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Starbucks Makes a Big Bet on New Product Mix in 2014

By Tamara Walsh - Jan 8, 2014 at 12:04PM

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Starbucks is kicking off the new year by adding more affordable java to its menu. Is it enough to give the stock a jolt in 2014?

Starbucks (SBUX -1.73%) kicked off the new year this week with the launch of its first-ever line of VIA lattes. On Tuesday, Starbucks introduced a new Caramel Flan latte and a fresh line of Starbucks VIA Ready Brew lattes that are now available in Starbucks stores throughout the United States and Canada. Simply add water to Starbucks' new VIA Vanilla Latte and Caffe Mocha Latte packs and voila -- instant gratification. Perhaps more important, these new products underscore the wild success Starbucks has achieved with its VIA format.

A brief flashback
The java giant first launched the VIA platform of Ready Brew beverages at its U.S. stores in late 2009. By mid-2010, its VIA products had topped $100 million in global sales. By the start of 2011, VIA was the fifth-best-selling instant coffee brand by volume in the U.S., with more than 10% market share, according to AdAge.

Today, Starbucks is aggressively expanding both the product mix and distribution of its VIA platform. Its VIA Ready Brew products are now sold worldwide through a variety of channels outside of its 19,000 company-owned Starbucks locations, including grocery store chains, warehouse clubs, convenience stores, and U.S. food-service accounts.

Source: Starbucks.

This should drive significant revenue growth for Starbucks going forward, as the company continues to build out its VIA brand. On top of this, it gives Starbucks a presence in the at-home coffee market.

Caffeine in a box
With its VIA, K-Cups, and Verismo platforms, Starbucks has a stronghold on the $8 billion-and-growing single-serve coffee category these days. Moreover, the company should gain even more market share in this space as it rolls out new products to complement its recent line of VIA lattes. As it stands, Starbucks is nearing $300 million in sales from its VIA format. That's a 200% rise in sales from four years ago.

Looking ahead, Starbucks' single-serve segment, which includes its VIA platform, could see margin expansion to the tune of 40% over the next decade, according to research from Morningstar. That should be music to the ears of long-term investors. After all, expanding margins mean more profits that Starbucks can dish out to shareholders in the form of dividend payouts and buybacks.

Source: Starbucks.

At 1.1% today, Starbucks' doesn't have the highest dividend yield out there. However, unlike other dividend stocks, the king of coffee isn't finished growing. In fact, Starbucks continues to innovate both its product and retail strategies to maximize shareholder value. For that reason, Starbucks should continue to increase its dividend payout in the years ahead.

Ultimately, Starbucks is investing in an important growth avenue by adding new products to its VIA Ready Brew system. This should pay off for the company and its shareholders in the quarters to come.

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