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Should Investors Still Snack on Starbucks?

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Starbucks (NASDAQ: SBUX  ) continues to dilute its marketing message, moving away from its roots as a coffee shop and toward becoming a broader food and beverage maker. A month after partnering with yogurt maker Danone to produce a Greek-style yogurt, the java slinger will launch snack bars and fruit pouches under its Evolution Fresh brand that it acquired in 2011.

Obviously this has been an ongoing process for Starbucks, which is adding more food items to its menu over time. And snacks are a smart place to go, as they continue to be a growth market, fueling the rise of the likes of Kellogg, which purchased the Pringles chips brand last year, and Mondelez, the global snack company. In fact, snacks are where billionaire investor Nelson Peltz thinks PepsiCo should be heading. He believes the beverage company should calve off its drinks business and focus solely on the Frito-Lay snacks division -- perhaps even acquire Mondelez in the process -- since that line has enjoyed expanding volumes for years.

Now the introduction of Starbucks snack bars and fruit pouches isn't quite so grandiose as all that, but it could be a way to incrementally add to its bottom line. That seems to be what the coffee maker is most concerned with these days, going off on tangents that have the potential to pad profits. It even raised its prices this summer, although its own costs for coffee fell.

Using several of the acquisitions it's made over the years, Starbucks has been edging out other branded products in favor of those of its own. As the Associated Press reported, its Evolution Fresh juices have replaced Pepsi's Naked Juice, while La Boulange, the small San Francisco bakery and cafe Starbucks acquired for $100 million last year, provides baked goods to all 17,000 of its coffee shops.

So Starbucks no longer is just about coffee, though naturally that will continue to be the centerpiece of its business. Yet investors may need to think about how they value the business going forward and start treating it more like a packaged foods company and less as a beverage operation. With Evolution Fresh's growing prominence, it may soon be seen as a rival to Campbell Soup's Bolthouse Farms as well as Pepsi's Naked brand or Coca-Cola's Odwalla juices, a brand that also makes nutritional snack bars.

Food accounted for 19% of Starbucks' revenues in fiscal 2012, much the same as it has all along, but these new initiatives speak to a desire to make that number grow while keeping the bottom line intact. I'm still unconvinced this mixed message is right for Starbucks, but tell me in the comments section below whether you think adding more food, snacks, and other items that aren't coffee is the direction it should be headed in.

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9/30/2016 4:00 PM
SBUX $54.14 Up +0.70 +1.31%
Starbucks CAPS Rating: ****