Will Starbucks Kill or Save Teavana?

Starbucks (Nasdaq: SBUX  ) wants to see how its Tazo tea line will do as more than a supporting cast member.

The baron of baristas is opening a stand-alone store devoted entirely to tea in the fall. Starbucks is introducing the concept near its home turf, targeting Seattle's University Village. The outdoor shopping mall is home to one of the chain's oldest and busiest Starbucks stores.

The Tazo-branded store will sell hot and iced tea drinks and tea lattes, according to The Seattle Times. There will also be a blending station where customers can create their own tea combinations to buy by the ounce.

Starbucks opened a stand-alone juice bar to promote its recently acquired Evolution Fresh line earlier this year. Tazo tea stores make perfect sense.

Teavana (NYSE: TEA  ) investors don't appear to be cheering the move. The stock moved slightly lower this morning. The fast-growing chain selling loose-leaf teas and artisanal tea-making gear would seem to be a logical loser in this move, but the market may want to take a look at history.

Investors dumped shares of Jamba Juice parent Jamba (Nasdaq: JMBA  ) after Starbucks and eventually McDonald's (NYSE: MCD  ) -- and now Burger King -- moved to add fruit smoothies to their menus. People wondered why someone would pay more at a premium smoothie shop when icy slurps could be had elsewhere. Most people live closer to a Starbucks than a Jamba Juice. McDonald's and BK offer drive-thru convenience.

Well, how has that played out for Jamba?

Comps have clocked in higher for six consecutive quarters at company-owned Jamba Juice stores, and the streak began just around the time McDonald's added smoothies to its McCafe menu. Same-store sales across the 773-unit smoothie chain soared 11.6% in its latest quarter!

The presence of big names simply helped educate consumers, who in turn gravitated to the premium specialist with broader flavor varieties and nutritional wellness boosts. Why can't the same thing happen with high-end tea?

Besides, it's not as if Teavana and Tazo tea stores are all that similar. Just 4% of Teavana's sales come from prepared hot beverages. The company's main business is stocking 100 varieties of exotic teas that shoppers brew at home. There will be a home retail component to the Tazo store, but its emphasis will be in-store consumption.

In other words, they're not really competing with one another. Tazo's success may actually spur sales at Teavana by bringing back the tea culture that will benefit both companies.

Tea for two? You know it.

Tea time
Like many of last year's IPOs, Teavana's trading below last year's debut at $17. As part of our CAPScall initiative for accountability, I initiated a bullish call for Teavana on Motley Fool CAPS several months ago. It's not doing too well, but I like my chances of bouncing back with that call.

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The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of McDonald's and Starbucks. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Jamba. Rick is also part of the RuleBreakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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