What exactly is Starbucks (NASDAQ: SBUX) up to? Is it still a drink experience destination or is it pursuing recognition as a broader food and beverage brand? Analysts may view its deal with yogurt maker Danone (NASDAQOTH: DANOY) as nothing but creamy goodness, but I think it risks mixing its message too much and will end up confusing the consumer.
Blending coffee, tea, and foods is nothing really new for the java maker, and food has represented almost 20% of revenues for years. It generated almost $1.3 billion by selling its products into supermarkets and grocery stores last year, revenues that surged 50% year over year and the Greek yogurt it will be branding in conjunction with Danone will be hitting grocery store shelves in 2015 under Starbucks' Evolution Fresh brand, which it acquired in 2011.
Greek yogurt is certainly a growth market, one that accounted for just 1% of the refrigerated yogurt sales in 2007 but that has surged to more than 35% today, even as regular yogurt sales have fallen 8%. According to the folks at Nielsen, U.S. sales of Greek yogurt jumped 48% in the last 12 months, to $2.65 billion.
And it's a crowded market, too: Privately held Chobani is the dominant player, with a 42% share of the Greek yogurt market. General Mills' (NYSE: GIS) Yoplait, which is the No. 2 player in the regular yogurt market, is trying to make up for lost time and a false start in Greek yogurt so it commands a share of only 9%. Fage, which started the craze, has slipped to third place.
According to the market researchers at Datamonitor, 57% of all yogurt product launches this year have been Greek-themed, meaning by the time Starbucks' version hits the shelves, it's going to be even more saturated. Certainly, it chose a strong horse to back in Danone, whose own Dannon brand is the second-biggest Greek yogurt maker, albeit far back in the pack at around a 20% share.
But Greek yogurt still has growing pains it needs to sort out, some of which could pose a problem for Starbucks' green image. For example, there's a lot of concern over the disposal of acid whey, a by-product of the yogurt-making process that is said to contaminate the environment. And General Mills was forced to abandon its inclusion of milk protein concentrates as a thickening agent as opposed to using the more traditional straining methods while Chobani is being criticized for claiming to be GMO-free despite using milk from cows fed a GMO-laced diet.
Starbucks' decision to enter this fray suggests that it believes simply by adding its name to the roster of players already in the game it can steal some of that bottled lightning, but in addition to the challenges the market faces, it risks diluting its brand, too.
When Howard Schultz returned to the helm of his coffee shop, one of the reasons was due to the company no longer being about coffee. It was more of a fast-food store that had betrayed its roots and lost its soul. One can only surmise from the direction he's taking Starbucks these days that Schultz has chosen a Faustian path and sacrificing its soul for the promise of growth.
I see the coffee maker's future as strained as the yogurt it's going to be making.
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