Starbucks really is evolving

Here's why Evolution Fresh could go far beyond a "juice bar."

By Motley Fool Pick of the Day Mar 20, 2012 2:18PM

By Alyce Lomax


Starbucks (SBUX) is opening its first Evolution Fresh juice bar in Seattle. Shareholders are likely pleased with this progress, but there's a lot more to the growth story than meets the eye. From first reports of the juice bar, Starbucks really is evolving in a bold way that has nothing to do with coffee.


A healthy revolution
The Evolution Fresh brand (previously only available in a few stores like Whole Foods Market (WFM)) takes juicing to a whole new level of healthiness. Upon acquisition of the concept, it became clear that Starbucks was taking on one of the few "true juiceries" left out there. Its high-pressure processing means its juices are never heated, so they boast a more artisanal air, retaining more vitamins and nutrients than other juices.


Jamba Juice (JMBA) executives claim they're not worried despite the fact that they recently launched a new line of all-natural juice blends, but maybe they should be. From coverage so far, Evolution Fresh is squeezing the health revolution to a far more extreme and authentic level.


USA Today got a sneak peek at the debut Evolution Fresh juice bar concept. It described the store as akin to an upscale health food shop; no artificial colors, preservatives, or additives will sully the healthful merchandise offered. All juices are customized for patrons. "Juice partners" will serve the mixtures to order and will be knowledgeable about the health benefits of the concoctions they're blending.


Squeezing past juice
The revolution goes beyond juice. Evolution Fresh offers more vegan and vegetarian options on its menu than meat-based ones. In other words, it's not just targeting the $50 billion health and wellness category with juices. It's offering options for emerging dietary trends, which have been largely underserved by conventional mainstream companies with the exception of healthy food-related innovators like Whole Foods. (Whole Foods dedicates an entire page of its website to maximizing the vegetarian diet, in fact.)


Last summer, the Vegetarian Resource Group said the number of vegetarians has doubled since 1994; there are now 7 million vegetarians in the U.S., or about 3% of the population. The number of individuals adhering to the vegan dietary lifestyle is increasing even more rapidly, with about one-third of vegetarians actually identified as vegans. The trend may continue; Harvard Medical School recently put out word that red-meat-heavy diets increase the risks of cancer, heart issues, and death.


Risks worth taking
Starbucks and Whole Foods Market both reside as purchases in the Rising Star portfolio I'm managing for; with current returns of 33% and 38%, respectively, they're doing well by doing good.


Many investors get jazzed about Starbucks' forays into highly populated countries like China. Its recent entry into the single-serve brewer category, currently mastered by Green Mountain Coffee Roasters (GMCR), has brewed up positive sentiment too. Starbucks has far more avenues for potential growth, making it a far stronger stock than Green Mountain, and could certainly kick its rival in the beans with its diversified channels. I'd rather pay 23 times forward earnings for Starbucks than 14 times forward earnings for Green Mountain at this point in the companies' histories.


Even better, the early indications about the Evolution Fresh concept sound like an amazing ancillary opportunity for Starbucks. Even if Evolution Fresh will never emulate the "Starbucks on every corner" model, this extra business is a non-coffee-centric risk well worth taking.


Alyce Lomax owns shares of Starbucks and Whole Foods Market. The Motley Fool owns shares of Starbucks and Whole Foods Market. Motley Fool newsletter services have recommended buying shares of Whole Foods Market, Starbucks, and Green Mountain Coffee Roasters. Motley Fool newsletter services have recommended writing covered calls on Starbucks. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain Coffee Roasters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.



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