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How Starbucks' Focus on Plant-Based Foods Will Drive Revenue

By Jennifer Saibil – Jun 28, 2020 at 12:37PM

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The coffee company's sustainability efforts aren't just good for the environment.

Starbucks (SBUX -1.24%) is finally bringing plant-based meats to U.S. stores after serving the products in other global markets. This follows the company's move toward plant-based milks and other actions to promote sustainability. 

Starbucks is taking a bit of a break from revenue growth due to COVID-19, but it hasn't stopped releasing new products and adapting to changing customer habits. These are traits that will serve it well in the long term.

A pledge to sustainability

Starbucks says that it has been committed to ethical sourcing since it was founded in 1971. According to its most recent sustainability report, released on Wednesday, more than 99% of its coffees and teas are ethically sourced. Starbucks has also piloted several reusable cup programs that it plans to replicate.

Three women wearing Starbucks' green community service t-shirts pose with agricultural tools on a farm.

Image source: Starbucks.

Starbucks started focusing on renewable energy when it created a "Green Team" in 1994 to analyze the impact of climate change, and it has since moved toward offering plant-based products. Soy milk has been on the Starbucks menu since 1997, coconut milk came onto the scene in 2015, and almond milk followed in 2016.

The most recent addition to the Starbucks sustainability commitment is a menu that features plant-based meats. While the company has partnerships with Beyond Meat in Canada and China, it has teamed up with Impossible Foods to introduce the Impossible Breakfast Sandwich to U.S. markets for the summer menu. According to Impossible Foods, the sandwich features plant-based sausage, cheddar cheese, and a cage-free fried egg.

Beyond benefiting the environment, these decisions further the company's engagement with its customers. Starbucks has long marketed itself as connecting with customers and their values instead of simply being a place to buy a coffee. This focus on values bolsters Starbucks' mission to be the primary place where people get together outside of home and work. The company can use this emphasis on values to keep customers even if COVID-19 means Starbucks' physical locations are closed.  

An upcoming retail trend

Plant-based food sales are growing significantly compared to the rest of the food market. Starbucks quoted data from the Plant Based Foods Association and The Good Food Institute showing that the plant-based retail market grew 29% over the past two years to a current $5 billion value. For context, the broader food market grew 2.2% in 2019. Plant-based milks, which make up close to half of the total plant-based food market, and plant-based meat sales, which have increased 38% over the past two years, are driving the movement. 

According to the Plant Based Foods Association, plant-based meat sales have grown 18.4% over the past year, versus 2.7% for regular meat. Plant-based milk sales grew 5%, while regular milk sales grew 0.1%.

Beyond Meat has benefited from this trend with outsized growth. Sales grew 141% in the first quarter of 2020 and more than 200% in the fourth quarter of 2019.

Now, Starbucks will use plant-based meat to grow revenue and complement its sustainability efforts.

Moving into new spaces

More broadly, Starbucks' adoption of plant-based meats reflects its ability to move into new spaces. If we view Starbucks only as a coffeehouse, its opportunities are limited. But if it can pivot to meet changing tastes and behaviors successfully, it has a much better chance at growing revenue for a long time.

That potential, though, hinges on the word "successful." Starbucks previously tried its luck with Tazo Teas, for example, but it sold the brand to Unilever in 2017.

New ventures may not always be successful, but a company can only grow if it takes chances and risks failure. Starbucks isn't waiting until it needs new products; it's investing in innovation while it still maintains strong sales and has the cash to do so. That's the hallmark of a company that you want to invest in.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks and Unilever. The Motley Fool recommends Beyond Meat, Inc. The Motley Fool has a disclosure policy.

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