Starbucks chills out with summer menu
The coffee giant is looking to keep sales momentum going with a focus on Frappuccinos and even new ice cream flavors.
Seattle coffee icon Starbucks (SBUX) has made a comeback in 2010 after consumers fled during the Great Recession. In order to keep the profits percolating, SBUX is looking to roll out a fresh new menu of Frappuccinos and iced coffee for the hot summer months.
Among the new options are nonfat milk and sugar-free toppings that will keep the calorie count down. Currently a grande Caramel Frappuccino (the flavor that made the cool drink such a success) has 380 calories. The light version will have 160.
But perhaps most interesting of all is Starbucks’ push to offer exotic new flavors, bottled drinks to go and even ice cream as a way to up-size its sales this summer.
Growth is crucial for SBUX stock now after it has weathered the worst of the economic downturn. Notable achievements over the past few months include:
- The announcement of the first-ever cash dividend to SBUX stock owners.
- Gains of about 220% in Starbucks shares since the 2009 lows, from $8.24 on March 9, 2009, to the mid-$26 range today.
- Four straight earnings reports topping Wall Street forecasts, with an average earnings surprise of almost 20%.
But despite these strides, SBUX stock is still down about 33% from its 2006 peak at about $40 a share. And the coffee marketplace has become increasingly crowded in the intervening years, so returning to its lofty perch is no easy task. Post continues after video:
In a few months, Burger King will begin partnering with Starbucks on a coffee line. That’s to say nothing of privately held Dunkin’ Donuts and its Coolata iced coffees and a host of others.
But the Frappuccino -- a drink created by Starbucks 15 years ago by mixing a frappe and a cappuccino -- is still a mainstay that has consistently delivered for Starbucks. Experts estimate the drinks make up 20% of sales at Starbucks locations.Starbucks thinks it can increase that share even more by offering customization of Frappucinos for customers, including substituting soy milk or adding an extra shot of espresso. There are also interesting new flavor combinations including the weird and exotic. Though it sounds a bit odd, many Asia markets now sell a Red Bean Frappuccino and Black Sesame Frappuccinos are being introduced in China this summer.
Then there’s the out-of-store changes for the summer. These offerings include bottled Vanilla Frappuccino Light, a drink you can buy in your local convenience store instead of making a trip to your local Starbucks. Or two Frappuccino-flavored ice creams: Starbucks Vanilla Bean Frappuccino and Starbucks Strawberries and Creme Frappuccino, both of which will be available in national grocery chains this summer.
This is an ambitious seasonal focus for Starbucks, but the real question for investors is whether this summer menu will work. Starbucks just released higher-than-expected earnings last week and is clearly hoping to keep things up with summer drink sales. Its $217.3 million in profits, or earnings of 28 cents per share on revenue of $2.13 billion for its fiscal second quarter, could just be the starting point of another big run for shares if the summer goes well.
But if its Frappuccinos fall flat, SBUX could find investor confidence melting like a scoop of coffee-flavored ice cream left out in the hot summer sun.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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