NEW YORK - Starbucks, the ubiquitous street-corner coffeehouse chain, is intentionally evolving into a major supermarket supplier.
Bloomberg reports that Starbucks founder Howard Schultz, who returned to the company as CEO in 2008, is guiding Starbucks "well beyond its cafe roots," with the Seattle-based company "playing in an arena staked out decades ago by Big Food: the grocery aisle."
"We??re in the nascent stage of what we believe is our capability to do a number of things within food and beverage," Schultz told Bloomberg.
"You??re seeing investors recalibrating how they view this company," Phillip Juhan, an Atlanta-based analyst at BMO Capital Markets, told the news source, noting that Starbucks is "no longer just a retail store business."
Since 1995, Starbucks has "slowly yet steadily" been moving into grocery stores with branded ice cream in flavors such as java chip Frappuccino and caramel macchiato. Then came packaged coffee, bottled drinks, Tazo-brand tea, instant coffee and single-serve K-Cups.
"Schultz??s boldest move yet to become a player in groceries," writes Bloomberg, was an attempt to take control of packaged coffee distribution from Kraft. Kraft sued Starbucks for breach of contract and the dispute has since gone to arbitration, which could be resolved this year. Even if Starbucks pays a settlement, the company "now has the power to demand the best shelf space for Starbucks products."
Jeff Hansberry, president of channel development at Starbucks, told Bloomberg, "We think we can build a business that can be as a large as our retail business." Just last week the company announced plans to enter the energy drink category.
Ultimately, Starbucks?? presence on grocery store shelves is necessary, and the company??s real value and growth potential resides in its brand, according to Bill Smead, portfolio manager at Seattle-based Smead Capital Management Inc.
"They sell water, milk and coffee beans at boiling temperatures," Smead told Bloomberg, adding, "Warren Buffett says the best companies buy a commodity and sell a brand."