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Why Teavana Failed? What Happened to Teavana?

Teavana, once a thriving manufacturer and distributor of a wide array of tea products, embarked on a remarkable journey that ultimately ended in its decline. Founded by Andrew T. Mack and his wife Nancy Mack, the company had ambitious dreams of bringing a unique tea experience to the American market. Their story, from humble beginnings to a multimillion-dollar acquisition by Starbucks, is a compelling tale of entrepreneurship and challenges faced in the ever-evolving retail landscape.

  • Teavana was a leading tea retailer founded in 1997 by Andrew T. Mack and Nancy Mack in Atlanta, Georgia.

  • The company quickly grew to become a national brand, known for its wide variety of teas, knowledgeable staff, and inviting atmosphere.

  • Teavana's success attracted the attention of Starbucks, which acquired the company in 2012 for $620 million.

  • However, in 2017 Starbucks announced to close all the Teavana stores.

Why Teavana Failed? Tea Retailer Failure Analysis

Birth of Teavana

Teavana, originally established as Elephant Tea Co., was the brainchild of Andrew Mack and his wife, Nancy Mack. Their journey began in Atlanta, Georgia, in 1997, when they decided to transform their vision into reality. Drawing inspiration from the serene tearooms they had experienced during their travels abroad, the Macks embarked on an entrepreneurial venture.

Prior to Teavana, both Andrew and Nancy had substantial experience in the realm of retail and customer service. Andrew had honed his managerial skills as a restaurant manager at the popular dining chain, Applebee's. Meanwhile, Nancy had previously served as a customer service manager at the renowned Walt Disney World Resort. Their combined expertise and unwavering dedication led to the opening of their inaugural 700-square-foot store, nestled within Atlanta's Phipps Plaza, a bustling mall. This marked the inception of Teavana, a brand that would go on to redefine the tea experience in the United States.

Teavana's Journey of Growth

Starting a business is never easy, and Teavana was no exception. Andrew and Nancy Mack, the founders, poured their hearts into the first Teavana store in Atlanta. They worked day and night, facing moments when it seemed like Teavana might not survive. But their determination paid off, and not only did the store break even, but it also started making a profit.

With the money they earned from their first store, the Macks decided to expand. They opened a second store, then a third, and soon, Teavana was on a roll.

After this initial success, the Macks wanted to grow even faster. They tried franchising Teavana stores, but that didn't work out as planned. So, they changed course and bought back all the franchises.

Until then, Teavana had been self-funded and doing well. They had around 12 stores and had made close to $10 million in revenue.

In 2005, Teavana got a boost when SKM Growth Investors invested $10 million. This partnership helped Teavana expand its physical stores. They made changes to improve the business, like focusing on finding better store locations to attract more customers.

Going Public and Starbucks' Acquisition

To solidify its position as an international tea powerhouse, Teavana went public on the New York Stock Exchange in July 2011, raising $121 million. By then, it had nearly 180 stores and was eyeing expansion into the Middle East. In April 2012, Teavana made its first acquisition, purchasing Teaopia Ltd., a Canadian tea retailer.

The turning point came in November 2012 when Starbucks announced its acquisition of Teavana for a whopping $620 million. The synergies between Starbucks and Teavana started to emerge, leading to the creation of Starbucks' first tea bar in New York City, designed to immerse customers in the world of tea.

Challenges Faced

Despite early successes, Teavana began facing challenges as the years passed.

Changing Retail Landscape

One significant challenge was the shifting retail landscape. Teavana's primary locations were in malls, which were experiencing a decline in visitor numbers as more consumers turned to online shopping. This change hit Teavana hard, as their focus had been on foot traffic rather than diversifying into other locations.

Heightened Competition

Teavana faced fierce competition from online tea brands like Honest Tea and David's Tea. These digital-first competitors had lower overhead costs, allowing them to offer high-quality teas at competitive prices. Teavana's retail-centric model with its associated expenses became a burden.

Why Teavana Failed?

In a significant move in July 2017, Starbucks announced it would be closing all 397 Teavana physical locations within the following six months. The primary reason cited for this drastic decision was underperformance. Teavana's failure can be attributed to several factors:

Malls' Declining Visitor Numbers

The primary factor was the significant decrease in mall visitors. When Teavana was founded in 1997, malls were bustling hubs of commerce. However, over the years, more consumers turned to online shopping, leading to a decline in mall foot traffic. Teavana's heavy reliance on mall-based stores made it vulnerable to this trend

Inflexible Retail Approach

Teavana chose to focus exclusively on mall locations and foot traffic, rather than diversifying into other markets such as airports. This lack of adaptability proved detrimental as consumer preferences evolved.

Intense Online Competition

The rise of online tea brands posed a substantial threat to Teavana. These competitors, unburdened by the costs of physical retail locations and staff, could offer high-quality teas at competitive prices. Teavana struggled to keep up with their online counterparts.

Frequently Asked Questions

1. What was Teavana?

Teavana was a specialty tea retailer that gained prominence in the early 2000s. Founded in 1997, the company quickly expanded and became known for its premium loose-leaf teas and tea accessories.

2. What were the key reasons behind Teavana's downfall?

Teavana's fall from grace was marked by several significant factors:

  • Overexpansion: Teavana's rapid expansion left the company with a vast network of stores that proved difficult to sustain, especially as the retail landscape began to shift towards e-commerce.

  • Market Saturation: The tea market became saturated with competitors, making it challenging for Teavana to maintain its market share and profitability.

  • Changing Consumer Preferences: As consumers became more health-conscious and shifted towards healthier beverage options, Teavana's sugary and calorie-laden tea offerings lost their appeal.

3. How did Starbucks' acquisition affect Teavana's trajectory?

Starbucks' acquisition of Teavana in 2012 was seen as a strategic move to diversify its product portfolio. However, this acquisition had both positive and negative implications for Teavana:

  • Increased Visibility: Teavana products gained exposure through Starbucks' extensive network of coffee shops, increasing brand visibility.

  • Operational Challenges: Integrating Teavana into the Starbucks ecosystem posed operational challenges, and the tea retailer struggled to adapt to Starbucks' business model.

  • Store Closures: In 2017, Starbucks announced the closure of all Teavana stores, citing underperformance. This decision signaled the beginning of the end for Teavana as a standalone brand

4. What lessons we can learn from Teavana's rise and fall?

Teavana's journey offers several valuable lessons for businesses:

  • Sustainable Growth: Businesses should prioritize sustainable growth over rapid expansion, ensuring that they can maintain operations even during market challenges.

  • Adaptation to Market Changes: Staying attuned to shifting consumer preferences and market trends is crucial for long-term success.

  • Diversification: Relying heavily on a single product or niche can be risky. Diversifying the product range can help businesses weather market fluctuations.

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