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Starbucks Fizzio hits Southern USA: PepsiCo’s ‘next billion dollar baby’?

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By Ben Bouckley+

Last updated on 25-Jun-2014 at 15:08 GMT

Starbucks Fizzio hits USA: PepsiCo’s ‘next billion dollar baby’?

Starbucks will launch ‘handcrafted’ Fizzio soft drinks in US cafes this summer, and one analyst says the brand represents ‘potential for bubbles everywhere’ and thinks the Seattle chain and Pepsi may take it to grocery stores.

Wells Fargo Securities analyst, Bonnie Herzog welcomed Starbucks’ move to launch the platform tin around 3,070 US ‘Sunbelt’ stores and sees the CSD category (worth $415bn globally) as a significant opportunity for the Seattle giant over the next few years.

The stores in the Sunbelt (the South and Southwest of the USA) constitute around 36% of Starbucks’ company-owned US stores, and the analyst says Wells Fargo estimates the average price of a ‘grande’-sized Fizzio will be around $2.95.

Unique machine carbonates ‘finished beverages’

Finished drinks are ‘freshly’ carbonated in store and currently exist in Spiced Root Beer, Golden Ginger Ale and Lemon Ale flavors, with locally relevant flavors to follow this summer.

All the drinks will contain 100 calories or less in a 16oz (454ml) serve, with no artificial flavors, no artificial preservatives or high fructose corn syrup (HFCS).

The Fizzio machine – trialed in select Asia and US stores last summer – also allows customers to customize fizz levels or even add fizz to their beverage of choice for 50 cents.

“We believe the real opportunity for Starbucks is in expanding into new day parts as cold beverage purchases tend to reinforce food sales and vice versa,” Herzog wrote in a note yesterday.

Starbucks CEO Howard Schultz has spoken of the significant food attachment cold beverages have, she added, stressing that Fizzio could drive incremental food as well as beverage sales.

“Fizzio ultimately represents the potential for bubbles everywhere and this customizable opportunity should resonate particularly well with millennials,” Herzog wrote.

Indeed, Schultz spoke in April of the “theatre of a custom hand-crafted beverage that I am sure will be a big hit with consumers and drive traffic and incrementality during the key afternoon day part”.

Miles of US grocery aisles – Fizzio could fly!

Asking the question ‘Can Fizzio be PepsiCo’s next billion dollar baby?’, the analyst suggests Starbucks and Pepsi might stretch the brand into consumer packaged goods and the grocery aisle given their successful RTD drinks JV – the North American Coffee Partnership.

“We believe [the] successful partnership and strong execution on RTD drinks…could extend to Fizzio in the $87bn [US] CSD category,” Herzog wrote, citing Frappuccino, Double Shot and Refreshers as past successes made and distributed by Pepsi.

“Given the size of the CSD category and the strength of Starbucks’ execution, we think Fizzio could easily be a $1bn CSD brand in a few years,” she said. In January 2012 PepsiCo announced that retail sales of Starbucks RTD brands had broken the $1bn/year barrier.

“Further, Starbucks could eventually sell an at-home Fizzio machine or expand its GMCR (Green Mountain Coffee Roasters) partnership, given GMCR’s recent strategic partnership with Coke to develop an at-home Keurig Cold machine,” Herzog added.

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