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[14 comments]

Starbucks Shopping for CPGs

December 2, 2010

By George Anderson

With thousands of locations in the U.S., there is no question that Starbucks is all "stored up" here, so where does the company turn for domestic growth? To other companies' stores, of course.

The coffee giant, which is currently wrangling with Kraft Foods to take over distribution of its whole bean and ground coffee in food stores, sees an opportunity for growth by bringing Starbucks and other brands such as Seattle's Best and Tazo Tea to consumers in other outlets. The company made clear its intentions at a recent analyst conference.

"There's no question inorganic growth will be a bigger part of our next 10 years than it has been of our previous 10 years," Troy Alstead said during the event.

Acquisitions could include brands "close to what we're about" and others seen as being complementary to coffee, Mr. Alstead said.

A report by Stifel, Nicolaus & Co. suggested Peet's as a possible takeover target. "When Starbucks and Kraft part ways, Peet's could be a nice fit to deliver Starbucks into the distribution business," the Toronto Star quoted the report.

The two companies have a shared history, with several of the original Starbucks stores having been sold to the chain's founders by Peet's. The company also sold coffee to Starbucks when it first opened.

Another possible acquisition, suggested in The Seattle Times report, was Dean Foods. The company is the largest distributor of milk, creamer and cultured dairy products in the U.S. The company's stock has not been performing well and is near its 52-week low.

"The big theme was that this company is in transition, becoming a global consumer-products company that was a specialty retailer," Jack Russo, an analyst for Edward Jones, told the Seattle paper.

Discussion Questions: Is Starbucks on the right track by looking to grow through CPG brand acquisitions? Do you see Starbucks becoming more like a CPG company, by nature?

Discussion Questions:

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Is Starbucks on the right track by looking to grow through CPG brand acquisitions? 

Comments:

Starbucks has done a good job balancing its focus on better-operating stores with expansion opportunities outside its core business, and its shareholders have been rewarded in the past year. (The growth of Seattle's Best to other fast-food outlets and the strong sales of Via instant coffee are two good examples.) The challenge for Starbucks, as it considers a broader portfolio of CPG brands, is twofold: First, is there synergy between the new brands and the core beverage business? Second, can Starbucks manage new businesses effectively at the same time that it tries to re-engineer its coffee shops to drive more productivity and comp sales? It should be an interesting process to watch over the next few years.

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Dick Seesel, Principal, Retailing In Focus LLC

Acquiring and running a CPG company would be a HUGE mistake, expanding on the store/retail/convenient distribution would be a great idea. It would be complementary, while trying to run a CPG company would be a complete lack of focus.

Mark Johnson, President and CEO, Loyalty 360

Starbucks is a retail brand. It should run as fast and as far away as possible from the idea of becoming a CPG brand in the traditional sense.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

There are plenty of examples where manufacturers have gone direct to consumer with online and offline retail presences and have made the transition smoothly. With CPG margins typically higher than retail, and targeted CPG acquisitions already being well-oiled machines, a retailer's chances for success are fantastic!

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Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM

Starbucks has grown to become a CPG company in as much as it's a brand of coffee and a retail coffee shop chain. There are lots of opportunities for Starbucks the CPG company to expand and grow. In my opinion where I think Starbucks the CPG company needs to grow with caution is to be sure that the "company" does not kill the golden goose itself, which of course are the Starbucks coffee shops and the Starbucks brand's own image.

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David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates LLC

Enhancing the Starbucks brand with complementary brands in-store makes sense and might bundle attractive products to make the consumer affinity for their products even stronger.

That stops short of taking ownership of these related brands and getting into an entirely different aspect of the value chain.

Focus is a positive for Starbucks and they should keep their eye on the current value proposition and how it can be enhanced for consumers.

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Bill Hanifin, Managing Director, Hanifin Loyalty LLC

Buying brands might prove to be a viable expansion opportunity. However, I don't believe it would drive profits in the most beneficial manner. Starbucks has a great retail operation. An analysis of their daypart sales indicates that there is a huge opportunity beyond the breakfast daypart. There would seem to be a greater opportunity to generate sales and profits by getting existing customers to use "their" Starbucks store more than one time a day.

Ed Dennis, president, Dennis Enterprises

Can Starbucks manage a CPG brand? Well, there is no question that CPG requires different skill-sets than running a restaurant or a coffee shop. But if you hire the right people and the right management team, and develop a great strategy, I think Starbucks could do a great job. While I seem to be in the minority on this board thinking that they can execute well, I would not be so quick to write them off.

Starbucks is a company to watch, and while it is true that they have had missteps, is there anyone who truly thinks that they can't figure out selling through retail? I think this is a very interesting move for them, and for the industry.

Joel Warady, Chief Marketing Officer, Enjoy Life Foods

Having one brand available in retail outlets does not make a CPG company. Straying from the idea of its core competency would be mistake; there are many examples of that. However, is there a way to extend Starbucks' expertise in offering distinctive coffee and promoting relaxing environments for meeting others beyond their current format? Absolutely. With the innovations in pop-up stores and collaboration, there are many opportunities for expanding their reach without becoming a CPG company.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

I am joining the minority on this subject. I can see Starbucks successful within limitations. They will have to invest in management with a CPG background of success, then let them do their thing. I hope they have learned from the past missteps and will let this growth decision be managed by those who can make it happen, sans ego.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

Starbucks approach to growth and acquisition is a good strategy. While Starbucks is indeed a retailer they are also a consumer products goods marketer (coffee brands at major retailers).

Many retailers today are also effectively consumer products goods marketers when you consider their vast assortments of private label products and while I recognize that selling these goods is nearly always within their own channels, it doesn't change the dynamics of the development, purchasing marketing and logistics involved with a line(s) of consumer product goods.

I believe Starbucks will be successful in their search for growth opportunities following this strategy.

Charles P. Walsh, President, OmniQuest Resources, Inc

I think this idea has a lot going for it. Besides the obvious experience that Starbucks has had so far in its expansion into the CPG world, their expertise in coffee could take them even further. I could even speculate that another brand that could be on the market once this dust-up with Kraft is over would be Maxwell House. I can't imagine Kraft hanging onto this one brand within coffee, and a sale of that brand seems inevitable, and Starbucks could be a natural to maintain and even grow its market.

Donna Brockway, President, FutureRetail

Starbucks has managed their brand extremely well, in difficult times. Trimming store locations is painful, and developing VIA instant coffee was very well done. It makes sense to explore their options very carefully. So much of what is good about Starbucks depends on their comprehensive knowledge of their loyal core consumers, so as they consider growth possibilities, keeping consumers at the top of the list should help guide them in their search.

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Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

The Starbucks brand itself has done and is still doing well in supermarkets and other retail outlets like Costco. Costco has featured their items in their flyers and does so regularly.

Expanding into complementary brands and growing their existing brand as a retail-sold product outside of their locations is not only a good strategy, it should be an inevitable part of their strategy.

Their current disputes with Kraft should be telling as to how--and how quickly--they will grow in this area. It will be a key factor in their ability to distribute. I am not sure Kraft is the right partner. They would be much better managing and controlling this effort themselves as well as working with multiple distribution partners with a pre-existing, immediate base of retail customers. It would be a much faster method of becoming as ubiquitous of a CPG as they are with their own stores.

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