Starbucks is Making the Right Moves

Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Almost all retailers have been eyeing international expansion in order to help their top lines grow. Expanding into new regions has been a lucrative idea for companies to fight the prevailing macroeconomic woes.

Leading coffee maker Starbucks (NASDAQ: SBUX) is up for a move that investors can cash in on. It is planning to expand its footprint in Europe by opening a number of stores in the region. This is quite a bold step for the retailer since Europe has been facing weak consumer demand. But there is more to it.

 The Coffee Maker Is Growing Stronger…

Starbucks’ growth in the European region has been rather slow, which instigated the retailer to work on its expansion plans in the region and make people more aware of its presence. From a small footprint Europe, limited to stations and airports, the company is expected to have standalone stores in various city areas. This move is a part of its long term strategy to expand in areas such as Middle East, Europe and Africa.

Moreover, the company is not only focusing on geographic expansion but also on product expansion. It’s all new single serve coffee brewer hit the market last month and is doing really well. The brewer is called Verismo, and the company expects the market to grow rapidly. Also, Verismo has been priced strategically against other competitor’s products, which is attracting more and more customers at a rapid pace. The pricing starts at $99 and is expected to contribute $0.06 to $0.09 per share to its bottom line by the year 2016.

However, Starbucks is not the first company to enter the single cup market. It faces stiff competition from Green Mountain Coffee Roasters (NASDAQ: GMCR), the first company to introduce single serve brewers. Its Keurig brewers have captured 90% of the single cup market in the U.S. The growing market for single cup espresso motivated Green Mountain Coffee Roasters to introduce espresso machine in partnership with an Italian coffee maker. Hence, competition in this segment is expected to become even more interesting.

Some More Moves….

Starbucks, apart from geographical and product expansion, is moving into diversifying and fortifying its product portfolio for its customers. It recently acquired Evolution Fresh, a juice making company, in order to expand its portfolio of offerings into healthier options. As consumers are getting more health conscious this has become an obvious choice for most of the beverage companies.

Even Coca-Cola (NYSE: KO), a leading beverage provider, has diversified its offerings to fruit drinks with the acquisition of Aujan Industries. Taking over Aujan will not only help Coca-Cola target health conscious customers, but will also help the beverage giant enter the Saudi Arabian market. Aujan’s popular Barbican beverage and the British fruit drink, particularly for Muslims, will help Coca-Cola push its revenue higher.

Coming back to Starbucks, it is also planning to back its new products with a lot of advertising. It will also be promoting Verismo heavily, hopefully luring customers to its stores more often. In fact, even Green Mountain Coffee Roasters had followed a similar strategy when it had first introduced Keurig brewers to the consumers.

Final Thoughts

Starbucks has been growing from all sides. It is making all the right moves to lure more customers, giving new direction to the coffee market with each step. Between its new products and new markets to cater to, Starbucks is looking increasingly attractive to me. Moreover, its mobile payments deal with Square will add a new payment option for its customers, which I believe will work in favor of this growing giant. Investors should definitely not ignore this one.

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justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Starbucks and has the following options: long DEC 2012 $16.00 puts on Green Mountain Coffee Roasters, short DEC 2012 $21.00 calls on Green Mountain Coffee Roasters, and short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Green Mountain Coffee Roasters, Starbucks, and The Coca-Cola Company. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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