Starbucks (NASDAQ:SBUX) has purchased upscale juice maker Evolution Fresh for $30 million in a deal that shows the coffee chain to be serious about transforming itself into a consumer products player with a large presence outside its own stores.
Evolution Fresh juice is already carried on the West Coast in grocery stories like Safeway (NYSE:SWY), Costco (NASDAQ:CSCO), and Whole Foods (NASDAQ:WFM). Starbucks plans to extend the brand to more retailers, including its own cafes, and next year will open juice bars that sell the Evolution Fresh brand as well as other health foods.
Evolution Fresh juices will replace PepsiCo’s (NYSE:PEP) Naked brand juices in Starbucks coffee shops, while the planned juice bars will pose a threat to Jamba Juice (NASDAQ:JMBA), which currently has 752 juice bars across the United States. Starbucks has declined to say how many juice bars it plans to open.
In response to the impending threat posed by Starbucks, Jamba CEO James White said, “We will continue to accelerate our product innovation and, while we welcome new entrants to the marketplace, we will adjust our strategy as needed.”
Starbucks hopes its nascent consumer products business will one day rival its coffees hops in sales. However, that prospect is at least a few years away, as cafes accounted for 82% of $11.7 billion in fiscal 2011 sales.
Starbucks’ consumer products business unit, led by Jeff Hansberry, an industry veteran who has established himself selling everything from Hawaiian Punch to gin, posted $1 billion in fiscal 2011 revenue, accounting for 9% of total revenue, up from 8% last year. The consumer business will one day be “a significant driver of revenue and profit that will be highly complementary to our retail strategy,” said CEO Howard Schultz in an interview this week.
In January, the company dropped the words “Starbucks coffee” from its logo while making the siren figure larger, signaling that the company would no longer be just about coffee. The company has already brought strategy, distribution, and marketing of products — all historically outsourced to other companies — in house. In March, Starbucks took over sales of its bagged coffee in supermarkets from Kraft (NYSE:KFT).
Though Hansberry admits he has more experience launching new brands than working with acquisitions, he expects to do a number of deals like Evolution. “We have to balance growth while also protecting the heart and soul of Starbucks,” he said. Only with the company a year, Hansberry’s team of executives has grown to 100, from 25, with half of them having been recruited from outside the company from consumer products companies like P&G (NYSE:PG), Kimberly-Clark, and Nestlé.
Schulze says his company’s business model will help it succeed where others have failed, as it can test new products in its stores before introducing them to supermarkets, as it did in 2009 with Via instant coffee, which is now sold in more than 70,000 outlets around the world and made $250 million in sales this year.
Hansberry says the ability to try out products in coffee shops, which are frequented by 60 million customers each week, is the equivalent of airing a commercial on the top three television shows weekly. That means the company won’t have to spend as much money on traditional marketing as other food manufacturers, eliminating a large part of the financial risk of expansion, while Starbucks will also be able to target an audience of already loyal customers.