HERE IS THE ORIGINAL ARTICLE FROM THE PORTLAND OREGON BUSINESS JOURNAL STAFF WRITER..
SOME FIGURE THIS OUT THIS IS DRIVING ME NUTS AS WELL..
EXCLUSIVE REPORTS
From the July 25, 2003 print edition
Shaken Tazo helps Starbucks beat summer heat
Shelly Strom
Business Journal staff writer
Portland-based Tazo is taking center stage around the planet in the stores of parent company Starbucks. The coffee giant introduced the latest offering from its tea company--individually prepared beverages of tea shaken with lemonade--at its 6,500 stores in more than 30 countries.
That sort of positioning isn't easy to get. But Starbucks needs Tazo. "The shaken iced tea allowed Starbucks to go into the refreshment area and that might not have been as easy to do with just iced coffee. It's an example of how Tazo can help Starbucks," said Allison Polenz, tea manager for Starbucks. "We think that tea is actually very incremental to the bottom line."
Five years after being purchased by Starbucks, Tazo appears to be operating in much the same fashion it did as an independent company. One of its founders, Steven Smith, leads the effort of discovering and buying teas, trotting the globe, searching gardens worldwide for Tazo's next purchase. Tazo CEO Tal Johnson, selected by Smith and the rest of Tazo's board in 1995, continues to function in his same role.
The company's marketing strategy hasn't changed. Tazo has created lore to supplant the exotic ingredients of its teas, using packaging as a place to tell its story. For instance, the very name "Tazo" apparently has roots in many ancient civilizations, according to Tazo.
Tazo teas--made by infusing botanicals, flowers, roots and herbs with black and green teas--are crafted the same. The company has just expanded its offerings. For instance, Tazo is capitalizing on the combination of tea, milk and flavorings best known as chai tea. The company tweaked the chai concept to create a line of beverages it calls tea lattes. It plans to introduce three new flavors of its tea lattes next month, including Japanese ceremonial green tea mixed with honeydew melon and black tea with Madagascar vanilla. The company also has expanded its traditional offerings of bagged teas from 11 to 20 and bottled teas from seven to 15.
"We create our blends the same as when I first started the company. There still is more regard toward flavor than toward cost. And we aren't necessarily buying the most expensive teas," Smith said during a recent tea tasting with The Business Journal. "We are able to get first crack at some of the teas because of Tazo's long relationships with growers."
But that doesn't mean the company is still the same small operation. Growth has been inevitable--today employment has risen nearly 400 percent to 89 employees compared with 23 prior to the purchase. Tazo occupies 65,000 square feet at a warehouse in Southeast Portland and is poised to usurp even more space, where it receives, stores, blends and packages raw materials. The headquarters houses the company's tasting lab, although bottling happens at a facility on the outskirts of the city.
At the same time, Starbucks has grown. In 1999, it employed a mere 23,000 employees and has mushroomed to 60,000. But the company hasn't had a conceptually new beverage since it introduced its line of Frappuccino beverages in 1995.
Hot-beverage makers typically hit a slowdown during warm weather months, a situation Smith faced as founder of an earlier tea company, Stash Tea. "We hit the doldrums each summer. At Tazo, we've tried to even the dip by creating juiced teas and now with this shaken iced tea lemonade product," Smith said.
But its not the first time Tazo has offered a shaken iced tea. Shortly after its founding, Tazo made similar beverages from a kiosk in Northwest Portland. The difference now is that Tazo is served an estimated 60,000-some times daily at Starbucks around the world.
Tazo also may be helping Starbucks build a following in parts of the world where tea is the drink of choice and specialty coffee likely is foreign. "The tea industry is the second largest beverage industry in the world next to water," said Steve Lee, who co-founded Stash and Tazo with Smith. Lee left Tazo and has since founded Kombucha Wonder Drink, another tea-based beverage-maker. "Tea is far bigger than specialty coffee, although not in this country. As Starbucks expands, Tazo will have a larger presence and give people in Asia and other parts of the world a reason to go into Starbucks," Lee said.
Polenz agreed: "It helps us extend a handshake to the rest of the world that might not have thought about specialty coffee."
Publicly traded Starbucks won't disclose financial information on Tazo, so the tea producer's impact on its behemoth parent remains uncertain.
Although Tazo officials said they couldn't discuss financial details of the company, they said the company has seen steady growth. Net revenue has grown 10-fold and net profit has doubled. "We are the most optimistic about our growth that we've ever been."