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Starbucks CFO: Tea Will Be Big Growth Driver

By Tom Gardner - Apr 8, 2013 at 4:00PM

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Part of The Motley Fool's chat with Starbucks CFO Troy Alstead.

In the video below, Motley Fool CEO Tom Gardner sits down with Starbucks CFO Troy Alstead during a recent visit to Starbucks (SBUX 0.23%) headquarters in Seattle. In this portion of the video, they discuss what Alstead believes is one of the biggest growth opportunities for Starbucks: the recent acquisition of Teavana. Alstead points out that tea is the second most consumed beverage in the world, after only water, and is a good complement to Starbucks' core coffee business. 

A full transcript follows the video.

Troy Alstead: Another item certainly in that top three or four would be Teavana. And tea as a general category, again, with Teavana being a piece of that, tea is the second most consumed beverage in the world, second only to water. Consumed more than coffee is, and it's in the core, in the heritage of Starbucks.  It was part of the original name of our company, Starbucks Coffee, Tea, and Spices, and yet it's been a category that we have not put enough focus into.  We have a fantastic brand in Tazo, but we recognize we have opportunity both through our stores and through the CPG channels and globally to really reignite what tea means to us.

Tea is wonderfully complementary to coffee. If you think about the U.S. consumer, coffee is about that morning experience. It's get up and go, it's moving fast, it's on your way to work, it's on the way to taking the kids to school. Coffee is more of a morning experience in the U.S.

Tom Gardner: Tea is at four o'clock when you're watching Downton Abbey

Alstead: There it is. Tea is a slower, Zen-like experience for people. It tends to skew to the afternoon. It skews to the evening. It skews to the weekend.

Tom: Is Teavana going to be mostly separate locations from Starbucks? Will there be any combined locations or will there be a significant presence inside of Starbucks' locations for the Teavana brand? 

Alstead: Tom, it will be both and more. There's opportunity to leverage the premium nature of Teavana into Starbucks' stores, and we will do that. To use the deep capabilities that that Teavana team has around tea sourcing and blending, the wonderful things they do, brought together with our capabilities around beverage innovation, around store execution and to bring that capability into the Starbucks store, and we think add some layers of growth within Starbucks and to help us drive day-parts, which are also a critical part of our strategy.

Another leg of that Teavana growth and where value comes to shareholders, is to help the Teavana concept grow, expand, evolve a bit and grow from here. So yes, we will have the stand-alone Teavana concept keep growing. What they've built over the years is a fantastic, high-capital-returning, great unit economics, Teavana model. What we believe we can do is marry up all those assets they have, again with our beverage capabilities, with our store-design capabilities, with our operating capabilities, leverage that up in a way that they just couldn't as a small company, and begin to evolve the next generation of Teavana stores that will define growth and add to our growth for we think years to come.

Tom: Do you have a sense of how many Teavana locations there could be five years from now, 10 years from now, or that's not really...

Alstead: I think it's too early for us to even begin figuring out what that number could be. We know in the U.S. there are hundreds of opportunities for additional Teavana stores. Outside of the U.S. it's a tremendous opportunity. Tea is a huge, it's an ancient beverage. It's been around forever. It's a part of people's lives and their experiences.  It has a very important foot forward in health and wellness for people.  And then you bring the energy of a new contemporary teahouse idea to it that we can innovate around and be a part of.  We think there's a tremendous global opportunity for tea.

Tom: Do you have a sense that it'll be a bigger international business than U.S. business, or that is also an unknown?

Alstead: I think if we were to look 20 years from now I think that's very possible. In the short term because of the branding and the presence here, Teavana will be larger in the U.S. for quite some time. But much more tea is consumed outside of the U.S. than in the U.S.; much more coffee is consumed around the world outside of the U.S. than in the U.S. So the fact that we have been a U.S. company and still have 75% of our business in the U.S., over time I think that we continually progress increasingly toward a global opportunity.

The third leg of growth, if I can, Tom, is on Teavana, it's the Starbucks store, it's the Teavana store, and then it's CPG. We have built for ourselves over time deep capabilities in CPG, all those activities that happen outside of the Starbucks store where a customer has a chance to engage with our brands and products. That is in food service channels and restaurants. It's down the grocery aisle. All those opportunities are very valuable to us in our core coffee business. They are valuable to us with our Tazo tea business and now as we, over the next year or two, really bring on to that platform, Teavana products and all form factors -- huge growth opportunity. 

TomDid you all think about changing the Teavana name when you acquired it or would you think about it going forward? Overall I love the Starbucks brand so much, and maybe it's just a new brand takes time to get accustomed to, but for me saying, "Let's go to Starbucks, let's go to Starbucks, let's go to Teavana," hasn't yet caught for me, but that just may be because it's not as prevalent out there. 

Alstead: In 1980, I think you'd have said the same thing about Starbucks.  We've build that brand over the years and invested in it to now it's a part of people's lives. We love the Teavana brand. We love what they've built with it. We think it's got huge opportunities to build around that brand and grow it from here forward, so it'll absolutely remain. That's a big part of what we're excited about with it.

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