September 11-15, 2017

Starbucks' Cold Play

Brian Smith, Starbucks’ senior director, channel brand management for NACP, (l) and Chris Bruzzo, senior vice president, channel brand management and emerging brands


In case you haven’t noticed, Starbucks is brewing up a lot more than just coffee these days. The company that began as a small coffee house in Seattle’s Pike Place market in 1971 has since grown into a full-fledged ready-to-drink beverage innovator. Its bottled coffees, teas, energy drinks and juices are expanding the company’s presence in the grocery aisle, while at the same time it is experimenting with making handcrafted sodas and smoothies in its stores.

On the handcrafted soda front, Starbucks announced the pilot earlier this year in its Atlanta and Austin stores. It is still very much in the testing stages, and Starbucks executives say it is way too early to know if it will ever make it out of the pilot phase to national rollout. But by piloting it, Starbucks is almost saying, “Okay, Big Soda, you’ve had your chance at soda, now it’s our turn.”

The move comes at a time when the CSD category has been struggling, with Coke and Pepsi recording year-on-year declines in their trademark brands in the U.S. The perception among many is that CSD is a category whose time may have come and gone, replaced by a whole slew of more health-conscious New Age drinks. But Starbucks apparently believes the reports of the soda category’s death have been greatly exaggerated. Instead, it is giving CSDs its own spin, if you will, crafting flavors like Golden Ginger Ale, Spiced Root Beer, and Lemon Ale. The tagline it has used to accompany the pilot: “Soda without secrets. Made Fresh, One at a Time.”

While Starbucks isn’t offering many details about the experiment, the very concept seems to hit all the right notes when it comes to the shot in the arm the CSD category might need. After all, isn’t an increased focus on transparency and quality just what many consumers—especially younger millennials—have been asking for?

And then there’s Starbucks’ 2011, $30 million purchase of the Evolution Fresh juice company. While many mainstream juice brands have struggled in recent years, hurt by consumers trying to cut down on sugar intake, Starbucks, again, seems to be saying, “Ok, Big Juice, you’ve had your chance at this, now it’s our turn.” Starbucks believes Americans are ready for an upscale, cold-pressed juice product made with a little more TLC than what they’ve had so far.

Whether Evolution Fresh or the handcrafted sodas prove to be long-lasting hits with consumers is still up in the air. But the broader point here is that Starbucks keeps on trying. All too often large beverage companies become risk-averse. But Starbucks continues to innovate. And it’s been able to build a solid and growing RTD business as a result, comprising everything from its own take on energy drinks to bottled iced coffees and most recently, multi-serve café favorites for grocery it calls Discoveries. It is for all of these reasons that Beverage World has decided to name Starbucks our 2013 Liquid Refreshment Beverage Company of the Year.

 “We will always be a coffee company,” says Chris Bruzzo, Starbucks’ senior vice president, channel brand management and emerging brands. “Coffee is at the very core of where we got our start and makes us who we are. And it’s led us to our retail stores being the core of our experience. From there, we have a really strong DNA of innovation.”

Bruzzo credits the company’s long-time CEO, Howard Schultz for this DNA, beginning with his desire to take espresso culture and bring it to the U.S. “That was really a significant moment of innovation and changed the course of the company,” Bruzzo says. Schultz’s “insatiable curiosity,” as Bruzzo puts it, motivates the company’s employees every day to push boundaries. “It really challenges us to constantly be innovating and thinking about what’s next,” he says.

And all of this innovating seems to be paying off. In the third quarter of 2013, Starbucks saw the best quarter in the company’s 42-year history. As part of that, its channel development business unit, encompassing the company’s ready to drink products, emerging brands like Evolution Fresh, packaged coffees, Starbucks Via instant drinks and K-Cups, saw revenue of $336 million, up 6 percent versus year ago third quarter.

The Blueprint for Growth
Bruzzo likes to think of Starbucks having an “unfair advantage” over the typical beverage company. That advantage starts with consumer engagement at its 19,000 retail stores in 62 countries throughout the world, and expands outward from there. The company outlined this strategy in 2011 in its “Blueprint for Growth” where it details building a truly global consumer company by harnessing a powerful portfolio of brands with a unique business model, combining a global retail footprint with a significant consumer packaged goods business, and leveraging direct customer engagement that drives growth across all channels globally.

“We can launch brands and we can give them significant exposure through that blueprint,” Bruzzo says. “It is a pretty interesting and unusual collection of capabilities. We have such strength in the personal relationship that our partners in our stores have with customers, a daily conversation with consumers and in a very social product category that is coffee. And now, in the last several years, we’ve been building our own direct capability to bring products to channels.”

The impetus was the split Starbucks had in 2010 with long-standing partner Kraft Foods, which had for years distributed Starbucks packaged coffee to the retail channel. “Around 2011,” says Bruzzo, “we were really ready to debut our ability to work with major retailers to commercialize products in their channels. So we’ve put increased focus on driving innovation and momentum behind all of those cool, ready-to-drink products.”

Remaining a vital partnership for Starbucks is its North American Coffee Partnership (NACP), a joint venture between Starbucks and PepsiCo, Inc. The NACP entered the RTD coffee market in 1994 with the launch of Starbucks bottled Frappuccino beverages. Since that time, the JV has introduced a variety of products. These include:

  • Starbucks Doubleshot
  • Espress0 and DoubleShot
  • Energy
  • Starbucks Iced Coffee
  • Starbucks Refreshers
  • The new Discoveries Iced Café Favorites

The NACP draws on Starbucks’ coffee expertise and PepsiCo’s manufacturing, sales and distribution of the products. “The partnership with PepsiCo is thriving, says Brian Smith, senior director, channel brand management for NACP. “Together, we’ve built the partnership to over $1 billion in annual retail sales. It really is a true partnership where we are leveraging the strengths of both coasts to continue to grow and evolve the business and evolve the portfolio.”

Starbucks also continues to offer Tazo RTD beverages, manufactured and distributed through the Pepsi/Lipton Tea Partnership.

Big Plans for Juice
Bruzzo calls Evolution Fresh a “challenge that’s tailor-made” for Starbucks. In fact, he compares it to how Starbucks was able to single-handedly change the conversation about coffee when the company first came onto the scene decades ago. It may be hard to recall, but until then most Americans were percolating their coffee in their kitchens every morning. Great flavor and coffee weren’t necessarily two concepts that went together in the U.S. “What does it mean to really expose people to this treat that is really high-quality coffee? Or really high-quality juice that is better and that can actually change some of your perceptions of that underlying product that you’re consuming,” asks Bruzzo. “That’s effectively what Starbucks did around super-premium coffee and espresso and it’s effectively what we’re in the midst of doing in the juice category.”

He then adds, “Juice as a category is just ripe for change, and a lot of the long-standing beliefs about what it was for and how you would use it in your life are really kind of outdated.”

Starbucks purchased the San Bernardino, Calif.-based Evolution Fresh in November 2011. The cold-pressed juice process Evolution uses foregoes heat pasteurization for a high-pressure cold production system. Many believe there are advantages to this when it comes to preserving the freshness, taste and healthful nutrition found in the fruit itself.

Evolution Fresh, while still small, grew 21 percent in Q3 FY13 over Q3 FY12. The company says it continues to increase share and velocity of the brand in grocery channels and brought online this June in Rancho Cucamonga, Calif. a new state-of-the-art juicery. (see sidebar)

Bruzzo stresses that “ideally” the company wants to expose more consumers to the vegetable-based juices in its Evolution line, not just the fruit juice. “A number of the juices, particularly green vegetable juices, etc. in our lines of juices,” he says, “are actually quite low in sugar, under 10 grams of sugar with really high vitamin content and servings of vegetables.”

He adds, “We want this to be the daily corollary to your coffee. We want you to pick up a coffee and juice every day.”
Starbucks is continuing to develop interesting varieties for its Evolutiown Fresh line, including smoothie-type extensions. As of September, it was also testing handcrafted versions of Evolution juices and juice smoothies in some of its stores.

“We are broadly continuing to look at the ready-to-drink coffee category to continue to define new ways to enjoy coffee up and down the aisle,” says Smith. “Also, we continue to partner with Starbucks cafes just to understand if there are new products, new platforms, new categories that they’re focused on where we can partner with them to kind of create that new experience together within CPG channels. So lots of exploration underway across both those paths.”


(Side bar)

The Evolution Fresh Difference
Starbucks came online in June with its new Rancho Cucamonga, Calif. Evolution Fresh juice plant, built near the farms that supply the company its fruits and vegetables. When Starbucks acquired Evolution Fresh, it also had a juicery in San Bernardino, Calif. Starbucks has since spent $70 million to build the new 260,000-square-foot juicery, which will quadruple the production capability of Evolution Fresh.

   Evolution Fresh juices are cold-pressed and never heated, using high pressure processing (HPP) to deliver more of the flavors, vitamins and nutrients of raw fruits and vegetables than traditional heat-pasteurized juices.  “Starbucks acquired Evolution Fresh because they had a great line of fruit and vegetable juices and they were really one of the last remaining juice brands in the country that would squeeze and press their own fruits and vegetables into juice,” says Chris Bruzzo, Starbucks’ senior vice president, channel brand management and emerging brands. “They figured out how to do it in a really high-nutrition, high-flavored kind of way.”

    Evolution Fresh was started by the original founder of Naked Juice, Jimmy Rosenberg. He saw this as an opportunity to raise the quality and nutritional benefits in the juice category. Temperature control is a vital part of the operation in the new plant where the temperature is maintained in the mid-30s throughout the entire building, with the finished juice stored as close to 32 degrees as possible.

    Upon entering the plant, all of the ingredients are immediately cold-pressed (pumped into press bags which are cloth pressed and the juice is expressed through the press bags. The solids stay in the bag and the cold pressed juice is then used to make the juices) and then filled into the 15.2 ounce bottles, capped, and then, under the HPP process, placed into a large hyperbaric chamber. That chamber is filled with water, and applies enormous amounts of pressure (equal to the deepest part of the ocean, and then going five times deeper than that) to the juice bottles. The equivalent is something like 87,000 pounds of pressure per square inch, says Bruzzo. “That amount of pressure destroys all the bad microorganisms in the juice but it does not do what heat pasteurization does, which is inactivate all the active enzymes and heat the juice to a place where a lot of its nutritional value has been heated out of it,” he says. The pressurization leaves the juice with a 30- to 45-day shelf life. In the U.S. today, Bruzzo says there are only three major brands that have nationwide capability in the category of cold-pressed juice: Evolution Fresh, BluePrint (owned by Hain Celestial) and Suja.  – A. Kaplan


Liquid Refreshment Company of the Year:
Honorable Mentions

This year, Starbucks’ continuing innovation in the RTD categories made it our choice for Liquid Refreshment Company of the Year. But three other companies also caught our eye for their strong liquid refreshment beverage businesses. Here’s a look at each of them.

Xyience is the Las Vegas-based company behind Xenergy, the official energy drink of the Ultimate Fighting Championship (UFC). Having first entered the energy drink business in 2006, today, the company has a growing portfolio of sugar-free and zero-calorie energy drinks with all-natural flavors and colors. At last year’s NACS show it introduced hybrid products that mix its classic energy drink with tea, lemonade, and lastly a hydration formula. According to John Lennon, the company’s president, the company has gained national availability as of this month. ‘We’re continuing to grow nicely,” Lennon says, “with our internal sales data showing us up about 8 percent this year. We’ve done very well in GNC during the past year, and made significant inroads within Wal-Mart and also in military channels.”

The Preston, Wash.-based TalkingRain company and its very successful Sparkling ICE is proof of how a little patience can pay off in a big way. Sparkling ICE, a lightly carbonated, zero-calorie beverage brand actually has been in the TalkingRain roster since 1992. But it was only in 2010 when new leadership at the helm took a fresh look at the brand. The conclusion was that it probably had plenty of untapped potential, and it turns out they were more than right. The company decided to reformulate its different versions, and also throw some marketing dollars at the brand. The result has been phenomenal growth. “Our multi-channel data continues to be up over triple digits, so we haven’t shown any sign of slowing down, and if anything our growth is going more rapidly,” says TalkingRain’s president & CEO, Kevin Klock. “We’ll probably hit $300 million some time in the early part of next year. We think we’ve found a balance of taste and carbonation and just all those elements that people who are seeking good refreshment have been looking for.”

Essentia, which uses the tagline “super hydrating water,” offers a bottled water with one of the best available pH’s on the market, at 9.5. And consumers are apparently warming to the benefits of such higher pH waters, and Essentia in particular, as the brand saw a whopping 69 percent revenue increase in the first quarter of this year. In fact, bucking the category trend of seasonality, Essentia says January checked in as the biggest month in the brand’s 15-year history.
“We’re doing quite well,” says Ken Uptain, Essentia’s president and CEO. “The consumers are accepting the product very well. We’re the number-one brand of all waters in the natural segment of the market, and one of the top 10 fastest growing brands in grocery. Once consumers try it, they feel better, they like the product and they repurchase.”

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