Starbucks Buys Teavana, Diversifies Beyond Coffee

It appears that Starbucks’ recent purchase of Teavana has some analysts and coffee drinkers scratching their heads.  Considering that the coffee giant already owns a tea brand in Tazo, why would they want to purchase another tea brand?

The simple answer is that Starbucks is readying their continued evolution to a diversified beverage company.  Having changed their logo to remove the words of “Starbucks Coffee” shows their seriousness of extending their brand beyond just coffee, and beyond the Starbucks name. Their past acquisitions of Tazo (1999), Ethos Water (2005), and Evolution Fresh (2011) have been instrumental for expanding their beverage footprint in the consumer’s mind and physical purchase locations.  And while most of these offerings have been incorporated within the Starbucks coffee shops, other products have expanded their reach into grocery supermarkets and other consumer outlets.  Products like the bottled Frappucinos, Starbucks VIA Ready Brew, Verisimo system, Starbucks Refreshers, Tazo Tea, and Evolution Fresh juices and smoothies have all permeated other channels and have seen some form of success beyond the Starbucks coffee shops.

So what can we expect the Teavana purchase to do for Starbucks?  How is this product differentiated from Tazo Tea?  Will there be some form of cannibalization between the two tea offerings under the Starbucks portfolio?

The Teavana purchase will undoubtedly expand Starbucks’ reach outside their branded coffee shops.  Teavana owns and operates their own stores, which may soon incorporate select Starbucks products that fits into the Teavana theme and strategy.  For example, selling Starbucks coffee within Teavana shops may not be appropriate, but selling Evolution Fresh juices and smoothies and Ethos Water may be a possibility.  This cross-selling effort will certainly increase the reach of non-coffee beverages under their portfolio.  Also, considering that Starbucks has started to open standalone Evolution Fresh locations in the U.S., those locations may also incorporate some Teavana offerings as well.  Aside from the bricks and mortar stores that Teavana operates, Starbucks also acquires their online infrastructure where the loose leaf tea products are sold as well.  This also significantly buffs up Starbucks online presence and can provide an entirely new set of learnings and opportunities.  Starbucks has mainly existed as a bricks and mortar presence insofar to create that “third location” away between the home and office, but expanding their online presence gives them a chance to offer additional products to the consumer.  How about purchasing some VIA Ready Brew with that Teavana tea tin?

With regard to product differentiation, it’s commonly understood that the Tazo-branded products are bottled or tea bags.  The main opportunity does not exist in offering a different form of tea packaging, but the expanded consumption occasion.  Tea bags or bottled tea are typically consumed on-the-go or at the office, because the consumer is in a rush and does not have the time to sit and enjoy the beverage.  Teavana’s loose leaf tea allows Starbucks to reach the consumer in their relaxed state – at home or at the office – when they have more time to enjoy their beverage.  In that aspect, these two tea brands should be complimentary to the overall “tea consumer” rather than cannibalistic.  It would also make sense that Starbucks only minimally incorporates the Teavana products into their existing Starbucks establish (similar to Evolution Fresh) while maintaining the operations separately and at arm’s length.

At the end of it all, this acquisition bolsters Starbucks’ presence and further entrenches their beverage offerings into the consumers’ hands – be it at the office, on the streets, or at home.

This also signals a warning shot to the traditional beverage manufacturers (ie Coke, Pepsi, Dr Pepper Snapple Group) that the total beverage landscape is changing dramatically.  Consumers are increasingly turning away from the the sodas, to coffees, bottled water, and teas.   And Starbucks is leading the charge in this area.  If you don’t believe me, check out their video below.

Bolthouse Farms Very Likely To Expand

A few weeks ago I detailed a post where Bolthouse Farms had put up their “for sale” sign and solicited bids from interested companies (article link here). Not surprisingly, Campbell Soup Company was one of the bidders and the latest news indicated that it is now a closed deal – Campbell Soup Company has bought Bolthouse Farms for $1.55 billion dollars. With deeper corporate pockets, Bolthouse Farms now emerges as an even stronger competitor in the premium juice & smoothie beverage category. The linked article above detailed the benefits toward Campbell Soup Company and how it would impact retailers. But what we have not yet discussed is how it would affect the competitive landscape. Which manufacturers and brands will be impacted? Will this change anything in the retail environment?

The premium juice & smoothie beverage segment can count a few niche players as well as two large players. Arthur’s Fresh, Happy Planet, and the not-yet-in-Canada Evolution Fresh juice brand serve as the niche brands. At the other end of the spectrum you have Odwalla (owned by Coca-Cola) and Naked Juices (owned by Pepsi) as your national premium juice & smoothie makers. Bolthouse Farms previously stood closer to the niche end despite its broad distribution in Canadian grocers. Their primary operating space was in the fresh produce section in a grocery store, sitting on the shelf next to Arthur’s Fresh and Pom Wonderful products. This deal will not change where Bolthouse Farms is located, but it will help them on negotiating power and price their drinks more aggressivley because of their newfound corporate support.

The larger affect will happen outside of grocery stores, in channels such as drug, convenience, and on-premise. These channels are typically dominated by Coca-Cola and Pepsi drinks, and will likely include Bolthouse Farms products in the near future. Bolthouse Farms products are already in grocery for the most part, so their expansion plans would involve exploring new channels of growth. And if Bolthouse Farms provides their own branded coolers, then their channel penetration should speed up. Given that Coca-Cola & Pepsi both manufacturer other beverages where the public may view negatively (ie. soft drinks contributes to obesity), retailers may also be more willing to work with Bolthouse Farms with its clean company image.

While the expansion to other channels are immiment, I believe the prime targets to be the Canadian drug channel (ie Shoppers Drug Mart). With this retailer’s expanding its grocery offerings and abundant cooler spaces, Bolthouse Farm should see this retailer as a great expansion opportunity. To further help this fact is that drug stores typically have a healthier perception in the Canadian market (they have pharmacies, cater to the senior demographic, etc).

The sale to Campbell Soup Company just happened and it will take some time to integrate Bolthouse Farms’ operations. Once they have settled in and are ready to expand, be ready to find Bolthouse Farms at your local drug store, convenience store or local food joint.

Bolthouse Farms For Sale, Campbell Soup Company Interested

Bloomberg – a business news source – recently cited that baby carrot and juice manufacturer Bolthouse Farms is on the market (link here).  Private-equity firm Madison Dearborn Partners LLC (Bolthouse Farms’ parent company), has received an initial offer from Campbell Soup Company among other bids.  While Madison Dearborn analyzes the different offers, I will assess the Campbell Soup bid to see if it makes any sense.

For a company that is famous for  canned soups, this may seem like a strange portfolio diversification to get into carrots and juices.  However, is it really that strange for a soup company to acquire Bolthouse Farms?   Aside from canned soup, the Campbell Soup Company manufacturers a variety of sauces, crackers and beverages (see their worldwide produce portfolio here).  Campbell Soup Company already has expertise in beverage manufacturing and marketing from its V8 line of juice products.  And Bloomberg’s article hints that V8 will be afforded more resources and receive a stronger focus, given their rising sales while the soup business’s performance is softening.  And it appears that if the deal was approved/concluded, Bolthouse Farms’ juice products would fall under the beverage division while the carrot farms and food processing would be integrated into a vertical supply chain for Campbell Soup Company.

Adding Bolthouse Farms beverages to the company’s beverage portfolio will improve scalability and distribution for both.   There will definitely be opportunities to optimize the two distribution networks since Bolthouse Farms products may be listed in retailers where canned soups may not be available (ie convenience/petroleum stores, organic/natural food grocery stores, etc).  Even if both Bolthouse Farms and Campbell Soup products are listed at the same grocery story, Campbell Soup still gains an incremental area of influence within the store.  Bolthouse Farms refreshments anchors the fresh produce aisle in grocery stores while Campbell Soup products typically resides within the non-perishable shelf stable aisles; and penetrating the fresh produce aisle will pay dividends based on the grocery consumer’s shopping habits.  Fresh produce are located near the entrance so there is an opportunity to influence the consumer immediately when she comes in.  And Campbell Soup can leverage Bolthouse Farms juices to scale up promotions by attaching a coupon to offer a different Campbell Soup product (ie V8 juices, Campbell’s Soup, Pepperidge Farm Goldfish crackers, etc), which are located in an alternate section.  When the shopper wheels the shopping cart down the various aisles, they may be more likely to purchase the Campbell Soup product since there’s a coupon offer.

Campbell Soup Company will further solidify the company’s positioning as a manufacturer of healthy and family-friendly products.  The company’s current portfolio of products are already healthy, while adding Bolthouse Farms juices and smoothies further cements their reputation as a company that provides nutritious products.

Campbell Soup Company has been seeking to broaden its consumer appeal beyond canned soup.  While the company is called Campbell Soup Company, the company portfolio extends well beyond soups.  Their soup portfolio alone has come up with some new innovations, such as the microwaveable soup cups and soup pouches.    This is an indication of a company that recognizes where it needs to innovate and where it needs to acquire; internal growth can only add so much value before the organization must look for outside options.  Given its strong positioning on healthy and family-friendly products, bringing Bolthouse Farms into the mix makes great sense.

All that matters now is to how Bolthouse Farms’ parent company assesses the bids from interested companies.  While combining the two companies’ businesses makes sense from my analytic perspective, there are obviously other business and financial considerations.  However, if Campbell Soup does end up acquiring Bolthouse Farms, I can see many positives from this acquisition.

Just for Kids: Odwalla Smoothies

Odwalla recently launched Odwalla Smoothies for Kids, a fruit juice smoothie that comes in a kid-friendly juice boxes (link here).  This is a departure from the Odwalla beverages that are currently available.  Not only are they gearing part of their product portfolio towards youth, they are also developing new packaging that kids are accustomed to using.  Is targeting kids a good strategy for the beverage manufacturer, or will there be cannibalization from their base business: the environmental-friendly plant bottle smoothies?  Will Naked, Arthur’s Fresh, Bolthouse, and other smoothie producers follow Odwalla, and segment their business to market towards youth?

From a marketing standpoint, BevWire believes this to be a good strategy.  Distribution is one area where Odwalla can leverage upon to succeed for the new launch.  Aside from on-premise locations like coffee shops and food courts, Odwalla’s bottled smoothies currently has distribution in natural food stores,  high end supermarkets and specialty outlets.  These products’ availability in grocery shopping outlets help the juice boxes succeed since the typical household grocery shopper is the mom.  If moms already consume Odwalla products, she may introduce the healthy beverage to her children.  However, the bottled smoothies pose a challenge since the serving size are meant for adults and the resealable container’s caps are meant to be opened by stronger hands.  Kids can consume the smoothies but only in the presence of adults.  The Odwalla Smoothies for Kids goes after an entirely different consumption occasion – one that does not require the presence of mom to help open and close the bottle.

It is also because Odwalla is going after a different consumption occasion that will limit cannibalization.  Adults rarely drink from juice boxes so the cannibalizing effect will be minimized.  In fact, this may expand the business really well since the purchaser will be buying the bottled smoothie for herself, and buy the juice box version for her children.

How will the competition react?  It appears as if Odwalla is actually reacting to another competitor’s actions.  Naked Juice may have already thought about targeting the younger demographic, just differently.  While the typical on-premise serving size of these smoothie are 450ml (15.2oz) bottles, Naked Juice does have a smaller serving size container: the 295ml (10oz) bottle.  These bottles can be found in Starbucks coffee shops among other locations, but the rationale would be that moms get their coffee beverage while their children get the Naked Juice small bottles (most recently O.N.E. Coconut water has also appeared in Starbuck’s refrigerated coolers, but that’s a story for another topic).  Bolthouse Farms, another competitive smoothie manufacturer, also makes smoothies in the 450ml bottle variety.  They do have a smaller serving size, but only for the acai juices.  This would indicate that Bolthouse Farms currently does not have an offering available toward kids and the in-school drinking occasion.

Local Canadian manufacturer Arthur’s Fresh also produces smoothies and competes against Odwalla and Naked Juices.  With single bottles that have serving sizes of 325ml and 900ml, they are not marketing toward in-school drinking occasion nor are they going after the kids.  Happy Planet also only has their smoothies available in the 450ml (or larger) sizes, meaning that they have also not produced a product that kids can drink without their parents assistance.  However, their next move may be to push out new packaging designs or smaller sizes, since the category’s leading manufactures have products in smaller serving sizes and packaging that attract kids.

While Odwalla’s new products may not change the super premium juice and smoothie landscape completely or at all, they do have the other manufacturers thinking about cateringtoward a different drinking occasion or a different demographic.  It might not be a juice box that caters to kids.  But it could very well be caffeine-infused smoothie to target a completely different demographic.  Or it could be a new and even more friendly product package.

Whatever it is, Odwalla’s Smoothies for Kids offers a refreshing perspective on how creativity and market segmentation have helped expand a product category and maintain (or further accelerate) its growth rate.

Happy Planet introduces juice shots

A comment posted by Christine Leonard on BevWire’s Happy Planet entry highlights that Happy Planet has recently launched some all-natural juice beverage shots.  Although, it may seem like a case where they are looking for free publicity – all other web sources show Christine Leonard’s contact information so it is likely she works for Happly Planet and is providing some buzz marketing while the product is being introduced to the market.  In any case, this is an intriguing innovation and a post has been written about these Happy Planet juice shots, providing a quick analysis of the launch.  Please continue reading…

There are 4 types of juice shots:

• Energy – main ingredients includes Ginko Biloba and Cha de Bugre to help the user main an energy high.
• Immunity – main ingredients includes Fucodian, Echinacea, Zinc, and Vitamin C to protect the user from common sicknesses such as colds and flus.
• Detox – main ingredients includes Burdock, Milk Thistle, Ginger, Sodium, and Potassium which helps cleanse and protect the body from harmful toxins.
• Glow – main ingredients includes Coenzyme Q10, Sea Buckthorn Berry, Selenium, and Vitamin E which helps the user regenerate cell and skin tissue for smooth skin.

A news release also mentions that these juice shots will be available in gas stations (Shell, Mohawk/Husky, Chevron), convenience stores (Mac’s, Quickie, etc) and supermarkets (Safeway, Capers, Whole Foods).

It appears that everyone is getting on board with the shots.  First energy drinks and now juice beverages too.  BevWire previously mentioned that margins are notably higher and costs are lower therefore it makes sense to be in this category.  Whereas juices and energy drinks are mainly found in the cooler vault at the back of the store, consumers may find these shots in the beverage aisle or at the cashier till (providing an additional point of interaction before their complete their purchases).

While it may seem too early to make a decision, it seems like Happy Planet has made a good move here.  While the all-natural juices category is growing, this proliferation leads to over-stimulating the consumer and the products ultimately receive less exposure given this proliferation.  Therefore, providing juice shots is a key differentiator that will have consumers take notice – it also helps to have your product positioned at the counter when consumers are ready to pay (increasing impulse consumption).  Second, the shots market is mainly dominated by energy shots.  By offering juices in a smaller serving, Happy Planet will potentially increase their share of pocket by switching consumers looking for a quick, small beverage without the caffeine (with the exception of Energy+ which does contain caffeine).

Happy Planet has also supported this launch with its event marketing.  Happy Planet will be in Vancouver, Calgary, Toronto and Montreal to promote their new innovation.

At the moment, BevWire has not noticed any other juice shots available in Canada.  This gives Happy Planet a monopoly on the market without any competitors.  However, given the history of a product’s success, we may be primed to see more juice shots introduced to the market soon enough.

What happened to Happy Planet?

Some might remember that Happy Planet was an organic juice/smoothie that was sold in coffee shops, supermarkets, and convenience stores.  One of the main locations where this drink can be found was inside Starbucks.  Happy Planet was an alternative to the range of caffeinated beverage inside a Starbucks coffee shop.  However, Starbucks now carries something called Naked instead of the Happy Planet smoothie.  Is Happy Planet no longer produced?  The answer may be “Pepsi.”

Pepsi Bottling Group (PBG) produces and distributes Naked, a Pepsico owned beverage.  They also happen to produce and distribute a variety of beverages for other companies, one of which is the Starbucks Frappuccino.  So what have happened is that PBG and Starbucks have signed an agreement to carry and distribute each other’s products.  PBG will bring the Starbucks Frappuccino into their customer accounts, while Sarbucks will replace Happy Planet with Naked as the coffee giant’s smoothie.

The benefits for both parties are significant.  For the Pepsi Bottling Group, getting into Starbucks with their smoothie gives the beverage giant an additional distribution channel.  Not everyone going into Starbucks looks for coffee, so their healthy alternative beverage is now a Pepsi product.  For Starbucks, having PBG distribute their beverages is a clear winner.  Starbucks can continue focusing on what they do best and leave the rest to Pepsi.  And having a larger distribution network and dedicated sales force to bring your product in front of the customer doesn’t hurt either.  Not to mention that the Starbucks Frappuccino is not limited to coffee shops, but now available in supermarkets, convenience stores, and other grocery stores.

An excellent arrangement to Pepsi Bottling Group and Starbucks, but not to Happy Planet.  Happy Planet can still be found at most places like coffee shops and supermarkets, just not at Starbucks.  And there goes another little company being shut out by the big corporations.