Starbucks Shutters Teavana Chain as Tea Business Tanks

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Credit: Starbucks

Starbucks failed to read the tea leaves.

The coffee giant has finally realized what many already knew: Americans don't like tea all that much. The company paid about $620 million for Teavana in late 2012, with aspirations to "jumpstart the next wave of growth in this dynamic category." Starbucks brought the Teavana brand into Starbucks locations, held on to Teavana's own retail stores, and even opened a few high-end Teavana Fine Teas Tea Bars.

But the business still wasn't doing well enough for Starbucks to keep it going.

Starbucks plans to shut all 379 Teavana stores over the coming year. The plan, announced as Starbucks turned in relatively solid overall quarterly results, comes months after Starbucks said many Teavana stores weren't doing so well, particularly those in shopping malls (which are beset by their own challenges). After a strategic review Starbucks said it "concluded that despite efforts to reverse the trend through creative merchandising and new store designs, the underperformance was likely to continue."

The decision also comes after expansion on the iced tea side of the business. Less than three weeks ago, Starbucks introduced a new line of Teavana Shaken Iced Tea Infusions beverages at Starbucks shops, including the Teavana brand's biggest product campaign. And ready-to-drink Teavana teas bottled and distributed by Anheuser-Busch InBev are being sold at other chains.

The majority of Teavana-only stores are set to close by the spring of 2018. And the 3,300 or so employees who work at Teavana shops will be able to apply for posts at Starbucks stores, the company said.

The shutdown is the latest sign that Starbucks has some trouble digesting acquisitions. It paid about $100 million for the La Boulange bakery brand in 2012, but in 2015 decided to close all 23 La Boulange retail locations and the two manufacturing facilities that served those bakery shops.

Starbucks said fiscal third-quarter comparable sales rose 4% worldwide and 5% in the Americas segment, below analysts' Consensus Metrix forecasts of 4.8% and 5.2%, respectively.

Still, Starbucks said it was a bit more cautious going into the end of its fiscal year given the broader industry trends and pressure on retailers and restaurants in general. Visits to Starbucks locations were in line with the same period a year ago, while Dunkin' Donuts U.S. traffic declined and its comparable store sales rose just 0.8%, competitor Dunkin' Brands said earlier on Thursday.

Revenue in Starbucks' "all other" segment, which includes Teavana-branded stores, Seattle's Best Coffee, and the Starbucks Reserve and Roastery businesses, fell 9% to $100.4 million in the quarter. That business also had a hefty operating loss as the company decided to focus on Teavana tea within Starbucks stores.

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