Starbucks CEO Howard Schultz has enthused about the firm’s first incursions into carbonated soft drinks, in comments that contrast sharply with the US gloom pervading a category dominated by Coke, Pepsi and Dr Pepper.
The multinational reported Q1 2014 sales of $4.2bn (+12% year on year), with consolidated operating income up 29% to $814m, with growth in all three core territories: Americas and the US (+5%) China/Asia Pacific (+8%) and EMEA (5%).
Discussing Starbucks’ in-store innovation, Schultz identified “premium hand-crafted, cold-carbonated beverages” as products that could drive food attachment a key area of interest and innovation for the multinational, after successful tests in Atlanta, Austin, Japan and Singapore.
This despite a Euromonitor International prediction that CSD volume sales in the US will fall 1% overall from 2013-2017, and a prognostication that their long-term future is 'bleak' given consumer health concerns.
“This category is by far the fastest-growing segment of the $140bn global carbonation industry. And results of tests we conducted in stores in select US and Asian markets last summer exceeded our most optimistic expectations,” Schultz told investors and analysts, with Starbucks set to strike out into the category despite the US soda sales decline accelerating since 2011.
“The excitement created as barristas carbonated our customers’ favorite drinks and the fantastic innovation and interaction that followed, cemented our interest in the category, and the opportunity to elevate the cold carbonation category with a premium hand-crafted offering in our stores,” he said, noting that it could drive food attachment.
Big dreams for brands like Evolution Fresh?
Starbucks has moved beyond its core coffee proposition, buying high-end tea retail business Teavana for $670m in November 2013 and juice brand Evolution Fresh ($30m) in November 2011.
David Palmer, an analyst at RBC Capital Markets asked Schultz about the coffee giant’s plans for these brands; Evolution Fresh targets the $1.6bn+ super premium juice category with cold pressed, high-pressure processed (HPP) range, and launched nationwide in Whole Foods Market last August.
The opening of a new 140,000 gallon/week juicery last October is expected to quadruple Evolution Fresh volumes, and unlock consumer packaged goods (CPG) expansion, and Palmer asked: “I would suspect that you have big dreams for brands likes Evolution Fresh and where that could go. I just wanted to get a sense of those dreams and the timing?”
Was Starbucks planning a big push beyond coffee via its channel development business (grocery, airports, hotels, club and C-stores) with a corresponding uptick in the marketing budget? the analyst added.
“I wouldn’t expect an immediate change in any immediate quarter right in front of us, but we are progressing with the rollout of Evolution Fresh across the country, sold within Starbucks stores but as we grow building that distribution into the CPG channel. That will continue,” Schultz said.
Teavana promises ‘breakthrough innovation’
Claiming a solid Q1 2014 for Teavana, which currently commands less than 1% of group sales, Schultz said the brand had great prospects in the channel development business but first aimed to hit targets as a standalone tea business at store level, while teas will also be brought into Starbucks’ system.
“A year after the acquisition of Teavana we are more convinced than ever that we have the opportunity to transform the tea category the way we have transformed coffee all around the world,” he added.
Schultz said recent research confirmed that Teavana commands the highest level of awareness of any super-premium tea brand, and Starbucks is poised to open more Teavana stores after the success of two initial tea bars in NYC and Seattle.
“These two new stores are already providing us with tea insights that will help us hit our goal of combining and leveraging Teavana’s authority around loose leaf tea and tea merchandising,” he said.
Schultz said Starbucks aimed to create a new retail platform around ‘handmade tea’ and a “unique international teahouse experience”.
“Look for Tevana to bring breakthrough innovation to the tea category in the US and Canada this spring and summer, and to international markets in the years ahead,” he said.
(Above Photo: AAJHR/Flickr)