Starbucks Looking to Juice Up Sales in 2012
Starbucks last week acquired juice maker Evolution Fresh Inc. for $30 million as part of a plan to launch a new chain of health and wellness stores in the coming year.
In a statement, Starbucks said it has seen success with its expanded healthier menu items on its own menu. With the acquisition, Starbucks expects to "reinvent" the $1.6 billion super-premium juice segment and mark a "significant next step" for the company in entering the larger $50 billion health and wellness sector.
"Even though this is a small acquisition in size, it’s a significant strategic decision and direction for the company," CEO Howard Schultz said on a conference call, according to USA Today. "Our intention is to reinvent this category in the same tonality that we have reinvented over the last 40 years the basic commodity of coffee. We see a lot of white space."
Starbucks said more than a year ago that it would be looking for acquisition candidates. Founded by a creator of Naked Juice, Evolution is currently carried on the West Coast in stores such as Safeway, Costco and Whole Foods. Starbucks plans to extend the brand to more retailers. It will replace PepsiCo’s Naked Juice in Starbucks’ coffee shops.
On the call, Starbucks officials said one competitive advantage is that Evolution squeezes is its own raw fruits and vegetables at its juicery in San Bernardino, CA rather than using pureed or powdered ingredients like Odwalla or Naked Juice. It also uses a process called high-pressure pasteurization to make the juice without heating it. Starbucks doesn’t plan to blend juice in the stores.
Starbucks also expects to leverage its business model, including its retail footprint, CPG grocery distribution channels, digital breadth and customer engagement expertise. Said Mr. Schultz on the call, "We feel strongly that we understand the beverage business perhaps better than anyone else who’s been in small-box retail."
By mid-2012, he says, Starbucks will test some specialty stores on the West Coast with the units about the size of a Starbucks. The stores will also carry health foods.
In response to an analyst’s question, Mr. Schultz also discounted the recent struggles of the Jamba Juice chain, which has seen soft sales as consumers have cut back on extras like blended fruit drinks. Starbucks will be creating a new store experience and he implied that Jamba Juice had lost its way.
"Jamba Juice, I think, drifted into an area of commoditizing their business and no longer standing for what the independents have done so well," Mr. Schultz said, according to The Seattle Times.
- Starbucks Acquires Evolution Fresh to Establish National Retail and Grocery Health and Wellness Brand – Starbucks
- Latest Starbucks Concoction: Juice – The Wall Street Journal
- Starbucks applies its coffee model to juice – USA Today
- Starbucks juices up its future with plan to open health stores – The Seattle Times
Discussion Questions
Discussion Questions: What do you think of Starbucks’ plan to launch a juice chain? How translatable is its coffee business model to a juice and health foods concept?
I don’t think that Mr. Schultz is yet convinced that the coffee business model is translatable exactly as is. “By mid-2012,” he says, “Starbucks will test some specialty stores on the West Coast with the units about the size of a Starbucks. The stores will also carry health foods.” My money is on Mr. Schultz to figure out the viability of the juice and health foods concept and adjust the business model to optimize the financials. He’s talking about white space in the market place. Just as a painter begins with the white space on a canvas, this successful entrepreneur will create his next masterpiece.
Starbucks has a lot of leveragable assets to deploy in support of a juice concept, ranging from real estate to its intellectual capital acquired through building and running the dominant franchise in its space. There are so many aspects in common between coffee and juice that there are only two real concerns:
1) Cannibalizing coffee with juice
2) The size of the juice business and the amount of growth it will take to materially impact SBUX earnings.
Smart move from a company that has really turned things around over the last couple years.
Starbucks was instrumental in turning a commodity product (coffee) into an “experiential” beverage. In the process, Starbucks has been able to command premium prices for its offerings. The same concept should work equally well in other areas of the beverage business, especially if Starbucks can “brand” its juice concepts with a wellness message.
Re: Starbucks launching a juice chain, anything is possible when you are steadfast in your belief that you can make it succeed after doing your due diligence work thoroughly.
Translatability of an inventive coffee business into a juice and healthy foods concept depends upon how many premium liquids the human body, even when willingly embracing trends and fashion, can absorb. So let’s drink up and watch the game being played out.
The infrastructure is there to take advantage of consumer needs for beverage — hot/cold or healthy. I think it is a smart move to expand offerings that are natural, healthy and by the way need to taste good. The “expansion” into health and wellness — selling vitamins, supplements or healthy snacks — a logical extension to their service mix. Adding Evolution Fresh product to the Starbucks cold case display generates increased profit through sales of their “house” brand vs. current selections. One day, perhaps a side by side store concept supported by drive thru service, thus extending the daypart reach for SBUX. Personally, I like to juice at home and my guess is many West Coast consumers have set a very high bar in order to satisfy their product quality and natural ingredient expectations before being willing to try the products.
Starbucks is a company that is not afraid to keep testing and apply the learnings to the next test concept. This culture will help them get it right in the juice and wellness food space. I do have concern that pricing could become inaccessible to those who need better nutrition the most. I hope they can find a way for every household to have access to fresh and nutritious food, not just the affluent.
The health/organic sector holds a lot of promise for any brand looking to get into that space, as long as it’s implemented well. Look at the success of Whole Foods, as one example. It’s an area that many consumers are not only invested in, but are passionate about, and if Starbucks does it right, it’s a good move.
One way to generate success is to hire a partner agency that has a record in launching campaigns around health and wellness for other brands. They know how to reach people, and drive engagement.
My usual disclaimer; I’m a Starbucks gold card holder and I drink an average of 2.7 Starbucks Venti Latte’s every day of my life. That said, I am firmly convinced that in as much as Starbucks aims to be a consumer products brand that reaches far beyond coffee and related foods and drinks, I am very skeptical that Starbucks as a brand will be easily marketed, or accepted, as a health related brand.
I’m just reading The Great A&P by Marc Levinson, on how an entrepreneurial tea company, founded 150 years ago evolved into the largest supermarket chain in the world, 90 years ago. (And what happened then… 😉 The Starbucks model is radically different, but similar. Starbucks hasn’t succeeded by selling coffee, but by selling the coffee EXPERIENCE.
This goes to the three components of value: intrinsic, added and creative. Intrinsic is what the product is worth from a commodity point of view; added value is functional improvement — grinding coffee, packaging, distribution, while creative value is what your brand does to the shopper in non-functional ways — “experience” in the Starbucks case. For brands, all three values are significant, but creative value is the profit driver, the other two are simply vehicles to get there.
But juice is not as addictive as coffee (fundamental physiological properties,) so it simply will not have the business zip that coffee does. Notice that tea had the same cachet and zip helping A&P. Expect modest success here, at best.
I think they are going to do quite well. While the experience of a juice store will be different from coffee, I believe they’ll get it right. I’d be very concerned if I was Jamba Juice.
Despite Jamba’s gains in the same arena, the biggest dig on them is that they ‘sold out’ as they rolled out and that much of their product is now sugared up and ‘un-healthy’. Whether or not that’s true is mostly a matter of perception, but as we all know, that’s 3/4 of reality. Bottom line: there’s market share to be had.
Starbucks is a master at taking a quality product to a mass level, and this is the same issue. If they can keep the healthy juice product as true as they’ve kept their allegiance to better coffee, there is a massive opportunity in this category.
Plus, consider the macro trends at play: Convenience and Healthy Food = win-win. Now, throw a decent price in there and you’ve got a trifecta. Starbucks will make this happen and I can’t wait.
Some sequels do well, and others fall flat. Like Grease 2 (although that’s when I fell for Michelle Pfeiffer — all men are compelled to do so at some point). Starbucks 2 could be wonderful and I hope it is. Is there a substantial “juice consumer base” out there or does Starbucks plan to create it? Are the signals they’re apparently seeing — the supposed “white space” — similar to what they saw in the coffee business? As Kroger’s ad agency account supervisor in the early 80s, I became the de facto category manager for their Spotlight brand whole bean coffee. Coffee consumption was way down and the prognosis was awful. I became a coffee snob from that experience, but I gave Starbucks little chance for success. Shows what I know.
The new juice sales in Starbucks stores and in supermarkets should be substantial enough to justify their $30 million investment. Additionally, some test locations — perhaps in some shuttered Starbucks — might be useful. The important part, it seems to me, will be their strategy for making juice consumption as experiential as coffee consumption. The health and wellness angle sounds like a good start.
If I had to put my money on who will be a winner in the juice bar chain space, and I could choose from Jamba Juice or Starbucks, Starbucks gets my money hands down. As Howard Schultz says, who knows the retail beverage market better than Starbucks? No one! All they need to do is translate what they have learned in the coffee business, and utilize it in the juice business. Jamba should be very concerned.
When it comes to CPG retail, Jamba Juice’s execution has been poor at best, and Starbucks, who now controls their own CPG destiny, will be able to capture the CPG premium juice category handily.
I agree with Anne, disagree with Herb, and agree with Lee.
I wonder how many of us are so stuck on what we order normally at SBUX that we haven’t really looked at their menu or their cases while in the store?
If so, we might realize that they are half or more there already.
And, addictive? Well, I believe that just because there’s no chemical like caffeine in juice to cause physical addiction, it doesn’t mean that “health nuts” aren’t just as psychologically addicted to the products they believe are healthy. It also doesn’t mean that SBUX might not introduce ‘energy’ type juices that include that thing that those like me crave that’s part of the coffee.
Addiction or not, I don’t underestimate SBUX’s success opportunity here. The pressure towards health is strong and getting stronger and they are tapping into that trend. Others might be wise to take a closer look.
By the way, their K-Cups were flying off the pallet display on Saturday at Costco. One box flew its way into my cart. So much for them not being able to reach other markets and channels for their products.
Fundamentally, I am not sure that a juice chain is a great addition to Starbucks. I am concerned for two reasons: (1) I believe that the juice fad has largely passed, as indicated by the troubles of Jamba Juice and the category as a whole, and (2) concern that the Starbucks brand may not be broad enough to handle juice as a stand-alone. Perhaps, juices can offer addition frequency for core customers, who are seeking some sort of variety, but stand-alone stores seem to contradict Starbucks efforts to become the “third place,” where people congregate when they are not in home or work. How can you make juices homey and inviting?
Ultimately, best customers will decide the viability of this strategy. I am not sure the juice business has enough best customers, and also not sure if Starbucks’ best customers will transition over….
Starbucks has a winner with this strategy. Of course, execution will be critical, but the concept and strategy with premium juices seems like a natural.
– Juices are a classic adjacent market, one that is fragmented with the largest players offering their product via classic CPG/Grocery channels (sounds like coffee in the 70s).
– Starbucks has both a developed global brand and global distribution system to leverage.
Add the Starbucks commitment to success and I look forward to having a healthy juice alternative to coffee and tea, let alone soda, energy drinks, premium water and more.