Will Starbucks profit from posting its calorie counts?
The coffee chain is attempting to get out in front of a potential upcoming FDA requirement. But can this move help its bottom line?
In Seattle, the birthplace of Starbucks (SBUX), and in health-obsessed New York, java junkies have been privy to calorie counts on menu boards for years. This Tuesday, the rest of the country will have the opportunity to gawp open-mouthed at the sheer number of calories in a Mocha Frappuccino (400, incidentally) when the coffee chain posts these figures in every store nationwide.
The move has been widely seen as an attempt to get out in front of the Food and Drug Administration, which will soon require any restaurant business with more than 20 outlets to post calorie counts on their menus.
There's long been debate as to the efficacy of making nutritional information available, at least in terms of changing behavior. A 2011 Stanford study based on Starbucks consumer data showed a 6% reduction in "calories per transaction" in New York City after calorie counts were posted in 2008 -- a paltry 15 calories for the average purchase.
Stanford's researchers also found that while calorie transparency had little effect on Starbucks' revenues overall, sales at stores located within 50 meters of a competitor actually increased. This is good news for the coffee giant's bottom line. It shows consumers want to know more about what they're putting into their bodies, not less.
This shouldn't come as a huge surprise, given Starbucks' demographic: on average, aged 42 and earning $90,000 a year. These are the same educated buyers fueling the juice movement and downloading apps to trace corporate family trees in the supermarket aisle. They want transparency in all things food-related, from calorie content to the source of the fruit in their smoothie (the more locally-sourced the better, and bonus points for organic produce).
Retail experts believe Starbucks' bottom line will get a boost not just because it beat the FDA (and, therefore, most of its competitors) to the calorie count mandate, but because customers will spend more to eat more healthily.
"They might be trading down on calories, but they're trading up in prices," said Brian Sozzi, CEO of Belus Capital Advisors, who currently have a "buy" rating on Starbucks shares with a $70 target price on the stock. "They've done a great job putting more product out there, like their new Evolution line of cold-pressed juices, which can cost just under $6. That's far more expensive than a $4 Frappuccino, but it's seen as a healthier option. They're finding new ways to keep you in the store."
Sozzi doesn't believe there will be any impact on Starbucks' margins, adding: "It doesn't cost anything to put calorie counts on menu boards."
Brian Sill, a restaurant consultant at Deterministics who has worked with Starbucks and regional competitor Peet's in the past, sees the calorie count move as a potential driver of innovation. "The moment you prioritize nutrition, you have to offer healthier and lower-calorie offerings to keep business," he said.
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