Why Starbucks’ New Fizzio Handcrafted Soda Move Is Bigger Than You Think

Starbucks is entering the soda market.

Jul 4, 2014 at 10:00AM

Fuzio
Source:  Starbucks

Nobody expects Starbucks (NASDAQ:SBUX) to suddenly start selling more soda than coffee, but every single base hit it makes will help it win the game in the long term. Starbucks prides itself on 17 quarters in a row of domestic same-store sales above 5% and the increasing bottom line that this helps it achieve. In order for that to keep going, it needs new traffic and higher monetization.

Images

Golden Ginger Ale-Source: Starbucks

A refreshing innovation
On June 23, Starbucks announced the availability of its handcrafted and made-to-order sodas at 3,000 locations in North America. The initial flavor choices are Spiced Root Beer, Golden Ginger Ale, and Lemon Ale. The root beer is flavored with cinnamon, nutmeg, clove and star anise. The ginger ale has ginger, citrus and brown sugar. And the lemon ale has a "citrus-forward blend of real lemon juice with hints of apricot and ginger." They all sound delicious!

According to the release, Starbucks hopes that customers will pair the soda with breakfast and lunch foods. Starbucks has been making a food push in recent years and 20% of its sales now come from various eats. Starbucks is even offering hot foods such as a classic three-cheese grilled cheese sandwich to bring out the kids in all of us -- or perhaps to bring the kids into Starbucks.

Ed

Spiced Root Beer-Source: Starbucks

Helping to bubble up sales
It makes sense. If kids can be tempted to drag their parents into Starbucks for a soda or a grilled cheese, the parents may buy coffee or other things too. And who wants hot coffee with a hot sandwich when it's hot out? Cold and refreshing may just work when you've been all Frappuccino'd out already.

You can see two other benefits here. First, while Starbucks has no trouble with creating a big line in the mornings, the afternoons and evenings tend to be rather quiet. Any sales, even if just a little, that can come in during these slots would be helpful. Morning profits already cover overhead for the average Starbucks so even small upticks in afternoon sales should produce large upticks in profit.

Then there is the whole "third place" theme that Starbucks goes after. Starbucks wants to be known as your third place between home and work. For those who hang out in Starbucks reading a book, surfing the Internet, or listening to music, after the coffee cup is empty most have enough of a jolt. A soda may appeal to those who are still thirsty, and let's face it, coffee can leave you parched.

Images

Lemon Ale-Source: Starbucks

Consider this
The average Starbucks does around $800,000 a year in sales. A 5% same-store increase therefore only equals $40,000. At $3 a handcrafted soda (with fizz) the soda alone could potentially boost sales by 5% with just 36 sodas a day or a single serving for every 20 minutes of a 12-hour day on average. In other words, it doesn't take many soda sales to make a big difference, at least for the first 3,000 locations.

On the profit line, which is of course the most important, you have to figure that a $3 cup of soda should have a healthy profit margin. Soda tends to be the most profitable item by percentage on a restaurant's menu, even surpassing coffee. For Starbucks, the "all in" cost of the coffee equals less than 10% of the sale.

Foolish final thoughts
More interesting than addition of soda is the symbol it represents. It represents management's creative, innovative, and effective ideas for business growth in a careful, methodical, and appealing way that more often than not -- simply works. It's exciting to watch Starbucks continue to execute its plans so well and always makes you wonder -- what other surprises does the coffee company have up its sleeve?

Leaked: This coming consumer device can change everything
Imagine the multi-billion dollar sales potential behind a product that can revolutionize the way the world shops and interacts with its favorite brands every day. Now picture one small, under-the radar company at the epicenter of this revolution that makes this all possible. And its stock price has nearly an unlimited runway ahead for early, in-the-know investors. To be one of them and hop aboard this stock before it takes off, just click here.  

Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers