Teavana

Starbucks' tea party

December 5, 2013: 6:37 AM ET

Can the company that got America hooked on pricey coffee turn the country into a nation of tea drinkers?

By Beth Kowitt, writer

The first-of-its-kind Teavana tea bar in New York City's Upper East Side

The first-of-its-kind Teavana tea bar in New York City's Upper East Side

FORTUNE -- For a coffee company, Starbucks spends a lot of time talking about tea these days.

When I visited Starbucks' (SBUX) Seattle headquarters to report on its strategy for the grocery aisle, CEO Howard Schultz was buzzing about its Teavana concept. Starbucks acquired Teavana, a purveyor of teas and tea-making paraphernalia in 2012. "Tea presents a tremendous opportunity for growth," he said, adding that the category is "ripe for innovation, and we intend to do for tea what we did for coffee."

Schultz wasn't the only one who had tea on the brain. Every Starbucks executive I spoke with, almost without fail, rattled off tea statistics: It's the world's second-most consumed beverage after water and a $90 billion market. Iced tea alone is a $50 billion global business. I also heard lots of reminders that tea is part of Starbucks' roots -- the first store was called Starbucks Coffee, Tea, and Spices.

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My trip to Seattle coincided with the opening of the second new prototype Teavana store -- this one in Seattle. Similar to how the original Starbucks store sold primarily coffee beans and ground coffee, Teavana was designed to sell dry tea and items like teapots. The new model still has a retail component, but the big draw is a tea bar where patrons will be able to order, say, a Earl Grey Crème Latte or flight of teas.

Starbucks has targeted growing its current Teavana store count of about 300 to 1,000 over the next five years. Teavana has serious international opportunity, as the rest of the world is ahead of the U.S. when it comes to tea consumption. And don't be surprised either if you start seeing Teavana products -- dry tea or ready-to-drink beverages -- in the grocery aisle either.

With Schultz's urging, I checked out the first Teavana that had opened with the new look when I got back to New York City. Walk through the door of the Upper East Side location and you'll immediately see how Starbucks has put its own spin on the concept. Just as it did with coffee, Starbucks has revamped Teavana to provide what Telsey Advisory Group analyst Peter Saleh in a recent note called "tea theater." You're handed tea samples as soon as you walk through the door, and Saleh notes that the counters are about a foot lower than at Starbucks, so at Teavana you can see the tea brewing process in action.

MORE: Questions for Starbucks' chief bean counter

The store, with a very clean design, has three distinct areas: a tea wall displaying loose tea available for purchase; a retail section where you can buy tea-related items like a $189.95 Judith Weber tea set or a tool kit for making Matcha tea; and the tea bar, where you first order your beverage followed by food.

The overall experience was more sophisticated than a visit to a Starbucks. The Maharaja Chai Latte I ordered wasn't as sweet as a Starbucks flavored latte. The food options were more ambitious -- Poached Pear+Blue Cheese Triangles, Butternut Squash Couscous Salad. The setting was more relaxed and quiet -- no huddling around a counter waiting for my order. My chai latte and Lemongrass Ginger Chicken Rice Balls were brought out to my table on a tray when they were ready. The price tag was also higher than my normal Starbucks transaction, coming in at just under $13.

Schultz is clearly trying to let the Teavana brand stand alone, as evidenced by the complete lack of Starbucks branding in the store. There are subtle hints of the connection -- Starbucks' recently acquired Evolution Fresh juice is available, as are some food items from its other recent acquisition of bakery La Boulange. The only direct reference of Teavana's ties to its parent is its acceptance of Starbucks Cards.

But the true sign of Teavana's independence? Don't even try to order coffee. Teavana doesn't sell it.

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