Starbucks debuts new flavored coffees

The Seattle icon looks to build on the success of its Via instant coffee with a line of Ready Brew java.

By InvestorPlace Aug 30, 2010 9:38AM

Credit: (© Michael Conroy/AP)
Caption: Customer in a Starbucks storeStarbucks (SBUX) made a huge splash recently with its line of Via Ready Brew coffee, which tallied $100 million in sales after only 10 months on the market. The Via packets have been a big hit because of their portability, a relatively low price of $1 a drink and, of course, a Starbucks-quality flavor.

With the instant-coffee marketplace expanding to upwards of $300 million thanks to Via, Starbucks is now looking to take its Ready Brew technology to the next level with a new line of flavored drinks.

But is the move diluting Starbucks business?

We'll get to the details on the new SBUX line in a moment, but it's worth noting that according to some estimates the instant-coffee business now surpasses the $265 million premium flavored-coffee market -- what has long been Starbucks' core business. And with each passing day, it appears that Starbucks moves further away from just selling premium coffee to retail customers.

Early this spring, Starbucks retail products saw a big push from the Seattle company, including bottled frappucinos and a new line of ice cream flavors to be stocked at your local grocery store.

Then Starbucks rebranded Seattle Best products, in part to build up institutional sales at food service providers and restaurants. Post continues after video:

In June, there was news of Starbucks beer and wine bars popping up in test markets

Now after the initial success of Via, Starbucks continues to focus on its instant-coffee brand.

But is SBUX doing too much and putting itself at risk of losing its core premium coffee business that made it such an iconic company?

Not likely. Starbucks coffee fans are very loyal, and it's not like these other drinks infringe on the quality of previous drinks. At least, so far.

Besides, plenty of other businesses have managed to branch out and not lose track of their roots.

Take McDonald's (MCD), which has seen runaway success with its McCafe line of coffees. It's silly to think a Big Mac tastes any different despite all those adds for mochas and lattes, right?

And it's worth noting that long before McCafe, McDonald's took on another risky business expansion -- adding fast-food breakfast in 1972.

Now its Egg McMuffin is as recognizable a product as the Big Mac and breakfast sales account for nearly 30% of all MCD revenue. Rather than hurt business, the launch of a breakfast line took McDonald's to the next level as a company.

By that logic, Starbucks could in fact be simply growing more dominant with its product expansions. It's hard to argue that the launches have been bad for the company with SBUX stock up 21% in the past year -- more than three times better than the Dow Jones industrials. So perhaps the coffee company is on to something with all these new drinks.

As for Via, the instant coffee will now include four natural flavors -- Vanilla, Mocha, Caramel and Cinnamon Spice. Suggested retail price is $8.99 for a multipack.


Presuming customers are as happy with the new flavored coffee as with the previous incarnation of Via, this could be another very profitable product launch for Starbucks.


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