July 24, 2013
Is Starbucks Overreaching?
Starbucks’ CEO has made it clear that he sees his company’s brand going far beyond the walls of its coffee shops. Now comes another indication of that as the world’s leading coffee retailer announced a joint venture with Danone to develop new yogurt products that will be available for purchase in Starbucks locations and, later, in grocery stores across the country.
The new line, Evolution Fresh, Inspired by Dannon, will begin with ready-to-eat Parfait Greek yogurt items co-created by the two companies. The line will be rolled out next spring in Starbucks and then in grocery stores in 2015.
Starbucks acquired juice maker Evolution Fresh in 2011 for $30 million as part of the company’s plan to launch a chain of health and wellness stores and products. A RetailWire poll taken at the time found that 43 percent thought Starbucks had a large upside potential in the health and wellness space at retail.
"Starbucks is committed to evolving and enhancing our customer experience with innovative and wholesome food offerings," said Howard Schultz, Starbucks chairman, president and chief executive officer, said in a statement. "We are energized by the strong customer response to Evolution Fresh offerings, and believe a strategic agreement with Danone, the world leader in fresh dairy products, affords us the perfect opportunity to grow — and elevate — the Evolution Fresh brand both in our stores and in CPG channels."
Bill Chidley, senior vice president at Interbrand Design Forum, told Bloomberg News that Starbucks’ ventures into other businesses brings risks.
"When you start to get too diverse with your portfolio, investors just have a hard time characterizing what you are," Mr. Chidley told the news service. "Are they a house of brands or are they about beverage experiences?"
- Starbucks and Danone Announce Strategic Agreement to Create and Develop an Exclusive Line of Evolution Fresh, Inspired by Dannon-branded Fresh Dairy Products – Starbucks Coffee Company
- Starbucks Looking to Juice Up Sales in 2012 – RetailWire
- Starbucks to Sell Greek Yogurt at Cafes, Supermarkets – Bloomberg News
Discussion Questions
Do you see reason to be concerned as Starbucks breaks into a growing number of business and product categories? What does Starbucks need to do to make moves such as the most recent one with Danone a success?
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I love it!
The overwhelming success of Starbucks as a brand bodes well for this kind of expansion. In terms of precedent, think of Wolfgang Puck restaurants. They started as a regional restaurant group, then expanded nationally, then extended their food offerings into grocery. They’ve been successful, and that brand isn’t nearly as embedded in American habits and culture as Starbucks (and Dannon).
Leveraging a brand like Starbucks is smart—as long as the brand is extended in a fresh manner that addresses the needs of the target markets. They have the name and quality products, they just need to step into the yogurt space with the right look, taste, and direction (messaging). Lady Starbuck (the logo lady) may have to sit this drive out. She is the Queen of Coffee and not Greek. So the new logo will be smart.
Hey, Dunkin’ went from just coffee to new drinks to great sandwiches, too; what’s next for them?
The question is, do these new products fit under Starbucks umbrella? If the Starbucks stores are considered the “third place,” then Evolution Fresh seems to make sense. Starbucks has struggled with food items in store. This joint venture will allow them to provide an additional alternative and complement to coffee. In addition, the Evolution Fresh brand will give them an additional entree into CPG channels without confusing or cannibalizing the Starbucks branded offerings in these channels.
I am not concerned about investors. I am concerned about customers. The issue of what is under your umbrella is a universal question for all companies. I am reminded of the words of Charles Revson (founder of Revlon) who said, “At the factories we make cosmetics; at the counters we sell hope.”
If an organization can successfully address this simple but critical question, customers will be earned and the investors will be satisfied.
I see reason to be careful and be sure that this joint venture plays on the strengths of each company. Starbucks and Danone should develop products that enhance both brands and deliver quality products. This will expand their sales capability in both arenas. The resulting volume may not be enough to sustain the venture if the consumer doesn’t “get” coffee and yogurt.
Starbucks already proved it could expand beyond coffee into successful extensions like tea, Frappucinos and more. Selling a co-branded Greek yogurt to the customer already walking into the store for beverages or baked goods isn’t a reach at all. I’ll start to worry if Starbucks decides to sell totally unrelated categories, but so far they have been disciplined about their product extensions.
It is never good to stray too far from your core business. The issue here is, do Starbucks’ customers and management perceive their core business in the same way?
Historically the main focus of Starbucks was being that “third” place. With drive-thru and some brand extensions, it has moved away from, to use Mr. Chidley’s term, the beverage experience. Is this the move that has Starbucks “jumping the shark”? Maybe not, but they are getting closer.
The lines between CPG and casual/quick serve restaurant (QSR) concepts are blurring quickly, driven by strong on-the-go eating trends and consumers’ quest for low-cost beverage, meal and snack solutions. We saw what has thus far been a successful QSR-CPG partnership not too long ago, when Doritos and Taco Bell teamed up. I suspect that we will see more of the same going forward. To be successful in these endeavors, the partners will need to find, understand and serve the “common ground” market in a way that lives up to the established brand equities that each of the two partners has built in their own right.
Starbucks has spent a lot of time, resources, technology, and intelligence in creating a consumer-satisfied brand that is trusted to bring what are perceived as quality products, and not at a low-cost point. In Starbucks stores, you can get a hot or cold sandwich, oatmeal, juice, fruit and cheese, yogurt, and pastries. I’m sure the successes of these products were closely monitored to discover their tangibility in the open market.
With the yogurt industry growing at a fast pace, and recent successes of companies like Chobani, it seems like a natural progression. I think investors will be less worried about what markets Starbucks is venturing into, more if these markets are profitable.
Starbucks merely reinvented ‘coffee’ and created ‘the coffee experience’. But, like so many other retail businesses that started with essentially one item (e.g., Dunkin’ Donuts, Mrs. Field’s cookies, Cinnabon), there comes a day when product expansion becomes a requirement for continued growth. I would be ‘concerned’ if Starbucks DIDN’T try new items. What if Walmart DIDN’T venture into groceries because it was dangerous to “stray too far from their core business”?
In short, good for Starbucks. If they’ve done their homework well (and I would guess that they have), their odds of success are very high.
This is a great initiative!
I love it.
As a mature brand, Starbucks needs to evolve and grow, as other restaurant chains have (look at McDonald’s.) A unique yogurt offering would be a terrific complement to the food items already available.
Looks like me to be a wise move. Hardly revolutionary. It’ll work if they use good common business sense, and I believe both Starbucks and Danone have plenty of that in reserve.
A potential problem that I see here—that Susan alluded to—is ownership. Is Starbucks partnering with Danone, as it was described here, or is Danone partnering with SBX (as I think Danone might like to see it)? Co-branded product extensions are not unique, but like any partnership, they need clear leadership.
My only concern is the price point, in relation to the other premium yogurts. If it is comparable, then it has a good shot of succeeding. If it is a premium price point beyond the others, I’m not so sure about huge sales to the masses. I’m sure the product will be delicious.
Not concerned, but like other big organizations, they lose sight of the finish line. Concentrate on being the best at what you are every day…that should keep you plenty busy!
I love it that they are diversifying. This is a great time and opportunity. They need to define their positioning to the investors as a house of blissful gastronomical experiences.