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Starbucks Strategically Targets Its Teavana Business

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Jan. 29 2015, Updated 7:05 p.m. ET

Teavana

By opening Teavana Fine Teas and Tea Bars, Starbucks (SBUX) has shown how it’s focused on generating revenues from relevant products. Starbucks tea beverages such as Teavana Oprah Chai, Travana Shaken Iced Tea, and other handcrafted beverages have increased business at its stores.

On its earning call, management stated that the company plans to double its tea business to $2 billion over the next five years. Starbucks plans to capture the tea beverage market with an approach similar to what it used with its coffee stores. According to Starbucks management, tea beverages are a $90 billion industry.

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Focus on target markets

Starbucks plans to concentrate its tea business in target markets such as China and the Asia-Pacific segments. Keep in mind that Asia-Pacific countries such as China and India are tea-drinking cultures. Coffee is much more dominant in the West. So, as the company expands in these markets, Starbucks’s Teavana business is well-equipped to capitalize on growth opportunities.

Starbucks introduces tea

During the quarter, Starbucks added Teavana-branded tea lattes and Shaken Ice Tea to its menu in the US and Canada. According to the company, the new selections were well received by customers and also lifted revenues.

Restaurants often introduce new products to expand their customer base. For example, Dunkin’ Brands (DNKN) offered pumpkin-flavored lattes in the third quarter, and Chili’s, under the umbrella of Brinker International (EAT), introduced a light menu. Meanwhile, McDonald’s (MCD) introduced new coffees under its McCafé brand.

Investors who would like to invest in the restaurant industry as a whole can invest in the Consumer Discretionary Select Sector SPDR Fund (XLY).

Adding units are equally important for restaurants. Next, we’ll look at Starbucks’s aggressive unit growth.

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