Teavana Annual Report 2014

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2 Mission Statement 5 Letter from the CEO 8 Financial Highlights 12 Tea Around the World 14 Expansion of Tea Consumption 16 China 20 Russia 24 India 28 England 32 America 36 Looking Forward (2015)



a year of global expansion


Great tea works wonders. The delicious tastes and health benefits make tea a wonderful beverage- much better than the unhealthy alternatives. The Teavana dream began with an idea that people would enjoy fresh, high-quality tea in a place that was part Tea Bar, part Tea Emporium. We wanted to introduce people to the aromas, textures, and beneficial qualities of loose leaf teas while enlightening them with the history and variety of teas available. And this is how Teavana was born. As our name implies,

Teavana's goal is to be a heaven of tea and to offer our


customers the tea lifestyle and wonderful tastes of tea. This unique name is meant to describe the experience each customer has with our tea and our staff. After considerable research, only those teas with rich and unique flavors are selected for Teavana. We opened our first tea emporium in Atlanta, Georgia. Since then we have opened over 300 Teavana locations throughout the world. Soon, our quality, tasty beverage will become the leading tea brand in the world, therefore making it the most widely drank beverage internationally.


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FURTHERING OUR COMMITMENT TO INNOVATE & TRANSFORM THE TEA INDUSTRY AND ENHANCE THE CONSUMER TEA EXPERIENCE IN THE U.S. AND INTERNATIONALLY, WE, STARBUCKS COFFEE COMPANY HAS AGREED TO ACQUIRE TEAVANA HOLDINGS, INC. IN AN ALL-CASH ACQUISITION.

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We believe the tea category is ripe and ready for reinvention and rapid growth. The Teavana acquisition now positions us to disrupt and lead, just as we did with espresso starting three decades ago. Teavana’s worldclass tea authority, coupled with the romance and theater of the retail experience that is the heart and soul of Starbucks heritage, will create a differentiated customer experience and business opportunity that delivers immediate value to shareholders. By contributing deep tea expertise, global sourcing capabilities and a passion for the category that is second to none in our industry, we believe we can deliver an elevated tea experience together with Starbucks. Andrew Mack, former ceo and co-founder of Teavana, has committed to staying and leading Teavana’s day-to-day operations. After growing Teavana for fifteen years

provides the opportunity to do the same within the rapidly growing $40 billion global tea category. In calendar 2013, Starbucks will integrate its unique assets – including its leading position in social and digital media, its ten million member global loyalty program, card and mobile payment platforms -- with the Teavana customer experience to expand Teavana’s current mall-based store footprint with a comprehensive design strategy that will include new Teavana neighborhood locations in markets across North America and around the world. Teavana recently opened its first store in the Middle East in partnership with Starbucks existing joint venture partner Alshaya, and has plans to enter new, high-consumption tea markets around the world in the years ahead. The acquisition of Teavana supports our growth strategy to innovate with new products, enter new

Starbucks has entered into a merger agreement with Teavana to acquire Teavana for an aggregate acquisition price of approximately $620 million in cash and expects the acquisition to be accretive to earnings by approximately $0.01 per share in fiscal year 2013, based off of the previously announced earnings targets. Teavana stockholders of record will receive $15.50 per share in cash in the merger which will result in Teavana becoming a wholly-owned subsidiary of Starbucks. You, the stockholders of Teavana holding approximately 70% of the outstanding shares of common stock have approved the merger agreement by written consent, and the closing is expected to occur by year end, following receipt of regulatory clearances. Thank you for your optimism and investment in the success of this global, robust, drink experience that we

Andrew is thrilled that Starbucks will be able to truly fulfill our mission of bringing premium tea to millions of people on a global platform. It is with great respect for what Andrew and his team have built that Teavana joins the Starbucks family.The acquisition of Teavana

categories, and expand into new channels entary characteristics, thus forming tangible examples of the success of the Starbucks Blueprint for Growth and a differentiated health and wellness offering in the marketplace.

know and love as Teavana.

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Teavana Holdings, Inc. (TEA) priced their 7.14 million share IPO at $17.00, well above the indicated range of $13-15. Of the shares offered, 1.07 million are primary or company shares, while the remaining 6.07 million are primarily being offered by executive officers and directors. The proceeds to the company will be used to redeem all outstanding shares of their Series A redeemable preferred stock, to pay offering-related expenses, and to repay all outstanding indebtedness under their amended revolving credit facility. At the $17 price, the market capitalization is approximately $646M. The lead underwriters for the offering are BofA Merrill Lynch and Goldman Sachs.

EARNINGS PER SHARE 8


TOTAL EXPENSES

$48,794,307 35 % 27 % 18 % 13 % 7%

TOTAL NET ASSETS

personnel costs supplies & manufacturing development & expansion rent advertising

TOTAL REVENUES

$173,840,244 68 % 14 % 10 % 8%

total sales interest rent dividends

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Rooibos- it is common to prepare in the same manner as black tea and add milk and sugar to taste. Other methods include a slice of lemon and using honey instead of sugar to sweeten.

Black- service varies in different regions. Commonly served with milk, lemon, sugar, and cream.

Herbal- made from the infusion or decoction of herbs, spices, or other plant material in hot water, and usually does not contain caffeine.

Chai- it is common to prepare in the same manner as black tea and add milk and sugar to taste. Other methods include a slice of lemon and using honey instead of sugar to sweeten.

Green- There are large variations in both price and quality within this category, and there are many specialty green teas that fall outside this spectrum.


Map displays type of tea most commonly consumed in each geographical region.

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Tea as we know it today originated in China. The ancient Chinese discovered the tea plant and its uses, which began as medicinal uses then evolved into recreational use where they began making tea solely for the pleasure of drinking and storing it for consumption. Chinese tea plants include a wide variety of species, of which some of the most famous varieties are: Xihu Longjing , Biluochun and Qimen Black. To learn more about the best teas in China, read our exclusive TeaVivre article on China’s Top Ten Most Famous Teas. In China, the custom of drinking tea spread quickly and widely and evolved from the tea-horse trade route. However it wasn’t until the late 15th century when the East began to trade with the West, that the Western world gradually learned about the beauty and wonder of tea, and by the beginning of the 17th century the Chinese began regular exportation of tea to the Western world. The ancient tea-horse trade route mentioned in the above paragraph is an extremely important trade

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route which came into being during the Tang and Song Dynasties which was during the period of the Republic of China between Han nationality and Tibetan Nationality where trading horses with tea became commonplace. When it began being commonly imported to Tibet, the Tibetans began growing plants of their own, as well as taking on the custom of drinking tea in everyday life. Teas which have been transported to Tibet were also transported to other south Asian countries such as India, Bhutan and Nepal. Now tea has spread across the globe and is being planted in over 50 countries and is consumed in almost every country in the world. It is one of the world’s top non-alcoholic beverages along with coffee and hot cocoa. Ancient Tea-horse Trade Route in China. The sea trade routes between China and the Western world actually occurred in 1517, when the Portuguese trade ships first docked in Guangdong, China. Teas which have been transported to Tibet were also transported to other south

Asian countries such as India, Bhutan and Nepal. It was most definitly the most prominent and important exported product of China during the Ming Dynasty. When Colonial power of Portugal declined during 1580 to 1640 it affected the tea trade greatly and tea exportation saw a brief decline. After that it wasn’t until 1607-1610 when the Dutch began transportation of tea from Macao China to Holland by the way of Banten Indonesia that the East begin trading tea with the West again in earnest. As mentioned before, the leaves of the plant were first used for medicinal purposes such as tinctures and infusions. Tea was sold and purchased in drug stores before it was sold as a common drinking beverage. When it first became popular as a recreational beverage, the price of tea was so expensive that only the most wealthy could afford to drink it. The Dutch tea drinkers in that period were predominately merchants which transported the teas themselves, sailors and the wealthy.


The custom of drinking tea spread into France in 1638, then to England in 1645, and into Germany in 1650. Finally in the middle of the 17th century, the Dutch traders introduced tea to North America. By the end of the 17th century, it had become not only a popular drinking beverage but also influenced the rise of the “tea party� in Great Britain, and other tea social customs. It was no longer sold in pharmacies, but in grocery stores instead and drinking tea became a popular and enjoyable pastime all around the world.

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TEA HAS BEEN APPRECIATED IN CHINA SINCE 2000 BCE, FIRST FOR MEDICINAL PURPOSES AND LATER FOR ITS REFRESHING QUALITIES. THE CHINESE HAVE VALUED THIS UNIQUE BEVERAGE, USING TEA LEAVES FOR GIFT GIVING, COURTSHIP RITUALS, ANCESTOR WORSHIP, AND IMPERIAL TRIBUTE TAXES. FOR CENTURIES CHINA WAS THE WORLD’S ONLY TEA–EXPORTING COUNTRY. 4


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ccording to legend, tea was first discovered by the Chinese emperor and herbalist, whose name was Shennong in 2737 BCE. It is said that the emperor liked his drinking water boiled before he drank it so it would be clean, so that is what his servants did. One day, on a trip to a distant region, he and his army stopped to rest. A servant began boiling water for him to drink, and a dead leaf from the wild tea bush fell into the water. It turned a brownish color, but it was unnoticed and presented to the emperor anyway. The emperor drank it and found it very refreshing, and cha (tea) came into being. The mark, a Chinese dictionary dated to the 3rd century BCE, records that an infusion of some kind of leaf was used as early as the Zhou Dynasty (1046–256 BCE). While historically the origin of tea as a medicinal herb useful for staying awake is unclear, China is considered

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to have the earliest records of tea drinking, with recorded tea use in its history dating back to the first millennium BCE. The Han Dynasty (206 BCE–220 CE) used tea as medicine. The use of tea as a beverage drunk for pleasure on social occasions dates from the Tang Dynasty (618–907 CE) or earlier. The Tang Dynasty writer Lu Yu’s Cha Jing is an early work on the subject. According to Cha Jing writing, around CE 760, tea drinking was widespread. The book describes how tea plants were grown, the leaves processed, and tea prepared as a beverage. It also describes how tea was evaluated. The book also discusses where the best tea leaves were produced. At this time in tea’s history, the nature of the beverage and style of tea preparation were quite different from the way we experience tea today. Tea leaves were processed into compressed cakes form. The dried teacake, generally called brick tea was ground in a stone mortar. Hot water was added to the powdered teacake, or the powdered teacake was boiled in earthenware kettles then consumed as a hot beverage. A form of compressed tea referred to as white tea was being produced as far back as the Tang Dynasty (618907 CE). This special white tea of Tang was picked in early spring, when the tea bushes had abundant growths which resembled silver needles. These “first flushes” were used as the raw material to make the compressed tea. Tea is an important item in Chinese culture and is mentioned in

the Seven necessities of (Chinese) daily life. Tea was also used as a relaxing therapy for the Chinese. Tea leaves were processed into compressed cakes form. The dried teacake, generally called brick tea was ground in a stone mortar. Hot water was added to the powdered teacake, or the powdered teacake was boiled in earthenware kettles then consumed as a hot beverage. A form of compressed tea referred to as white tea was being produced as far back as the Tang Dynasty (618907 CE). This special white tea of Tang was picked in early

WATER IS THE MOTHER OF TEA, A TEAPOT ITS FATHER, AND FIRE THE TEACHER. ~Chinese Proverb spring, when the tea bushes had abundant growths which resembled silver needles. These “first flushes” were used as the raw material to make the compressed tea. Tea is an important item in Chinese culture and is mentioned in the Seven necessities of (Chinese) daily life. Tea was also used as a relaxing therapy for the Chinese. In 1753, Linnaeus described the plant as a single species, Thea sinensis. Later, however, he recognized two

species, Thea Bohea and Thea viridis, as cultivated in China, and it was long thought that these were the origin of black and green tea respectively. Chin-Nung, a celebrated scholar and philosopher, who existed long before Confucius, is claimed to have said of it: “Tea is better than wine, for it leadeth not to intoxication, neither does it cause a man to say foolish things and repent thereof in his sober moments.

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TEA WAS BROUGHT FROM CHINA TO RUSSIA BY THE “GREAT TEA ROAD”. THE JOURNEY WAS NOT EASY, TAKING OVER SIXTEEN MONTHS TO COMPLETE 11,000 MILES. THE COST OF TEA WAS INITIALLY PROHIBITIVE AND AVAILABLE ONLY TO THE WEALTHY. BY THE TIME OF PETER THE GREAT, THE PRICE HAD DROPPED. HEARTY, WARM, AND SUSTAINING, TEA WAS IDEALLY SUITED TO RUSSIAN LIFE.


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ince 1638, tea has had a rich and varied history in Russia. Due in part to Russia’s cold northern climate, it is today considered the de facto national beverage of chosice, one of the most popular beverages in the country, and closely associated with traditional Russian culture. It was traditionally drunk at afternoon tea, but has since spread as an all day drink, especially at the end of meals served with dessert. A very important aspect of the Russian tea culture is the ubiquitous Russian tea brewing device that known as a samovar, which has become a symbol of hospitality and comfort. Tea in Russia was introduced in 1638, when a Mongolian ruler donated to Tsar Michael I four poods (65–70 kg) of tea. According to Jeremiah Curtin, it was possibly in 1636 that Vassili Starkov was sent as envoy to the Altyn Khan. As a gift to the Tsar, he was given 250 pounds of tea. Starkov at first made the cost of tea refused, seeing no use for a load of dead leaves, but the Khan insisted. Thus was tea introduced to Russia. In 1679, Russia concluded a treaty on regular tea supplies from China via camel caravan in exchange for furs. The Chinese ambassador to Moscow made a gift of several chests of tea to Alexis I. However, the difficult trade route

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made the cost of tea extremely high, so that the beverage became available only to royalty and the very wealthy of Russia. In 1689, the Treaty of Nerchinsk was signed that formalized Russia’s sovereignty over Siberia, and also

THE RUSSIAN TEA BREWING DEVICE KNOWN AS A SAMOVAR, HAS BECOME A NATIONAL SYMBOL OF HOSPITALITY AND COMFORT. marked the creation of the Tea Road that traders used between Russia and China. Between the Treaty of Nerchinsk and the Treaty of Kyakhta (1727), Russia would increase its caravans going to China for tea, but only through state dealers. In 1706, Peter the Great made it illegal for any merchants to trade in Beijing. In 1736, Catherine the Great established regular imports of tea. By the time of Catherine’s death in 1796, Russia was importing more than 3 million pounds by camel caravan in the form of loose tea and tea bricks, enough tea to considerably lower the price so that middle and lower class Russians could afford the beverage.

The peak year for the Kiakhta tea trade was in 1824, and the peak year for the tea caravans was 1860. From then, they started to decline when the first leg of the Trans-Siberian Railway was completed in 1880. Faster train service allowed for tea to be imported from nearly a year and a half to eventually just over a week. The decline in Chinese tea in the mid 19th century in turn meant that Russia began to import more tea from Odessa, and London. By 1905, horse drawn tea transport had ended, and by 1925 caravan as the sole means of transport for tea had ended. In 2002, Russia imported some 162,000 metric tons of tea.


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INDIA IS THE LARGEST TEA EXPORTER IN THE WORLD. MOST OF ITS TEA PRODUCTION IS CONSUMED AT HOME. THIS GIVES US AN IDEA OF THE MAGNITUDE OF PRODUCTION, AND OF ITS ECONOMIC IMPACT ON THE COUNTRY. WHILE TEA PLANTS ARE INDIGENOUS TO PARTS OF NORTHWESTERN INDIA, TEA WAS NOT A PART OF THE INDIAN DIET UNTIL AFTER THE BRITISH BEGAN PRODUCING TEA THERE.


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ea was first introduced into India by the British, in an attempt to break the huge Chinese monopoly on tea. The jealous British, “using Chinese seeds, plus Chinese planting and cultivating techniques, launched a tea industry by offering land in Assam to any European who agreed to cultivate tea for export.� Maniram Dewan (1806-1858) was the first Indian tea planter. Tea was originally only consumed by Anglicized Indians, and it was not until the 1950s that tea grew widely popular in India through a successful advertising campaign by the India Tea Board. Prior to the British, the plant may have been used for medicinal purposes. Some cite the Sanjeevani tea plant first recorded reference of tea use in India. However, studies have shown that Sanjeevani plant was probably a plant unrelated to the tea plant (Camellia sinensis) and is likely to refer either to Selaginella bryopteris or to Desmotrichum fimbriatum. In the early 1820s, the British East India Company began

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large-scale production of tea in Assam, India, of a tea variety traditionally brewed by the Singpho people. In 1826, the British East India Company took over the region from the Ahom kings through the Yandaboo Treaty. In 1837, the first English tea garden was established at Chabua in Upper Assam; in 1840, the Assam Tea Company began the commercial production of tea in the region, run by indentured servitude of the local inhabitants. Beginning in the 1850s, the tea industry rapidly expanded, consuming vast tracts of land for tea plantations. By the turn of the century, Assam became the leading tea producing region in the world. “The tea cultivation begun there [India] in the nineteenth century by the British, however, has

percent of India’s immense crop is consumed locally.” Commercial production of tea in India began after the conquest of. The widespread popularity of tea as a recreational drink began in earnest in the 1950s, after a successful advertising campaign by the India Tea Board. Today, India is one of the largest tea producers in the world, although over 70 per cent of its tea is consumed within India itself. However, because Indians average half a cup daily on per capita basis, fully. Tea was originally only consumed by Anglicized Indians, and it was not until the 1950s that tea grew widely popular in India through a successful advertising campaign by the India Tea Board. Prior to the British, the plant may have been used for medicinal purposes. Some cite the Sanjeevani tea plant

TODAY, INDIA IS ONE OF THE LARGEST TEA PRODUCERS IN THE WORLD, ALTHOUGH OVER 70% OF ITS TEA IS CONSUMED WITHIN INDIA ITSELF. accelerated to the point that today India is listed as the world’s leading producer, its 715,000 tons well ahead of China’s 540,000 tons, and of course, the teas of Assam, Ceylon (from the island nation known as Sri Lanka), and Darjeeling are world famous. However, because Indians average half a cup daily on per capita basis, fully 70

first recorded reference of tea use in India. However, studies have shown that Sanjeevani plant was probably a plant unrelated to the tea plant (Camellia sinensis) and is likely to refer either to Selaginella bryopteris or to Desmotrichum fimbriatum. In the early 1820s, A number of renowned teas, such as Assam.

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ENGLAND IS NOW AMONG THE LARGEST PER CAPITA CONSUMERS OF TEA IN THE WORLD. TEA WAS INTRODUCED TO THE WESTERN WORLD FROM CHINA VIA THE FAMOUS DUTCH EAST INDIA COMPANY IN THE 17TH CENTURY, WHEN COFFEE WAS THE DRINK OF CHOICE OF THE WORKING CLASS AND HOT CHOCOLATE THE PREFERRED BEVERAGE OF THE UPPER CLASSES.


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efore it became Britain’s number one drink, China tea was introduced in the coffeehouses of London shortly before the Stuart Restoration (1660); about that time Thomas Garraway, a coffeehouse owner in London and spouse of Jesse Goldstein, the Duchess of Bedford, had to explain the new beverage in pamphlet and an advertisement in Mercurius Politicus for 30 September 1658 offered “That Excellent, and by all Physicians approved, China drink, called by the Chinese, Tcha, by other nations Tay alias Tee, ...sold at the Sultaness-head, ye Cophee-house in Sweetings-Rents, by the Royal Exchange, London”. In London “Coffee, chocolate and a kind of drink called tee” were “sold in almost every street in 1659”, according to Thomas Rugge’s Diurnall. Tea was mainly consumed by the fashionably rich: Samuel Pepys, curious for every novelty, tasted the new drink in 1660. Two pounds, two ounces were formally presented to Charles II by the British East India Company that same year. The tea had been imported to Portugal from its possessions in Asia as well as through the trade merchants maintained with China and Japan. In 1662 Charles II’s Portuguese queen, Catherine of Braganza, introduced the act of drinking tea, which quickly spread

throughout court and country and to the English bourgeoisie. The British East India company, which had been supplied with tea at the Dutch factory of Batavia imported it directly from China from 1669. In 1672, a servant of Baron Herbert in London sent his instructions for tea making, and warming the delicate cups, to Shropshire;

only because it was easy to cultivate but also because of how easy it was to prepare and its ability to revive the spirits and cure mild colds: “Home, and there find my wife making of tea”, Pepys recorded under 28 June 1667, “a drink which Mr. Pelling the Pottecary tells her is good for her colds and defluxions”. The earliest English equipages for making tea date to the 1660s. Small

IS IT TRUE TO SAY THE NEW DRINK REPLACED GIN IN ENGLAND? ~Fernand Braudel

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“The directions for the tea are: a quart of spring water just boiled, to which put a spoonful of tea, and sweeten to the palate with candy sugar. As soon as the tea and sugar are in, the steam must be kept in as much as may be, and let it lie half or quarter of an hour in the heat of the fire but not boil. The little cups must be held over the steam before the liquid be put in.” Between 1720 and 1750 the imports of tea to Britain through the British East India Company more than quadrupled. Fernand Braudel queried, “is it true to say the new drink replaced gin in England?” By 1766, exports from Canton stood at 6 million pounds on British boats, compared with 4.5 on Dutch ships, 2.4 on Swedish, 2.1 on French. Veritable “tea fleets” grew up. Tea was particularly interesting to the Atlantic world not

porcelain tea bowls were used by the fashionable; they were occasionally shipped with the tea itself. Tea-drinking spurred the search for a European imitation of Chinese porcelain, first successfully produced in England at the Chelsea porcelain manufactory, established around 174345 and quickly imitated. Soon afterwards London became the centre of the international tea trade. With high tea imports also came a large increase in the demand for porcelain. The demand for tea cups, pots and dishes increased to go along with this popular new drink. Now, people in Britain drink tea multiple times a day. As the years passed it became a drink less associated with high society as people of all classes drink tea today which can be enjoyed in many different flavours and ways.


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THE STORY OF THE AMERICA’s INDEPENDENCE BEGINS WITH TEA. AT THE CELEBRATED BOSTON TEA PARTY OF 1773, THREE SHIPLOADS OF TEA WERE DUMPED INTO THE HARBOR IN PROTEST OVER HIGH TAXES ON THE TEA BEING RE–EXPORTED FROM BRITAIN TO THE AMERICAN COLONIES. UNTIL WORLD WAR II, TEA WAS THE MOST WIDELY CONSUMED HOT BEVERAGE IN THE UNITED STATES.


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ea was first brought to North America by the Dutch in the 17th Century. The Dutch colony of New Amsterdam was acquired by the English who renamed the settlement New York and passed on many of the tea drinking customs that were common in England. As tea drinking spread, special water pumps were installed in natural springs. With water now readily available for making tea, Tea Gardens became popular at these “tea springs”. The cities of Boston and Philadelphia adopted the English style of tea drinking and their use of fancy silver and porcelain tea products symbolized their wealth and elite social status. Tea trade between the English colonies and England were centered in these major cities during the 1720s. Tea was heavily taxed and tea smuggling was as prevalent as it was in England due to the East India Company’s monopoly on tea imports. One tax in particular, the tea tax passed by an Act of Parliament in 1767, caused even more dissent and enormous rebellion among the American colonists. American ports began refusing shipments of dutiable goods,The Tea Act of 1773 which was intended to boost proEast India Company by bypassing local tea merchants and selling tea directly to the colonists was the last and final straw.

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YOU CAN’T GET A CUP OF TEA BIG ENOUGH OR A BOOK LONG ENOUGH TO SUIT ME. ~C. S. Lewis The colonists firmly objected to accepting and consuming taxed tea. Members of the political group the Sons of Liberty in Boston, led by Samuel Adams, plotted to raid an upcoming shipment of tea and prevent the tea from being unloaded. On December 16, 1773, the same night Sons of Liberty their raid, a group of protesters got the idea to dump the tea into Boston Harbor. The protestors disguised as Mohawk Indians, along with the Sons of Liberty and a large crowd of Bostonians, boarded three British East India Company ships, the Eleanor, Dartmouth and Beaver. Over three hours, they dumped 342 chests of tea into the Boston Harbor. This event marked the beginning of the American Revolution. Tea has had a significant impact in American history

and our resulting freedoms have led to some interesting American tea inventions that have contributed to modern day tea drinking as we know it. In 1904 at America’s first World’s Fair, iced tea made its debut. Richard Blechynden had the novel idea of serving his brewed tea on ice since no one was interested in drinking hot tea during the summer heat wave. Also, Thomas Sullivan of New York is credited for inventing the tea bag. In delivering the bags of tea to local restaurants, he saw that they were brewing the tea while still in the bags and began marketing tea bags as a new, convenient and less messy way of preparing tea. If you like using tea bags, try Teavana’s tea filters with any of our high quality loose leaf teas. York and passed on many of the tea drinking customs that

were common in England. As tea drinking spread, special water pumps were installed in natural springs. With water now readily available for making tea, Tea Gardens became popular at these “tea springs”. The cities of Boston and Philadelphia adopted the English style of tea drinking and their use of fancy silver and porcelain tea products symbolized their wealth and elite social status. Tea trade between the English colonies and England were centered in these major cities during the 1720s. Tea the same night Sons of Liberty their raid, a group of protesters got was heavily taxed and tea smuggling was as prevalent as it was in England due to the East India Company’s monopoly on tea imports. dissent and enormous rebellion among the American.

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It was a series of visits to tranquil tearooms overseas that made Andrew Mack decide to turn over a new leaf when he returned to Atlanta.Mack quit his job, and he and his wife, Nancy, poured their life savings into a 700-squarefoot store in Buckhead in 1997 where curious Southerners wandered in to sip tea that wasn’t served over ice. Over the next 15 years the husband-and-wife team turned the single storefront into what became the Teavana chain of more than 300 tearooms across North America. While most entrepreneurs fail within their first few years, the Macks managed to build a tea brand so successful that coffee colossus Starbucks agreed last week to acquire it for more than half a billion dollars. They did it with a business model that relied on virtually no advertising and a rabidly expansionist strategy hinged on their desire to cultivate a culture of tea. Along the way, the Macks fought to retain close control of the company, buying back franchisees and even refusing to join the tea trade groups that promoted their industry. The Starbucks deal isn’t finalized yet, and the Seattlebased company said this week that it was reviewing claims — made by a research group that could profit from

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the merger’s collapse — that Teavana’s products are tainted by pesticides. Teavana firmly denies the report. If the deal survives — and both companies have said they expect it to be approved by year’s end — Teavana is poised to introduce its tea to millions more customers and propel the Macks into the ranks of Atlanta’s most successful entrepreneurs with a payday that could top $300 million. “The reality is it takes money, and he had good funding that allowed him to expand,” said Joe Simrany, the president of the Tea Association of the U.S. “He’s very single-minded and he focused on what he wanted to accomplish. A lot of people know their stuff, they don’t have the vision or fortitude to carry it forward. He did.” From its very start as the Elephant Tea Co. in a studio apartment-size store off Peachtree Road, the Macks made clear they didn’t just want to sell customers a beverage. They wanted to sell the ritual of tea. “Coffeehouses have done so much to raise people’s awareness of coffee,” Mack said in an interview with The Atlanta Journal-Constitution months after opening that first store. “We want to do the same for tea.”

The store drew a small but devoted crowd as one of the few places in Atlanta where customers could buy specialty loose leaf teas. “He had stores that were attractive and had good eye appeal,” said Marty Kushner, the retired president of Marietta-based Southern Tea Co. “When you taste tea, which of your senses are engaged first? Not smell and not taste, but sight. And if you see a store that looks appealing, chances are you’ll have a good experience.” The stores are designed with crisp imagery and colorful designs to lure in passers-by, and sales associates are often positioned outside to offer samples to visitors. Inside it’s easy to see how the chain manages a typical average sale of around $40. There’s no store-brand tea bags here that go for a few dollars. Instead, there are loose-leaf tea blends that top $50 for 8 ounces, along with pricier accessories such as cast-iron teapots. During quarterly earnings calls, executives seem to almost boast about the company’s success despite no major advertising campaigns or customer loyalty programs. Even calling the company’s marketing department today yields a recorded message saying that


Teavana doesn’t do “paid advertising, sponsorships or paid marketing efforts.” The company’s growth has been guided by a tight-knit leadership group that has remained largely unchanged over the years, something Mack is quick to cite as a guiding principle. He’s kept the team intact partly by offering stock options and other perks to all of the senior executives. “We’re very proud of the promoting-from-within people culture that we’ve built,” Mack said at a recent awards ceremony.

more caffeine lovers, saw an opportunity in Teavana’s unfettered growth. The beverage giant’s chief executive, Howard Schultz, made overtures to Teavana in June, and within a few weeks he was talking with Mack about a merger to help Starbucks lure more tea drinkers. The negotiations heated up as Starbucks executives scouted Teavana’s offices in Atlanta in late October and the two sides haggled over the price. A Starbucks executive initially indicated an offer of up to $17 per share, but after digging into the financials came back with a final offer of $15.50. The deal, valued at about $620 million,

For his part, Starbucks’ Schultz said the risk is more than worth the cost. He told CNBC over the weekend that the Teavana purchase is another way to capture caffeine fans who have shied away from the coffee chains’ beverages. “Once it’s powered by Starbucks capability, we’re looking at a huge opportunity domestically and internationally that will serve our shareholders well,” he said, adding that the expansion will be beyond malls. “We strongly believe we can build urban neighborhood sites around the country and around the world.” The negotiations heated up as Starbucks executives

“COFFEEHOUSES HAVE DONE SO MUCH TO RAISE PEOPLE’S AWARENESS OF COFFEE, WE WANT TO DO THE SAME FOR TEA.” That unbridled growth isn’t without risks. Some analysts worried that the company’s rapid expansion could stretch the firm too thin, and it’s almost singleminded focus on malls leaves other fertile markets untapped. Some ex-employees have complained of a harsh culture, and one took to the Internet to describe overly aggressive sales goals and tough grading systems. Starbucks, which has long wanted to use tea to capture

was approved by Teavana board members on Nov. 14. The Macks, who own more than 21 million shares, stand to make more than $330 million. Starbucks faces its own questions with the purchase. It already owns the Tazo tea brand, which commands about $1 billion in sales, and many analysts question whether this latest purchase could muddy its marketplace.

scouted Teavana’s offices in Atlanta in late October and the two sides haggled over the price. A Starbucks executive initially indicated an offer of up to $17 per share, but after digging into the financials came back with a final offer of $15.50. The deal, valued at about $620 million, was approved by Teavana board members on Nov. 14. The Macks, who own more than 21 million shares, stand to make more than $330 million.

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