Starbucks pinning hopes on Via

Starbucks will aggressively expand its instant-coffee product into grocery stores this year.

By Kim Peterson Apr 23, 2010 2:39PM

Coffee shops © CorbisStarbucks (SBUX) is back on track, recently reporting a better-than-expected quarter that showed customers are returning to stores and spending more money.

Starbucks also gave us a glimpse of another weapon in its arsenal, one that could prove to be a major business driver moving forward: Via instant coffee.

We tend to crinkle our noses at the idea of instant coffee in the U.S., but the product is better received elsewhere in the world. So Starbucks is taking Via global, and recently launched it in Japan -- the world's biggest instant-coffee market.

Japan is a prize for Starbucks. The at-home coffee market there is $5 billion, and half of that is instant. There hasn't been much innovation in instant coffee there in more than 50 years, chief executive Howard Schultz said this week in the company's quarterly earnings call.

"Via has been a huge hit in Japan, and we have significantly overperformed against our sales projections," he said. "We are convinced we have a big winner with Via in Japan."

 

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Starbucks wants Via to become a billion-dollar business. That would equal about 10% of its total 2009 sales. So, focus all you want on the competition between Starbucks and McDonald's (MCD). Via, meanwhile, is blowing up.

Key to Via's success will be its placement in grocery stores, both in the U.S. and abroad. Via is only six months old, after all, and is just in the early stages of distribution. Starbucks is hoping to get Via into 30,000 locations by September.

Starbucks is pouring its energy into Via's expansion into U.S. grocery stores this year, and plans a nationwide print and broadcast advertising campaign.
Via played a key role in the increases in both sales and operating income Starbucks saw in its second quarter (which ended March 28). In the global consumer products group, total net revenue rose 4%, while operating income jumped by 8%.

Right now, Starbucks expects Via to slightly contribute to its full-year profit (the company isn't giving out specific Via numbers, however). The aggressive launch into grocery stores should only help.

Here's a little perspective on Via's potential: The global instant-coffee market is $23 billion. Only $1 billion of that comes from North America.

So look at Via's U.S. expansion this year as an experiment of sorts to see what works and what doesn't with grocery-store distribution. If Starbucks blows it in the U.S., eh, no biggie. Starbucks will take what it has learned and move into international stores, where the real money is to be made with instant coffee.

"Via is not a product or a promotion," Schultz said in the earnings call. "It is a significant new platform for the company."

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