Tazo Has Nine Lives

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Tazo Tea, the mystical, quirky, somewhat eccentric legend created by Steven Smith, lives on as a Unilever (Lipton) brand acquired from Starbucks in November for $384 million.

Kees Kruythoff, president, Unilever North America said, “With its strong appeal to millennials, Tazo is a perfect strategic fit for our US portfolio. Tazo’s solid position in the fast-growing specialty tea segment, coupled with Unilever’s tea expertise, presents a fantastic growth opportunity.”

Tazo takes its name from the Romany (Gypsy) language. It means river of life. When it began the last ingredient listed on every box was: “the mumbled chantings of a certified tea shaman.” In his 43 years as a specialty tea pioneer, Smith created three brands. Stash, a brand he co-founded in 1972 in a quaint Victorian house in Portland, Ore., retains its pedigree. The Smith Teamaker brand he launched in 2009 lives on as his vision of premium artisan loose leaf.

But his most successful creation was Tazo. Smith used his share from the 1993 sale of Stash to launch Tazo the following year. Marketed as the “reincarnation of tea” Smith developed 60 distinct blends ― many such as “awake,” “refresh-mint”, “om”, and “zen” remain popular to this day. He sold the company to Starbucks in 1999 for $8.1 million and managed the brand until 2006 when he retired to France. During the years that followed Tazo grew to a $1 billion brand available in thousands of restaurants, cafes, grocery stores, and at Starbucks locations in the US and overseas.

Tazo might have perished in 2012, despite its financial success, with the $620 million acquisition of Teavana, then the most expensive purchase in Starbucks history. The announcement to buy the publicly-traded firm in November that year coincided to the day with the opening of an innovative Tazo-branded mall teashop and tea bar in Seattle where customers could blend their own tea in-store amid fanciful custom tea ware and branded utensils.

The Tazo grand opening was an elaborate bluff, designed to demonstrate to Teavana executives and investors (who had experienced a decline in share price) that Starbucks would aggressively and creatively compete with Teavana in the mall segment if necessary.

In the two years that followed, Starbucks replaced Tazo in its coffee shops and by 2016, sales had fallen to $112.5 million. Meanwhile, Teavana expanded to 379 locations and 12,000 coffee shops earning $1.6 billion.

With Lipton on the shelves of every grocery store in America, Unilever’s bottled Pure Leaf tea in convenience (and PG Tips in every British store) will Tazo, as a competing Unilever brand, find additional space on grocery shelves?

British grocery super chain Tesco, which operates 6,500 stores and employs 476,000, provides a clue. Last month Tesco evicted from its stores 16 “ordinary teas” from PG Tips English Breakfast to Typhoo. In their place will go 33 new herbal, green, organic, and medicinal infusions such as the newly-acquired Pukka Motherkind Pregnancy tea (a brand also recently purchased by Unilever). The Grocer reports Tesco has dropped 20 PG Tips variants in the past year including 100g Earl Grey in tea bags. Mindful of the fact that total tea sales fell 5% in the UK last year while coffee sales rose 3.2%, Kruythoff praised Tazo’s “artfully crafted specialty teas that perfectly complement our global tea business.”

In the states, Lipton remains on the bottom shelf, a heavily discounted, low-margin alternate to the more exciting specialty blends that now account for 48% of the $1.6 billion spent annually on tea-at-home brands.

The Teavana brand continues to expand, launching an RTD line this spring that is soon to rollout nationally. Starbucks will now focus on growing its Teavana tea business outside its stores, c.e.o. Kevin Johnson told investors, ultimately putting it in competition with Tazo.

Starbucks is experiencing a flat spot in its remarkable earnings history so “we are streamlining our business .... transitioning, whether by licensing, divestiture, or otherwise, businesses and operations where returns and long-term growth prospects are less attractive,” said Johnson.

Starbucks remains bullish on tea, despite closing the Teavana mall locations and e-commerce site. “We continue to see significant growth in our tea business through our Teavana brand, and this transition supports our strategy to elevate the premium tea experience for our customers,” says Johnson.

The goal, he says, is to build Teavana into a $3 billion business over the next five years.

Imagine, for a moment, that the Teavana deal had fallen apart that night in November 2012 and that Starbucks had invested $620 million in Steven Smith and Tazo instead.