CPG group extends business into new categories and locations
Starbucks Coffee Co., Seattle, built its
coffeehouse business on the idea
of being the "third place" — the
community gathering spot outside of
work and home. But during the past
three years, the company's Consumer
Products Group has been filling those
other locations outside of Starbucks stores with
coffeehouse-inspired products as well. Through
Starbucks’ own community of business partners
such as PepsiCo, Kraft Foods and Beam Global
Spirits & Wine, its products can be found in supermarkets,
convenience stores, restaurants and bars,
and soon, even vending machines.
The Consumer Products Group came together as a
division within Starbucks three years ago, with the mission to
“extend the [Starbucks] experience to a time and place of our
customers’ choosing,” says Gerry Lopez, president of the Global
Consumer Products Group.
“The way we think about these businesses outside
of the store is that we’re trying to take that experience that we
create inside of the stores and extend it to other places — to the home, to the workplace, frankly to
anywhere that our customers choose to be or want to be,” he says.
The division is responsible for products such as
bottled Frappuccino; Tazo teas; Ethos water; packaged Starbucks,
Seattle’s Best and Torrefazione Italia coffees; Starbucks Coffee
Liqueur and Cream Liqueur; Starbucks ice cream; and the soon-to-be-released
Starbucks chocolate platform. The division has enjoyed year-over-year
growth of 31 percent, and has plans to expand in several additional
directions late this year and early in 2008.
Starbucks feels strongly that its core capabilities
lie in its on-premise coffeehouse business, and it created partnerships
with other beverage and food companies, both in the United States and
abroad, to get the CPG products to market in other channels.
Starbucks first partnered with PepsiCo in 1996 to
develop bottled Frappuccino products and distribute them through
Pepsi’s extensive bottling network, alongside Pepsi’s soft
drink products. For its packaged coffees and Tazo teas, the company teamed
up with Kraft Foods to distribute the coffee through supermarkets and other
retail accounts. Most recently, it turned to candy giant Hershey to develop
its new chocolates, including three varieties of drinking chocolate. Beam
Global Spirits & Wine handles production and distribution of its
liqueur products, and Dryer’s is responsible for sales of Starbucks
According to Lopez, it made more sense to partner with
companies that were experts in the CPG trade and their respective beverage
and food categories than to try to cover each of those businesses itself.
The decision to use joint venture agreements as opposed to licensing,
however, allows the company to have more control over product development,
its trademark and the way its products are sold.
Most of the products in the CPG lineup are sold only
through other retailers, not in Starbucks stores, but Lopez says,
“Our stores provide the inspiration for everything we do outside of
the stores,” adding that the company would not create a product for
CPG channels that would not fit in its coffeehouse
Building a category
In the United States, ready-to-drink coffee is a
relatively new category, and it mostly belongs to the Starbucks/PepsiCo
North American Coffee Partnership (NACP). According to sales information
from Information Resources Inc., the NACP holds nearly 92 percent market
share in RTD coffees. The category is still small, however, with plenty of
room for growth, says Richard Burjaw, NACP vice president and general
“This partnership invented the category back in
the mid-‘90s, when Pepsi and Starbucks came together and launched
Frappuccino in 1996,” Burjaw says. “It was the first mass
ready-to-drink coffee available ... We’ve seen in the 12 years since
then great growth.
“The household penetration of ready-to-drink
coffee is just under 10 percent right now, so it’s a very young
category and has lots of great upside,” he adds.
The company expanded from bottled Frappuccino to two
canned products — Doubleshot in 2002 and Starbucks Iced Coffee, which
was introduced last year. While all are coffee-based products, each has a
slightly different consumer base, and Doubleshot’s branding positions
it as more of a morning beverage, Frappuccino, an afternoon treat, and
Starbucks Iced Coffee as an all-day product.
Starbucks ready-to-drink products do not always tie in
to what’s going on in Starbucks retail stores, but Burjaw says the
coffeehouse is always the inspiration for ready-to-drink offerings.
“The most important part of our business is the
Starbucks retail store,” he says. “Their growth at retail
continues to drive our awareness.
“We like to use the store and then we combine
that with the power of our bottlers,” he adds. “Our bottlers
are in many thousands of stores every day and that’s where their
strength comes in, that’s what makes the partnership work so
This year, the company is adding to the Frappuccino
line with a new Dark Chocolate Mocha platform. The first launch will be
Dark Chocolate Peppermint Mocha for the holiday season, which will tie in
to a similar flavor in Starbucks stores. Next spring, Dark Chocolate Mocha
will debut as a permanent addition to the ready-to-drink Frappuccino
“We can’t physically do everything they do
in the store, both operationally and practically with [retail]
customers,” Burjaw says. “We have to pick our spots and see
... what do we think is going to be the most incremental for our
customers and drive the business for the partnership?”
The NACP also is wading into uncharted waters with the
test rollout of Starbucks hot vending machines late this year. Dubbed the
“Hot Boss” internally, the vending program uses proprietary
vending machines built by PepsiCo that will vend packaged hot coffee in
hospitals, universities and other vending locations. The companies are
placing 50 machines in test market this fall, and will launch more broadly
in the first quarter of 2008.
While the move may seem surprising for a company that
built a reputation on drinks that are custom-made for customers by
baristas, Burjaw says it is a natural extension for the partnership.
“The ‘Hot Boss’ vending project fits
the strategy of the partnership perfectly because the partnership takes the
great products that Starbucks makes, the premium brand equity it has and combines it with what Pepsi does really
well,” he says. “We’re known for innovation and
we’re known through our bottling system for doing a really good job
of reaching consumers outside of traditional retail, which is
The line of six coffees will include Italian Roast
Coffee with milk and sugar, Caffe Latte, Caffe Mocha, Caffe Mocha Light,
Caramel Latte and Hot Cocoa. The vending machines will heat product on
demand — to 140 degrees F in 47 seconds — and the products are
packaged in 9-ounce steel cans with an insulated wrap and a lid on the top
and bottom of the can to protect consumers’ hands from the heat. The
vending machines will be serviced by Pepsi bottlers, similar to the way
bottlers handle their soft drink vending machines.
The “Hot Boss” products will sell for a
premium price, at least as far as the vending world is concerned — $2
for the Italian Roast variety and $2.50 for the specialty coffees and
Burjaw and Starbucks executives say the concept has
tested well with consumers. “We’re really excited about
it,” Burjaw says. “There was work done with consumers a little
over a year ago on the concept. The concept rated very highly, and then we
put in their hands the actual product ... the product taste tests were
at the very top end of the charts.
“If you think about it, in the soft drink
business that we’ve built over 100 years, vending was a natural
extension,” he adds. “It was just a matter of time before we
got really good-tasting Starbucks products out there, and we’re
really looking forward to the test.”
In a press video on the vending project, Starbucks
Chairman Howard Schultz expressed his belief that vending today is at the
point the coffee industry was at when Starbucks began, pointing to what he
believes is great potential for the concept.
The at-home market
If Starbucks stores are the community gathering place,
and “Hot Boss” takes Starbucks to work and school, Kraft Foods
covers the third location in that triumvirate, the take-home market. Kraft
carries the company’s packaged coffees and teas, to the tune of 56
million pounds of coffee each year. Starbucks roasts all of its own coffee
in one of four plants around the world. It then ships the coffee to either
its own stores or to its distribution partners for retail sale. It also
creates coffee extracts for use in Starbucks ice creams, Starbucks Coffee
Liqueur and some of its other products.
The Starbucks/Kraft partnership is responsible for a
41 percent share of the premium take-home coffee market. This year, the
companies teamed up to create the Center Store Café, a supermarket
retail display designed to recreate the feeling of being in a coffeehouse.
The Center Store Café can be used in a variety of sizes and
configurations, either as a stand-alone display or to replace an entire
coffee section in the supermarket. It carries both Starbucks coffees and
other coffee brands, and can carry ready-to-drink products as well as whole
bean and ground coffee. It also can be used in non-coffee locations around
the store, such as the bakery section, where a logical tie-in to coffee can
The companies hope to convert more than 2,000 coffee
aisles to the Center Store Café concept this year, and say it is the
biggest investment they are making in the next three to five years.
“It’s going to be suited to what the customer wants to
do,” says Wendy Piñero DePencier, vice president of global
consumer products. “They are very adaptable. The concept is to turn
the aisle into an inviting experience, organizing coffees into ways that
are easier for the customer to shop and really highlighting the differences
Of the idea that some retailers or other coffee
companies may balk at the concept of a Starbucks-themed display,
Piñero DePencier says the concept elevates coffees as a whole.
“You have to make sure you really meet the needs of the
variety-seeking customer. We have to trust that the quality and range of our coffees will lead them our way, but you
have to make the experience welcoming for anybody that comes down that
Starbucks actually expanded its own coffee lineup
several years ago, with the acquisition of Seattle’s Best and
Torrefazione Italia coffees. Lopez says each of the coffee brands has a
unique roast profile, allowing them to reach different consumers rather
than cannibalize one another.
“Starbucks has a very distinct and unique roast
profile to it,” he says. “Seattle’s Best adds a dimension
to our portfolio that, candidly, Starbucks couldn’t add. The roast
profile is totally different. It’s much smoother, some would say
it’s even more approachable. It also adds to our portfolio the
ability to do flavored coffees, which we would not do on the Starbucks
In keeping with the philosophy that the
Seattle’s Best brand is appropriate for flavors, the company is
getting ready to roll out a new Almond Roca Buttercrunch Toffee flavor of
Seattle’s Best, as well as a Decaf
Piñero DePencier adds that Torrefazione offers
yet another taste profile, with its Italian espresso style. “Coffee
is an ingestible product,” she says. “There is no right or
wrong, it’s just whatever you like. Having all these coffees really
gives the customer [permission] to explore and find the one that really
suits their taste.”
Kraft and Starbucks also have added Starbucks Limited
Reserve coffees to the lineup this year, playing on the success of the
Black Apron coffees sold in its retail stores. The ultra-premium line
carries the tagline “Geography is a Flavor,” and takes a page
from the wine industry by emphasizing exceptional crops and agricultural
conditions. The line consists of several more difficult-to-source coffee
varieties, which have included Rift Valley, Papua New Guinea Estate,
Coupage del Sol, Tanzania Estate, Mexico el Retiro and Sumatra Lintong. Due
to the limited nature of the crops, the coffees rotate in and out of market
every three or four months.
Piñero DePencier says most retailers are
reluctant to take on rotational SKUs because limited availability can leave
them with holes on the shelf. But, she says, while it is still early,
retailers are taking interest. “They’re trusting us that
we’re going to deliver on the concept and we’re going to keep
it in stock as we have promised,” she says.
In addition to coffee, the Starbucks/Kraft partnership
includes Tazo teas, which Starbucks acquired in 1999. Tazo teas are
available in both tea bag varieties and ready-to-drink flavors.
“What Tazo added to the mix was a perfect
complement to coffee, and was a brand with a heritage, and a brand of a
quality and stature that could stand right next to the Starbucks coffee
brand,” Lopez says.
Tazo maintains its tea blending operations in
Portland, Ore., and this year rolled out Vanilla Apricot White Tea and
Organic Apple Red, as well as ready-to-drink Diet Mojito Green. Next year
will see the introduction of ready-to-drink Organic Iced Red.
Starbucks also has worked the tea into on-premise
offerings such as Green Tea Frappuccino. “They are complementary
tastes and the ability to work with both of them at the same time was very
intriguing to us,” Lopez says. “I think you’re going to
continue to see us doing work there.”
One of Starbucks’ newest partnerships is both a
beverage and food venture. The company teamed with Hershey to create a line
of chocolates, including drinking chocolates and confections, that carry
the tagline “When coffee dreams, it dreams of chocolate.” As
with the coffee category, the growth in chocolate is coming from the
premium end of the segment, the companies say. The Starbucks chocolate
platform was created in conjunction with Hershey’s Artisan
Confections Co., which produces brands such as Scharffen Berger and Joseph
“It is inspired by our coffee, tea and
coffeehouse flavors,” Piñero DePencier says. “They are
going to be very authentic in that way. You will be able to taste our
coffee and our teas in them.”
Initially, the company will stay close to its beverage
roots with a line of drinking chocolates that are hitting the market this
fall. Double Delish is a blend of dark and milk chocolates, Marshmallow
Memories are chocolate-covered marshmallow nuggets, and Peppermint
Merriment is peppermint-infused chocolate. Following the drinking
chocolates will be confections that will roll out next spring and
incorporate Starbucks flavors, such as espresso or tea, either as flavor
extracts or as actual ingredients in the chocolate. At least 50 percent of
the platform will be café flavors, the companies say.
Also on the indulgent side, the Starbucks’
partnership with Beam Global Spirits & Wine has produced two liqueurs
that have taken the Starbucks brand into unexpected places such as bars and
cocktail lounges. Introduced in 2005, Starbucks Coffee Liqueur sold more
than 100,000 cases in its first year — a feat achieved by only 19
percent of brands during the past 20 years, according to Starbucks and Beam
Global. And the follow-up brand, Starbucks Cream Liqueur, received flavor
accolades from the Beverage Tasting Institute in Chicago.
Starbucks Coffee Liqueur is 40 proof, and uses
Starbucks House Blend as its flavor base. The Cream Liqueur variety is 30
proof and is made with Starbucks Colombia Roast extract.
A question that creeps up time and again as Starbucks
expands both its coffeehouse and retail businesses into so many new
locations is the potential for consumer fatigue. Lopez says that’s a
topic the company always keeps in mind, but says ubiquity is not as much a
concern as relevancy and whether or not the brand still matters and has
meaning to consumers. He points out that with all of the coffee the company
sells, both on-premise and off, it still only adds up to 10 percent of the
coffee category in the United States, and 2 to 3 percent globally. As it
expands in coffee and any of its other ventures, keeping a premium position
will always be part of the criteria.
“What we’re trying to do is really change
the game in the beverage world,” Lopez says. “We try to give
them more options. We try to give them better options. The customers guide
us. They become more discriminating and more discerning about their
coffees. Hopefully we’re there to serve them.
“It’s that interaction back and
forth,” he adds. “We’re fortunate to have 40 some-odd
million of those interactions every week [in our stores]. We try to
surprise and delight them ... That’s what Starbucks is all about
— how you connect with those customers, how you enable our baristas
in the stores to connect with those customers, and then, for us, it’s
how do you extend that connection to a place that is beyond the four walls
of our stores.”
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The February 2020 issue dives into Essentia water, their high-pH and high aspirations for ongoing innovation. Speaking of innovation, this issue also features a special report on how (and why) the zero-proof functional beverage market is growing. Also, check out what types of rifts and shifts are shaking up the wine category and discount variety stores, as well as the latest ingredient highlights (hint: exotic fruits make an appearance). To cap it off, peruse new product releases, the latest appearances in packaging, and holistic approaches to cognitive health. Thirsty for more? Subscribe to get the latest stories delivered right to your inbox.
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