Southern California tea lady or OC Tea Girl but people in 2002, when I started, some asked/ speculated, “Who drinks tea?” ….ha ha….let’s sell more tea just to tea-off those nay-sayer folks!
Cheers!
Desiree
Expert from a recent Reuters article:
Apparently the experiment isn’t working. A former Starbucks insider said that Seattle’s 15th Ave. Coffee and Tea – the first of the new not Starbucks stores (its website, by the way, is called http://www.streetlevelcoffee.com) – is doing only a third of the business of the regular green-logoed Starbucks store that used be at that site.
Perhaps consumer really do want something more than branded artifice; they want something genuinely local.
http://bit.ly/8mo3jv
Here’s an interesting new development: I just found out, a few days ago, that Starbucks (at least in the Seattle area) will be switching their Tazo tea selections over to full-leaf tea bags rather than the typical filter bag filled with dust. Whether or not the concept stores are working, some of the ideas are beginning to filter down to the standard stores.