Picking Up Blondes At Starbucks
Adam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
What did one Starbucks (NASDAQ: SBUX) barista say to the other when a blonde woman ordered a double non-fat soy latte? Nothing, she just made the drink, silly! Starbucks announced a strict “no dumb blonde jokes” policy last year with the release of its Blonde Roast coffee line.
Heeding customers’ complaints that Starbucks’ coffee tasted burnt, the company introduced the Blonde Roast as a lighter roast alternative to the darker European style roast it served customers for years. Now a year later, the new product has seen great success in both its coffee shops and the grocery stores. Perhaps it’s something about the word blonde that compels customers to buy it, or male coffee buyers think this coffee will just be a fun detour before going back to their usual dark roasts, whatever the reason sales of Blonde Roast were up 70% incremental at retail stores over the last year, and up 79% incremental in grocery stores.
Why Get Excited About Roasting?
When Starbucks introduced Blonde Roast last year, the company reported that some 40% of coffee drinkers preferred a lighter roast. That’s approximately 54 million potential customers that Starbucks was driving away with their bold flavored dark roasts. As a result, people found solace in competitors such as Dunkin’ Donuts’ and McDonalds’ coffee. Each company has done very well in recent years. McDonalds’ introduction of the McCafe and focus on coffee has brought coffee drinkers into their stores for breakfast more and more often every year.
The light roast coffee segment is a $1 billion market. A market that up until last year, Starbucks had little to no presence in at all. Through outstanding promotional efforts, Starbucks claimed on its most recent conference call to be a leader in the segment. However, the company will not report exact sales figures. Nonetheless, this is really quite phenomenal. For a company so well known for strong dark roasts, the overarching positive response and quick adoption of a lighter roast offering is somewhat unexpected.
The Strength of a Brand
The quick adoption of light roast coffee drinking customers to Starbucks’ Blonde Roast, is really a testament to the company’s brand strength. This is what gets me most excited about the prospects for growth at Starbucks. The company is constantly innovating, and releasing new coffee, tea, and drink products.
The company introduced Vanilla Blonde earlier this month, a handcrafted brewed coffee that offers coffee drinkers a sweeter taste. Starbucks is targeting the 80 percent of coffee drinkers that add cream and sugar to their coffee. By boosting in-store sales of its Blonde Roast, the company ought to see a relative bump in sales in the grocery store.
In April, the company plans to introduce a ready-to-drink iced coffee beverage for sale in grocery stores just in time for the hot summer months. Starbucks also found that most iced coffee drinkers prefer the beverage year round, meaning the sales should remain relatively stable from quarter to quarter. This is another product that should benefit from the strong branding and promotion from Starbucks.
Last quarter, Starbucks launched its Verismo coffee maker, an easy to use single serve espresso based drink maker. The company reported sales of 150,000 units across 4000 Starbucks stores and 2000 specialty retailers. As the company expands its offering to more stores and begins selling machines abroad, sales ought to grow well with the Starbucks name on them.
The company has already found great success in the single serve market through Green Mountain Coffee Roasters’ (NASDAQ: GMCR) Keurig K-Cups. Starbucks is one of the leading sellers for K-Cups, and when the patent on those little pods expired last year, the margins the company made on them shot straight up. With the Verismo on sale now, Starbucks is trying to convince consumers that its product is for a different type of coffee drinker than the less expensive Keurig brewers. I believe that the two machines can happily co-exist as the Verismo is an espresso machine and the Keurig is a coffee maker.
The Apple of Coffee
It’s easy to make a comparison between Starbucks and Apple. While the latter might have fallen out of favor recently, it’s known for making products that people are compelled to buy for one reason or another, usually because it’s got the Apple name behind it. Starbucks has become comparatively successful at pushing new coffee products on its customers with things like its Blonde Roast or holiday themed drinks. As a result, I think the coffee company has many successful years ahead of it, especially considering the need for innovation in coffee is much slower than in technology.
adamlevy owns shares of Starbucks. The Motley Fool recommends Green Mountain Coffee Roasters, McDonald's, and Starbucks. The Motley Fool owns shares of McDonald's 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!