Will Starbucks’ push into tea hurt its coffee shops?


October 30, 2013 12:07 am

Will Starbucks’ push into tea hurt its coffee shops?

The Teavana bar’s opening raises questions about how to avoid competing with the original business


Starbucks opened its first Teavana bar in New York last week. CEO Howard Schultz said he was not worried about cannibalising the coffee chain because “most people who are tea drinkers are not crossing over to coffee”. When launching similar products, how do you avoid competing with your original business?THE ADVICE

The marketing expert: Tim Calkins

Companies have to be very careful in introducing new brands. While they might seem like a good idea, they may well cannibalise the existing brand. A bigger problem is that the brand portfolio may become difficult to manage. Companies with many brands in the same space can really struggle. General Motors is a perfect example of what happens when a portfolio becomes unwieldy.

It is best to launch a brand only if its positioning is very different from the existing one, the opportunity is compelling and you have the resources to support all the brands. Starbucks clearly has the resources. The challenge will be keeping Teavana distinct.

Tim Calkins is a marketing professor at the Kellogg School of Management, Northwestern University

The author: Freek Vermeulen

Howard Schultz might be right, and coffee drinkers don’t cross over, but it is also irrelevant. If it is going to cannibalise your business, perhaps that is exactly the reason to do it. Business history shows that companies often refuse to adopt a new product to avoid cannibalisation – until someone else does.

Firestone hung on to bias tyres until the radial tyre all but annihilated them. It was a Swiss engineer who invented quartz technology, which Far Eastern competitors used to outcompete the Swiss mechanical watchmakers. If you can think of a disruptive product that cannibalises your business, someone else can too. Don’t wait for others to take the bite.

Freek Vermeulen is author of Business Exposed and an associate professor at London Business School

The entrepreneur: Tim Martin

History is against Starbucks. The outstanding success in the restaurant world by miles is McDonald’s. While it has been criticised for what it offers, I think it has got over that because it does only one thing and has been able to upgrade – or try to upgrade – every aspect of its business. Compared to anyone else, including Wetherspoon, it has a very simple business.

If you look at the international successes, they have stuck to their knitting. A good example of that is Starbucks. It has an almost ludicrously narrow offer but it has done very well. My estimate is not so much that it will cannibalise existing trade. It’s more about dilution of the effort of the company.

Tim Martin is founder and chairman of the UK pub chain JD Wetherspoon


About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (, a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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