Starbucks Proves Just How Important Brand Names Can Be
I had other plans for todays article. Theres plenty going on to talk about these days
politics, earnings, Europe, commodities, you name it. But, I couldnt resist the opportunity to revisit a topic I just discussed.
In case you havent seen it yet, I wrote about Starbucks (SBUX) on Monday. Basically, my point was that SBUXs powerful brand name has allowed the company to weather the economic slowdown better than most large companies.
Well, approximately three days after my article on the importance of branding, SBUX is making me look like a genius.
The company just announced it will be acquiring Teavana (TEA) for $620 million.
Teavana is a specialty retailer of loose-leaf teas, tea wares, and other tea-related merchandise. The company offers around 100 kinds of loose-leaf tea as well as fresh brewed teas. It also sells tea pots, cups and mugs, tea accessories, and other related items.
TEA is typically found in higher-end malls, primarily in the US. Although, the company does have locations in Canada, Mexico, and Kuwait as well. Currently, there are about 300 Teavana stores open.
Heres the thing
This is exactly the sort of move I expect from Starbucks. Remember, brand popularity is a huge deal for the coffee retailer.
The company is already unrivaled in terms of coffee-related brand recognition. But keep in mind, management has been keen on expanding into other product areas such as tea, juice drinks, and food.
So where does Teavana come in?
Essentially, Teavana is the most recognized tea-related brand name in the US. Consumers looking for the best selection of quality teas will be hard pressed to find a better option than TEA.
There may be some independent stores that compete with Teavana, but no company has anywhere near the widespread presence. And, its exactly why SBUX is buying the company.
After all, tea is the second most consumed drink in the world after water. (Coffee has a bigger following in the US, but tea is bigger worldwide.)
With this purchase, SBUX has the resources to expand Teavana stores into many more locations. Not to mention, they can offer TEA products in their own stores. The deal is expected to raise profits by $0.01 per share right off the bat.
And lets not forget what this means for small caps and penny stocks
Large companies may have the resources to make bigger and more frequent purchases to improve brand name recognition but that doesnt mean small companies are left out in the cold.
On one hand, small caps can still improve their branding through mergers and acquisitions. On the other hand, smaller companies make great acquisition targets if their own brand names are strong. Just look at a certain tea company
You see, prior to the acquisition announcement, TEA had a market cap of under $400 million. Thats solidly in small cap range. SBUX just proved my point far better than I could do through words.
I suppose I should go buy a latte to thank the company for making me look good.
Yours in profit,
Gordon Lewis
Category: Penny Stock Tips
