Is Jamba the Next Starbucks?

I bought into Jamba Juice parent Jamba (Nasdaq: JMBA  ) shortly after it went public, hoping that I was getting in on the next Starbucks (Nasdaq: SBUX  ) .

I guess I should be careful what I wish for.

Now that Starbucks has been humbled -- despite the return of founder Howard Schultz as CEO -- I'm starting to see some painful similarities between the two companies.

  • Both stocks have shed more than half of their value since peaking two years ago.
  • Both companies have scaled back once-lofty expansion plans.
  • Each chain dominated a high-margin beverage niche that is now overrun with cutthroat alternatives.

Being called the next Starbucks has gone from a compliment to a warning shot, and Jamba has earned the flare.

The rise and fall of premium beverages
You know the Starbucks story. The company was on top of the world, but these days you can get a quality cup of premium coffee at nearly every fast-food chain or convenience store. Expanding into breakfast sandwiches was an aromatic blunder. Investors are now paying the price for a company whose competition simply caught up.

You're starting to see that in Jamba's smoothie stronghold.

Summer is coming, and with it Jamba's seasonally strongest period. A refreshing fruit beverage hits the spot on a warm day. Unfortunately, Jamba isn't the only one concocting fruity ways to cool you down.

McDonald's (NYSE: MCD  ) has been proposing smoothies as an upsell beverage. Starbucks has been testing protein smoothies. Even Cold Stone Creamery, the pig-out haven for lovers of fatty ice cream, is rolling out signature smoothies that start at just 160 calories.

My head turned as I passed Taco Bell yesterday. Yum Brands' (NYSE: YUM  ) Mexican food chain is now selling mango and strawberry Frutista Freeze drinks. Technically, they're not smoothies. They are more like fruity Slurpees. However, if cooling off with icy beverages is what drives Jamba's summer traffic, it now has to compete with more than just 7-Eleven and Burger King (NYSE: BKC  ) for the brain-freeze market. Wendy's (NYSE: WEN  ) is now offering milkshakes. Sonic (Nasdaq: SONC  ) is even offering half-priced beverages during its Happy Hour promotion.

Set your blenders to stun
Jamba isn't standing still. It's trying to broaden its reach with granola-topped breakfast smoothies and new food items. It's either not enough or it's the wrong stuff entirely. The company announced layoffs and store closings last week, setting an ominous tone as it heads into next week's quarterly earnings report.  

I should sell. I should move on. However, I have yet to have a better smoothie. I still want to see how recent retail distribution initiatives play out. The company is the golden brand in smoothies, and I would like to think the stock might get so cheap that a larger quick-service or beverage chain might just buy Jamba as a platform for its own push into smoothies.

Starbucks? McDonald's? If you think that the Jamba Juice-within-a-store concept can help maximize your sales, have your people call their people. Blender operators are standing by.

Until then, I'll take my lumps. I am fully aware that the summer season that Jamba once owned will be brutally shared by many this year. Oh what a cruel, crowded summer this will be.

Starbucks is a recommendation in both the Motley Fool Stock Advisor and Inside Value research newsletter services. Now is a great time to check out either service with a 30-day free trial subscription. The Fool owns shares of Starbucks.

Longtime Fool contributor Rick Munarriz is a fan of Strawberries Wild and Orange Dream Machine at his local Jamba Juice. He had one on Tuesday, actually. He does own shares in Jamba. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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