AB InBev, Starbucks Join Forces on Ready-to-Drink Tea – Wall Street Journal

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Starbucks has been pushing in recent years to find new avenues of growth.


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Starbucks has been pushing in recent years to find new avenues of growth.


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Reuters

By

Tripp Mickle and

Julie Jargon

Updated June 2, 2016 5:56 p.m. ET

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

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