The Strategist

Starbucks and AB InBev to produce ready-to-drink tea

06/06/2016 - 16:28

American coffee manufacturer Starbucks and the world's largest brewer Anheuser-Busch (AB) InBev signed an agreement on joint production of tea. AB InBev will produce, bottle and distribute in the US ready-to-drink tea under Teavana brand, owned by Starbucks.

This will help Starbucks expand the business beyond the production of coffee, toward what the company has worked during the past few years in an attempt to find new ways to grow. 

AB InBev, in turn, sees here an ability to use capacity of plants when its beer production in the US is falling. In addition, the company will be able to supply the non-alcoholic drinks to its own network of 500 distributors.

Ready-to-drink tea is one of the fastest growing categories among beverages in the US: its consumption in 2015 grew by 6.1%, according to the analytical service of Beverage Marketing Corp.

AB InBev sees great prospects for tea, says the beer producer’s CEO Carlos Brito. Starbucks will develop new tea flavors, and AB InBev will produce these drinks at one of its ten US breweries and sell through 300,000 shops and supermarkets.

Starbucks and AB InBev's management began to discuss possibility of a partnership for the tea production a few months ago, said Starbucks CEO Howard Schultz.

Starbucks already has a joint venture with PepsiCo. The partners produce ready-to-drink coffee since 1994. However, the coffee maker was not able to take advantage of this collaboration in the production of tea: PepsiCo already produces tea under brands Lipton, Pure Leaf and Brisk together with Unilever.

In 2012, Starbucks acquired tea seller Teavana Holdings for $ 620 million - it was the largest acquisition in the company's history. Then, Schultz said that Starbucks would bring its expertise in Teavana’s business (the latter offers leaf tea for home use). Teavana tea sales in the US rose by 11% year on year, amounting to more than $ 1 billion in 2015, Starbucks said.

Packaged products from Starbucks are increasingly occupying shelves in supermarkets and stores. This way, the company tries to expand coverage and reduce its dependence on its own coffee shops, which also began to sell more food and non-coffee drinks.

Teavana’s expansion is necessary to improve brand awareness and increase traffic, Schultz says. The companies want to take a very broad category, he noted. AB InBev’s distribution network can offer access to the shelves in 100 000 stores more than PepsiCo does for ready coffee drinks.

Starbucks takes 75% of the market of ready coffee drinks in the United States, the share is worth $ 3.59 billion, according to Euromonitor International. PepsiCo, in turn, possess the largest share (29%) in the US tea drinks market ($ 7.57 billion).


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