Starbucks Expands the Reach of Its Beverage Empire Yet Again

After already proving that it's not content with just selling you a cup of coffee in the morning, Starbucks is now looking to expand its beverage empire yet again, this time with the addition of soda.

Jul 8, 2014 at 6:00PM

Over the past couple of years Starbucks (NASDAQ:SBUX) has again and again proven that it is no longer content to simply sell the world a cup of coffee every morning. Howard Schultz and the Starbucks team have clearly indicated their intent to expand hard and fast into new product categories for the world.

The most blatant example of this is Starbucks' acquisition of Teavana in November 2012 for $620 million. In the press release Schultz commented, "the tea category is ripe for reinvention and rapid growth" and "the acquisition now positions us to disrupt and lead, just as we did with espresso starting three decades ago."

Even before it eyed the $90 billion global tea industry, Starbucks pushed past coffee with its acquisition of Evolution Fresh in November 2011. Since then, Starbucks has rolled out these "super-premium juices" to more than 8,000 locations.

Now Starbucks is, no surprise here, expanding the reaches of its beverage empire yet again.


Source: Starbucks Newsroom

Starbucks looks to add a little pop to its product portfolio
On June 23, Starbucks unveiled that it would add Fizzio handcrafted sodas to its menu in states stretching from California to North Carolina on the following day. Starbucks offers the product in three flavors (spiced root beer, golden ginger ale, and lemon ale) and it contains no artificial flavors, preservatives, or high-fructose corn syrup. As expected, the soda comes at a premium price. In Atlanta, one of the select test markets, a tall goes for $2.45 while a venti sets one back $3.45.

The strategy beneath the fizz
If you're wondering why Starbucks would throw itself into the ring with the likes of Coca-Cola (NYSE:KO) and Pepsi (NYSE:PEP), which together possess an unmatched stranglehold on the soda industry, you're asking yourself the wrong question.

Another thing that we have learned about Starbucks beside its expansionist intentions is that the company continues to build an unique, exciting, and fresh culture around its brand. For many, being a customer of Starbucks has evolved into a lifestyle. Starbucks prides itself on offering fresh, high-quality, and premium products, and hundreds of thousands, if not millions, have bought into the idea.

By rolling out these handcrafted sodas Starbucks is not looking to go toe to toe with the two soda titans; instead, the company is looking to draw already-loyal customers back into the store later on in the day and further incorporate them into the Starbucks fabric. Simultaneously, potential customers who aren't the biggest fans of coffee and tea now have a reason to try out Starbucks. The "handcrafted" term in the name of this soda makes it clear that Starbucks is offering something completely different from your normal run-of-the-mill soda. 

The takeaway
In essence, Starbucks is simply putting its unique, premium spin on soda, so Coke and Pepsi should not be concerned with Starbucks encroaching on their main revenue stream. The Coke or Pepsi customer differs greatly from the Starbucks customer and they are unlikely to flip-flop anytime soon.

Instead, the soda titans should focus on the nine-year decline in US soda consumption that has begun to catch up with and overtake their price-hiking attempts.

For Starbucks, there is little downside to this strategy. In the US alone customers bought $77 billion worth of carbonated beverages last year. If the consumer response is positive enough to prompt Starbucks to roll this product out throughout its entire network of roughly 20,000 locations and counting, it is conceivable that the company could carve out a decent niche in the industry.

On a higher level, this just provides another example that Starbucks is never fully satisfied, a yearning which has consistently pushed its profit and stock price to record highs over the past couple of years. I fully expect this trend to continue, and it promises to keep investors and customers happy and coming back for more.

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Ryan Guenette has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, PepsiCo, and Starbucks. The Motley Fool owns shares of PepsiCo and Starbucks and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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