Starbucks' Latest Venture Promises Big Growth

Starbucks (NASDAQ: SBUX  ) , the world's most popular coffee chain, is joining forces with Danone  (NASDAQOTH: DANOY  ) to create an exclusive yogurt line called "Evolution Fresh, Inspired by Dannon." The line of co-branded yogurts will be sold in U.S. Starbucks locations as soon as next year, and will reach grocery store shelves by 2015.

So what?
This partnership is important for a number of reasons. For Starbucks it's another way for the coffee chain to attract more customers throughout the day, in addition to its loyal morning crowds. In 2011, Starbucks scooped up Evolution Fresh, a premium juice brand, for $30 million. This together with the company's 2012 acquisition of La Boulange Bakery is helping Starbucks diversify its brand into the consumer packaged goods space.

Not to mention, the deal opens the door for Starbucks in the multibillion-dollar yogurt industry. Market research firm Packaged Facts says yogurt sales totaled more than $7 billion in the U.S. last year. As a snack, yogurt is a perfect fit for Starbucks, whose brand has come to embody health and wellness. Not only does this help Starbucks expand into a new product category, but it should also be a win for the company down the road once its Evolution Fresh beverage and yogurt products are selling in grocery stores.

There are also clear advantages for Danone, the French dairy company that's on the other end of this deal. In fact, it was Franck Riboud, Danone's chief executive, who first reached out to Starbucks CEO Howard Schultz about a possible collaboration with the java giant. While financial terms of the deal were not released, an obvious benefit for Danone is that its products will now be sold at thousands of Starbucks locations across the country.

Starbucks' massive distribution network should help Danone make a comeback in the U.S., where its products currently compete with deep-pocketed rivals, such as General Mills'  (NYSE: GIS  ) Yoplait. While Danone currently holds the largest share in the overall yogurt market, it ranks behind General Mills in the fast-growing Greek yogurt category: Yoplait now has a 24% share of the Greek yogurt market, according to Euromonitor. It's not surprising, then, that the first Evolution Fresh, Inspired by Dannon product will be a Greek yogurt parfait.

Strategic partnerships such as this should pay off for Starbucks down the road as it continues to expand into new markets and product categories. For investors, this could mean more upside in the stock. Shares of Starbucks are up more than 27% on the year, and the stock currently trades at around $66 a share.

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Related Tickers

9/30/2014 4:00 PM
DANOY $13.40 Up +0.12 +0.87%
Groupe Danone (ADR… CAPS Rating: ***
SBUX $75.46 Up +0.19 +0.25%
Starbucks CAPS Rating: ****
GIS $50.45 Down -0.18 -0.36%
General Mills, Inc… CAPS Rating: ****

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