Yogurt for breakfast is good. Coffee for breakfast is good. Yogurt-coffee might be crossing a hidden line, though. Thankfully, that's apparently not what Starbucks (NASDAQ:SBUX) and Danone (NASDAQOTH:DANOY) had in mind when they recently announced a plan to release yogurt together starting in 2014. The companies both get a benefit from the agreement, with Danone using Starbucks to get more exposure in the American market, while Starbucks gets another arrow in its food-quiver.
Starbucks has been pushing for more food income for the past year, and this is just one small step on its long road. The long-term plan for Starbucks is to gain a bigger foothold in the lucrative U.S. food market and help it compete with other cafes like Panera (NASDAQ:PNRA.DL) and McDonald's (NYSE:MCD). Based on those goals, things are looking good for the coffee retailer.
Europe vs. America
In a presentation the company gave earlier this year, Starbucks illustrated the value that food can bring to its American business. The company presented a chart showing food sales as a portion of total store sales. On the high end, with 28% of sales attributed to food, sits France. On the low, with only 10%, China. Right smack in the middle, with 19% of sales from food, is the U.S.
That ties nicely into the difference in yogurt sales between the two continents, as well. In Europe, the per capita consumption of yogurt is substantially higher, with Americans consuming about a third of what Europeans eat. That gives Danone a reason to support Starbucks in its quest. On top of the existing potential, Greek-style yogurt -- which the two companies will be selling -- is growing quickly in popularity, and now makes up 40% of U.S. consumption. Not only will Starbucks be selling an underrepresented product, but a growing underrepresented product.
The challenge for Starbucks
Americans still see Starbucks as a place to get a cup of coffee, but not a place to get a bite to eat. Panera is the current go-to location for a bite and a drink. It has managed to walk the fine line between bakery and cafe, and has seen sales rise at a steady clip due to that acrobatic trick. The business grew comparable sales by 3.3% year over year in the first quarter.
Meanwhile, McDonald's has continued to stall out. In its latest earnings report, the burger chain reported a lackluster 2.4% increase in quarterly earnings, year over year. While there are many potential reasons for the stall, one is that the business is no longer in touch with what Americans are looking for -- fresher food. That's something that Panera and Starbucks have been pushing, and both businesses have had success with their fresh lines.
For Starbucks, the challenge now is to differentiate itself from Panera. If it wants to compete, it needs to find a way to do so while still being Starbucks. Part of that differentiation can come from exclusive offerings, like the upcoming yogurts from Danone, but the company will need to do more. Food is going to be the next big thing for Starbucks, but in order to do it right, it needs to make it Starbucks food, not just food that came from Starbucks.
Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends McDonald's, Panera Bread, and Starbucks. The Motley Fool owns shares of McDonald's, Panera Bread, and 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.
More from The Motley Fool
Fast-Food Stocks: What to Watch in 2018
These are the factors that could determine whether some of the biggest industry players beat the market this year.
3 Ways to Invest in This Huge Restaurant Trend
Mobile payments are exploding in the restaurant industry, making it more convenient than ever to order and pay for food. Here are three of the best ways to capitalize on this trend.
Forget Starbucks: Here Are 2 Better Dividend Stocks
Investors should consider buying shares in these two companies that also supply food and drink.