When Starbucks announced last week that the company plans to close all 379 of its Teavana stores, it was easy to call the company’s 2012 acquisition of the tea chain for $US620 million a failure.
And, as Nation’s Restaurant News’ Jonathan Maze points out, this is far from the first time that Starbucks has found itself shuttering the chains it has acquired.
In 2015, Starbucks announced it would shutter all locations of La Boulange Bakery (acquired in 2012 for $US100 million). And, earlier this year, the company closed the last two Evolution Fresh locations (acquired in 2011 for $US30 million).
Closing roughly 400 store after spending $US750 million makes it seem as though Starbucks is bleeding money. However, there’s more to the story than these figures show.
Each of the acquisitions highlights Starbucks’ efforts to break into a new category — health food, bakery, tea. And, since the acquisitions, the chain has mostly succeeded in its efforts to grow sales in these sectors.
Starbucks reported last week that it is on the path to sell more than $US1.6 billion of Teavana-branded beverages globally in 2017. Starbucks’ tea business has grown 40% since launching Teavana, with particular success in China and Japan. In July, the chain launched a new Infusions line, made with steeped fruit and botanical blends combined with Teavana iced tea.
La Boulange was a purchase intended to help Starbucks boost its food sales, a notoriously weak part of the chain’s business. Food makes up 19% of total revenue at Starbucks, a figure that has held steady since 2011, meaning food accounted for more than $US4 billion in revenue in 2016. According to the company, food sales have increased by 50% since the purchase.
While Starbucks is looking elsewhere to beef up its food menu, announcing a partnership with Italian bakery Princi in 2016, La Boulange helped pave the way toward Starbucks’ goal to double its food sales by 2021.
As Maze points out, acquiring these chains costs money. And, perhaps Starbucks could have increased tea and food sales without these acquisitions.
However, when trying to grow multi-billion dollar segments of its business, Starbucks can afford to shutter stores in favour of building brands. It might not be the most efficient way to do business — but judging the acquisitions a failure based on store closure misses the strategy behind the purchases.
Starbucks doesn’t have a financial incentive to grow chains other those under its own Starbucks name. Each of these brands are purchased to improve Starbucks’ reputation and sales. Their individual success or failure is irrelevant.
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