Starbucks may push into snacks

The launch of instant coffee Via is only the beginning of an ambitious (but vague) product line for retailers.

By InvestorPlace Apr 30, 2010 9:26AM

That green Starbucks (SBUX) mermaid has long been a staple of cityscapes, airports and strip malls -- but if executives at the coffee company have their way, the logo will become just as prevalent on the shelves of your local grocery store.


Starbucks is making a concerted push into the staples retail marketplace -- starting with a new summer strategy that includes new ice cream flavors. (Check out the complete Starbucks summer menu here!)


Though some stores already carry the company’s coffee beans, this is just the beginning of an ambitious line of products across the next year or two that will put the company’s name on a variety of other foods consumers crave.


The first real product push will come from Starbucks’ Via instant coffee. So far, the drink is sold mostly in the company’s coffee shops, but soon it will be featured in tens of thousands of supermarkets and other retailers. Executives are mum on the next big thing out of the gate for Starbucks, but promise there will be a "pipeline" of new products across the next 12 to 18 months that will follow Via's launch.


So what could those new offerings be? Nobody knows for sure, but here are four logical ideas:


Breakfast pastries: Scones, muffins and Danishes are all offered at Starbucks coffee shops, and they’re a logical addition to the retail marketplace. Coffee is big at breakfast, and here’s where the Starbucks name could pull some weight.


Coffee add-ons: How about Starbucks-brand coffee creamer, or flavor syrups to dress up your coffee at home? All the company would need to do is create the right packaging since the products are likely on hand. This is a no-brainer for Starbucks.


Chocolate indulgences: Of course, we all know that chocolate and coffee are a much better pairing. Starbucks could get consumers’ mouths watering with chocolate covered espresso beans, coffee and toffee cookies or a chocolate cake with Starbucks mocha icing.


Smoothies and non-coffee drinks: Starbucks might find that its name resonates in the beverage market even outside coffee. Bottled strawberry banana smoothies or iced teas could be a hit. That is, as long as they please the palate.


Grocery products presently account for nearly 10% of Starbucks' sales. But recognizable restaurants like privately held TGI Friday’s have proven that there is substantial cash to be made in grocery stores with pre-made foodstuffs.


Starbucks' stock has seen decent performance in recent months, from the announcement of the first-ever cash dividend to SBUX stock owners to four straight earnings reports topping Wall Street forecasts by an average of almost 20%. Then there’s a potentially profitable partnership with Burger King (BKC) to sell a Starbucks coffee line at Burger King locations.


If the company wants to keep that momentum up, going retail seems like a good idea.

 

The transition to the supermarket represents a significant shift for Starbucks. Its retail efforts in the past on coffee required joint ventures with established consumer-goods brands. For instance, PepsiCo (PEP) plays a large role in the bottling and distribution of those Starbucks Frappucinos you see in convenience store fridges. But for Via, it is getting into the distribution game for the first time.


This could really result in bigger profits, but it’s also a strategy that could blow up in the company’s face if it makes a misstep. And with investors now salivating over the next Starbucks product offering, any distribution troubles would not just be bad for Via sales in the near term but gum up that mysterious product pipeline that execs are so hush hush over.


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