Unilever is to buy the Tazo brand from Starbucks, a leading brand in the fast-growing specialty tea category in a deal worth US$384 million. Under the asset purchase agreement, Unilever will acquire the Tazo brand and all related intellectual property, signature recipes and inventory. 

The brand has been a strong favorite amongst Starbucks’ millennial customers and is described as a “perfect fit” to Unilever’s portfolio of specialty brands.

The purchase follows disappointing Q4 earnings for Starbucks which were announced earlier this week. Starbucks reported revenue that was under analysts expectations which then led to a fall in shares on Thursday (November 2). 

The chain – which reported net income of US$788.5 million, or 54 cents per share, in the three months ending Oct 1, while adjusted earnings came to 55 cents per share – is trying to get a handle on dwindling footfall in the US in the current challenging retail and restaurant space.

“Starbucks delivered solid top and bottom line growth – and our strongest quarterly traffic number in the US since mid-2016 – despite a difficult operating environment in both the quarter and year,” said Scott Maw, Starbucks CFO.

“Continued strong growth and performance from CAP demonstrates that Starbucks now has two significant profit engines driving our global returns, our North America business and the broader CAP market.”

The Tazo transaction represents a multiple of 10 times pro forma EBIT. Tazo had sales of US$112.5 million over the past year.

“With its strong appeal to millennials, Tazo is a perfect strategic fit for our US portfolio that includes exciting new brands such as Seventh Generation, Dollar Shave Club and Sir Kensington’s,” said Kees Kruythoff, President, Unilever North America. 

“Tazo’s solid position in the fast-growing specialty tea segment, coupled with Unilever’s tea expertise, presents a fantastic growth opportunity.”

“Tazo represents another strategic addition which strengthens our tea portfolio towards high growth segments. Its artfully crafted specialty teas perfectly complement our global tea business, which includes Lipton, Pure Leaf, PG Tips, T2 and our recent addition, Pukka,” said Kevin Havelock, President of Refreshment, Unilever.

Founded in 1994, Tazo has a strong position in Specialty Black, Green and Herbal teas, as well as liquid concentrate focused in the Chai Latte segment. 

Starbucks originally acquired Tazo in 1999 for US$8.1 million.

The fast-growing specialty tea segment makes up 48 percent of the total US$1.6 billion (FY 2016) at-home tea category and trends suggest it will become more prominent in the future. 

Tazo is sold primarily in grocery, mass and convenience channels in the US and Canada and is offered in formats including packaged teas, K-Cup: registered: pods and bottled ready-to-drink teas.

The acquisition is subject to regulatory approval and the transaction is expected to close in the fourth quarter.