On Monday, Starbucks (NASDAQ:SBUX) added to its already encyclopedic menu with the announcement of two new cold drink lines. The company will start selling handmade sodas and an expanded selection of iced teas Tuesday. The sodas come in three different flavors, which Starbucks tested in a few locations last year. Soon, root beer, ginger ale, and lemon ale and will available in 15 of our hottest states. The tea expansion will include some summer favorites as well as the extravagantly named Blackberry Mojito Tea Lemonade.
Starbucks is just the most recent entrant into the soda world. Its move should come as very little surprise to investors who have watched as Keurig Green Mountain (UNKNOWN:GMCR.DL) has made new inroads into beverages. Keurig recently joined up with Coca Cola (NYSE:KO) to offer customers do-it-yourself Coke products through the Keurig Cold line, which has yet to be rolled out. The push to gain a foothold in the soda world is on, and Starbucks could help make Keurig's efforts even more successful.
The power of Starbucks
In 2001 the U.S. imported 1.16 million metric tons of coffee. By 2013, that figure had risen to 1.42 million metric tons. That's a 22% increase in imported coffee beans, driven by the demand that Starbucks has helped generate. Much of that new coffee is specialty coffee, which is Starbucks' stock-in-trade. In 1999, specialty coffee sales were just over $10 billion -- in 2013, they were closer to $15 billion.
Starbucks didn't make coffee an American thing, but the company did make it something that we take personal pride in. Customers started caring more about the content of their coffee, the coffee's source, and the quality of the final product. Coffee became something that we paid attention to instead of just something that we consumed.
The introduction of Starbucks soda is an opportunity for that sort of change to come along again. Americans already down over 40 gallons of soda a year, on average. That's actually down from 1998, when we were polishing off 58 gallons apiece. That's close to a two-liter every day and a half.
As we've become slightly more health-conscious, we've pared back our consumption. Starbucks and Keurig are betting that the drop in consumption might help fuel an increase in concern for quality. If we're only letting ourselves drink soda sometimes -- like every hour instead of every 45 minutes -- we might want to be drinking the good stuff. Starbucks successfully powered our demand for better coffee, and now it's trying to do the same thing for soda and tea.
Keurig, Coke, and Starbucks together
Instead of fighting Keurig Green Mountain, Starbucks seems to have decided that it's easier to play along. Starbucks released its own single-serve coffee brewer, but it was unable to make a real dent in Keurig's sales. Keurig's tight lock on the market led Starbucks to renew its contract with the company and increase the availability of Starbucks K-Cup offerings earlier this year. The push into soda might be part of that continuing joint effort, as Starbucks might be developing the soda line with an eye toward eventually working with the Keurig Cold system.
Regardless of the underlying drivers, it looks like Starbucks and Keurig are both going to get something out of this. For Starbucks, soda should help drive customers into the store during the middle of the day, when the company has a lull in traffic. Starbucks said that the products were a "perfect complement to what we've done with our lunch program with foods."
For the Keurig and Coke venture, the introduction of Starbucks' higher-end soda should help drive interest in non-generic soda, which could equate to more interest in the "brew your own" movement that Keurig is pushing.
The final option is that people drink Coke, will continue drinking Coke, and don't really care about a few cents here and there for the convenience of a can or bottle. If that's the case, then Starbucks might only see a small uptick in lunch beverage interest and Keurig might just have to keep relying on its coffee business. However, I think there's more to it, and I think Starbucks is going to help get the public excited about better soda.