AB InBev, Starbucks Join Forces on Tea Distribution--2nd Update
June 02 2016 - 6:26PM
Dow Jones News
By Tripp Mickle and Julie Jargon
The country's biggest beer and coffee makers are coming together
over tea.
Anheuser-Busch InBev NV and Starbucks Corp. on Thursday
announced an agreement for the brewer to produce, bottle and
distribute a ready-to-drink line of Starbucks' Teavana brand tea in
the U.S.
The move will help Starbucks broaden its reach beyond coffee, a
push the company has been making in recent years in an effort to
find new avenues of growth.
It will help AB InBev fill capacity at breweries while its U.S.
beer volumes have been falling and give its network of more than
500 distributors a nonalcoholic beverage to sell.
Ready-to-drink tea is one of the fastest-growing beverage
categories in the U.S., with consumption rising by 6.1% in 2015,
according to data service Beverage Marketing Corp.
"We see an amazing opportunity for tea," said AB InBev Chief
Executive Carlos Brito, who was joined in St. Louis by Starbucks
Chief Executive Howard Schultz for a media call. Mr. Brito said
that Starbucks stores would develop new tea flavors, and AB InBev
would produce those flavors at one of its dozen U.S. breweries for
sale across some 300,000 convenience stores and supermarkets.
Mr. Schultz said he and Mr. Brito began discussing the
opportunity to partner on tea several months ago. Starbucks has had
a joint venture with PepsiCo Inc. since 1994 to produce and sell
ready-to-drink coffee, but couldn't work with PepsiCo on tea
because the soda and snack company already has a joint venture with
Unilever PLC for the Lipton, Pure Leaf and Brisk brands.
Starbucks in 2012 bought Atlanta-based tea retailer Teavana
Holdings Inc. for $620 million in cash, its biggest-ever
acquisition. Mr. Schultz at the time said his company would try to
bring a Starbucks-like experience to Teavana, a mall retailer that
sold most of its tea in loose-leaf form for home consumption.
The coffee maker said its U.S. locations have sold more than $1
billion worth of handcrafted Teavana tea beverages over the past
year, representing 11% growth in year-over-year sales.
Starbucks has increasingly been moving into supermarkets and
convenience stores with packaged products in an effort to broaden
its reach and reduce its reliance on its cafes, which also have
begun selling more food and non-coffee beverages.
Expanding Teavana into ready-to-drink teas is designed to
increase awareness of the brand and increase trial, said Mr.
Schultz. He added that the companies are "sitting on a very, very
large category" and said AB InBev's distributors reach about
100,000 more stores than PepsiCo does with Starbucks ready-to-drink
coffee products.
Starbucks had a 75% share of the $3.59 billion U.S.
ready-to-drink coffee market last year, according to data service
Euromonitor. Its partner, PepsiCo, had an industry-leading 29%
share of the $7.57 billion U.S. ready-to-drink tea market in 2015,
according to Euromonitor.
Starbucks has relied on other manufacturers in the past to make
and distribute certain products. Although its long-term partnership
with Pepsi has been a success, Starbucks has learned that handing
over control of a brand to an outside party doesn't always work.
Starbucks took over sales of its bagged coffee business in
supermarkets from Kraft Foods Inc. in 2011 after alleging the food
company was selling outdated packages and not securing enough shelf
space. Kraft denied the allegations and in 2013, after it was
renamed Mondelez International, was awarded $2.23 billion in
damages from an arbitrator.
Mike Esterl contributed to this article.
Write to Tripp Mickle at Tripp.Mickle@wsj.com and Julie Jargon
at julie.jargon@wsj.com
(END) Dow Jones Newswires
June 02, 2016 18:11 ET (22:11 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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