26 Jul US: Starbucks takes a leap into dairy

Starbucks Coffee and Danone have announced a strategic agreement to offer a jointly created and developed selection of new specialty yoghurt products in participating Starbucks stores and in grocery channels.

This will advance Danone’s ambition to expand yoghurt consumption in the US, while growing Starbucks’ health and wellness offerings for its customers under the company’s Evolution Fresh brand and help it further colonise the grocery store.

“Starbucks is venturing into becoming a house of brands,” similar to Procter & Gamble and Unilever, Bill Chidley, senior vice president at Interbrand Design Forum in Dayton, Ohio, says. The move is risky, he adds.

“When you start to get too diverse with your portfolio, investors just have a hard time characterising what you are… Are they a house of brands or are they about beverage experiences?”

Starbucks has steadily been moving into the grocery business since 1995, when it began selling ice cream in such flavours as java chip frappuccino and caramel macchiato. It has since added packaged coffee, Tazo brand tea and Via instant coffee. Since wresting control of Starbucks’ supermarket business from Kraft Foods in 2011, Starbucks has accelerated a rollout of new items into grocery stores with Keurig K-Cup pods, Evolution Fresh juice and Refreshers energy drinks.

Danone, the Paris-based maker of Oikos and Activia brand yogurts, will make the new products for Starbucks, which will be branded “Evolution Fresh, Inspired by Dannon.” The financial terms of the partnership weren’t disclosed. Starbucks bought juicemaker Evolution Fresh in 2011 for $30 million in cash before snapping up Teavana Holdings, whose products it also plans to sell in grocery stores.

Starbucks’s grocery business has been expanding faster than its cafe sales. In the year ended in September, revenue from selling items in supermarkets and other retailers jumped 50 percent to $1.29 billion, according to a filing with the US Securities and Exchange Commission. Total revenue that same year increased 14 percent to $13.3 billion.

Starbucks will start selling Greek yogurt parfaits in its company-owned U.S. stores next year. The coffee-shop operator is considering selling the yoghurt internationally and may create other foods with Danone, says Jim Olson, a Starbucks spokesman. “This is really the next big strategic step in our health and wellness evolution.”

Sales of yoghurt are increasing in the US – even more so for the Greek variety. Greek-style yoghurt sales in the US surged 48 percent to $2.65 billion in the 52 weeks ended June 8, according to data from Nielsen. Sales of all yoghurt increased 6.1 percent to $6.3 billion during the same time, the data show.