Starbucks (NASDAQ: SBUX) is well-known for its model of ubiquity, with stores sometimes literally across the street from each other. But if the coffee king has its way, the Starbucks brand will not only be on every street corner but also in every grocery store aisle.
Recently that has meant an extensive line of new products from bottled drinks to Starbucks ice cream and a focus on its lower-priced Seattle’s Best brand. But the biggest move is yet to come.
Starbucks is ready to make some pricey acquisitions, its CEO says, to boost sales of bagged coffee and other consumer products outside its cafes and in grocery store aisles.
The grocery retail model certain holds potential. Thanks in large part to the recent launch of its Via instant coffee line, Starbucks pulls in about $750 million in packaged goods sales, but that’s a paltry 7% of its total annual revenue.
Starbucks has been aggressive in introducing its Via single-serve coffee to as many locations as possible, but the big growth could come from existing products that are just repackaged or capitalized on more effectively. Last month, Starbucks decided to scrap a 12-year packaged-coffee distribution agreement with Kraft Foods (NYSE: KFT) — and though Kraft is fighting Starbucks’s efforts with arbitration proceedings, there’s little doubt that Starbucks will wind up getting out of this deal one way or another.
That means SBUX could be acquiring a food products company and/or distributor to replace Kraft. And Starbucks has the money to do it after turning around its business in the last year or two. The company had nearly $1.2 billion in cash and cash equivalents its bank account at the beginning of October and an estimated $1.5 billion on the books at present.
Investors want to see Starbucks make a move to build on recent successes. SBUX stock has climbed 38% year-to-date — over four times the gains of the broader stock market — and has tripled since early 2009. In its fiscal year that ended in October, the coffee company posted 10% sales growth and revenue of more than $10 billion. But as always, Wall Street will be focusing on the next act.
Grocery sales could certainly be it. Or a focus on its international cafe business could prove to be the magic potion; by some reports, SBUX plans to triple its presence in China by 2015.
Whatever the path Starbucks chooses, one thing is certain: You’ll be seeing more of the company’s green logo in the months ahead.
Hard to believe that’s even possible, isn’t it?
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow Jeff on Twitter at http://twitter.com/J??effReevesIP.
