CONSUMER: Starbucks Tries Trendy Magic with Teavana

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Bottom line: New Teavana-branded drinks at Chinese Starbucks will get a relatively strong reception, prompting the opening of experimental stand-alone Teavana stores in Beijing or Shanghai within a year.

Starbucks launches Teavana drinks in China

Not content with its phenomenal success in China already, trendy coffee chain Starbucks (NYSE: SBUX) is hoping to extend its winning streak in the market with the roll-out of new tea beverages from its sister Teavana chain. This particular move was actually announced back in March, but the two new Teavana-branded drinks just hit Starbucks stores this week, in line with the previously announced schedule for a September launch.

It’s significant that Starbucks is starting slowly with this initiative by only introducing a couple of Teavana drinks to its existing 2,200 China stores rather than opening separate stand-alone Teavana shops. But if the drinks prove popular, the obvious next big step would be a roll-out of separate Teavana stores, a move that could be hugely lucrative for the world’s biggest coffee chain.

As a resident of Shanghai, I’m continually amazed by the success Starbucks enjoys here in China’s commercial capital, where it operates several hundred stores that are often packed with people. In this tea-drinking nation, Starbucks has managed to carve out a lucrative niche by positioning itself as a lifestyle chain where white-collar Chinese workers can go to show off their yuppie credentials.

The company has always served some basic tea drinks at its stores here, but is looking to create a bit more buzz around those products with this new roll-out of several Teavana-branded drinks. (English article; Chinese article) The two new products were created specifically for China, and both are cold and fruity flavored, one featuring peach and the other the locally popular pomelo.

I observed the pair of new drinks on the menu while having my coffee earlier today, and both are featured prominently at the top, hinting at Starbucks’ big hopes for the brand. If the drinks prove popular, I could imagine Starbucks planning a roll-out for separate Teavana stores within a year. One report points out that back in 2012 Starbucks discussed an aggressive roll-out for Teavana stores in China. But clearly it has re-evaluated that original plan and is moving ahead more conservatively now.

Who’s the Audience?

That brings us to the much bigger question, namely what are the chances for success of this untested name and unfamiliar form of tea? This kind of sweeter iced tea has actually become quite popular in China in recent years, thanks to a younger generation of Hong Kong and Taiwan-inspired drinks that often add milk and sugar to traditional tea-based products.

What’s more, these cold, sweeter drinks are also mostly consumed by the younger generation, which is roughly the same crowd that frequents Starbucks stores. But that said, the big difference is that these cold, sweeter tea-based products have a distinct image as relatively cheap drinks consumed by young hipsters, often students, rather than the more affluent yuppie crowd.

What’s more, most of the current drinks on the market are sold at simple stands that have little or no seating and are simply counters where people can order and then take their drinks to go. Average prices usually run around 10 yuan ($1.50), or less than half of what most Starbucks drinks typically sell for.

The Chinese reports point out that domestic tea sales here are huge, worth 30 billion yuan, though they also add that the market is highly fragmented. But that’s really beside the point, as I honestly don’t think this new Teavana play will compete with any existing products in the market.

That said, I do think the Teavana name could do quite well here among the same crowd that now visit Starbucks but might be looking for something different and slightly closer to traditional tea flavors. I wouldn’t expect to see any of the older tea-drinking generation in these new Teavana shops, but those people were never really Starbucks’ target audience anyhow. Instead, I do expect these drinks should do reasonably well, and will justify a Starbucks decision to launch its first stand-alone Teavana stores in Beijing and Shanghai within a year.

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