Starbucks Fixes Segment Blurring Problem

The three flavors of Starbucks Refreshers: Raspberry Pomegranate, Strawberry Lemonade, and Orange Melon. From blogs.starbucks.com.

Last July, Starbucks had a big media push when they launched their handcrafted Refreshers in their coffee locations with two flavors – Very Berry Hibiscus and Cool Lime.  These two flavors were also made available through their VIA line of at-home self-serve packages.  Most recently, they have followed up the handcrafted beverage offering launch by introducing three packaged sparkling beverages launch.  Joining the handcrafted and VIA Refreshers are: Raspberry Pomegranate, Strawberry Lemonade, and Orange Melon.  From their U.S. website, here is the product page for the Refreshers.  The launch of these packaged offerings created a problem for Starbucks and retailers alike: segment blurring.  Segment Blurring occurs when products within one segment encroaches on products from another segment.  Since the Refreshers are made with green coffee bean extract, should they belong in the coffee section?  Or does it belong in the energy drink section?

According to Kevin Reid – Director of Beverages – in an interview with Canadian Grocer these new beverages belong in its own section.  It appears that Starbucks anticipated the problem as a result of this beverage innovation.  By extracting the caffeinated energy content from coffee beans to make energy drinks, they understood that retailers would have difficulty fitting it into one section.  As such, the interview suggests that retailers create a specific area to group all the Starbucks products together in order to make it easier for the shopper to locate any Starbucks products.

A Starbucks branded supermarket endcap with the dark wood trim and faux-tile backsplash. From online.wsj.com.

Why should a retailer agree to a dedicated Starbucks section?  It turns out this makes sense in more ways than one.  Starbucks products are “destination” drivers in their own right given the coffee giant’s standalone retail locations.  Customers consciously choose to go to Starbucks coffee locations to purchase their Starbucks coffee.  Lending support to re-create this destination experience in grocery retailers is that customers expect to find all Starbucks products when they visit a Starbucks outlet.  Over the years, Starbucks has complimented their handcrafted beverages by stocking packaged coffee beans, beverage holders, and CDs in their branded stores.  Finally, Starbucks’ willingness to invest in décor for the grocer’s coffee aisle demonstrates their dedication to replicate the signature experience everywhere.  Starbucks understands that developing the Starbucks cafe experience requires a collaborative effort and has indicated they are willing to give the retailer Starbucks-type shelving.

Would the retailer be open to more Starbucks innovations in the future?  The Canadian Grocer interview reveals that retailers have been pleased with Starbucks sales.  And as long as Starbucks maintains its demonstrated collaborative efforts, retailers would certainly welcome more Starbucks products to help build grocery trips and baskets.

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.

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.

RTD Tea Category Growing – Driven By Convenience and Natural Food Stores

Packaged Facts published a research paper in early October stating that Ready-To-Drink (abbreviated RTD,  sometimes referred to refrigerated tea or bottled tea) is showing growth and resilience despite an economic downtown in the United States (link to the abstract here, but unless you want to buy the report you won’t know the full details of the research).  I’ve also wrote about the tea category’s growth in convenience stores earlier in the year (link here).

While the focus is entirely on the United States, there are some similarities between the two markets of U.S. and Canada, so the category’s growth is relevant to consumers here.  Packaged Fact’s research abstract points to the growth being driven by convenience stores and natural  food stores, although grocery stores remain the top channel that shoppers choose to purchase tea from.  In Canada, I would suggest that specific tea shops and also coffee shops (think Starbucks, Tim Horton’s, Second Cup, and Blenz, etc) also contributed to the tea’s growth.

Consumers already have a belief that tea is a healthier option relative to coffee, and many are sacrificing coffee beverages for tea or other caffeinated beverages.  Therefore the coffee shop’s survival depends on their ability to expand their beverage offerings beyond what they are experts at.  Walk into a Starbucks and you will see Tazo tea, Naked Juice, and Ethos water,  while Tim Horton’s will have a refrigerated section that includes Lipton bottled tea.  While these coffee shops’ main purpose is to serve coffee, having tea and other category options allows them to keep the customer happy and retain them, rather than losing them to a competitor.  After all, would you still go into a coffee shop with a friend if neither of you wanted coffee and they only served coffee, why not go into a tea shop?

Focusing back on the growth of RTD tea, the report mentions that natural food stores drove double digit growth.  This point is intriguing because natural food stores are seen as niche and somewhat unconventional in their grocery offerings.  However, the growth of tea products in this channel may indicate that consumers are receptive to healthier alternatives, and bottled tea products that are stocked in these natural food stores may soon see wider distribution because of this healthy trend.  Another insight may be beverage manufacturers anticipating this trend and have looked to get their tea products listed and distributed in natural food stores to reach a wider audience.

In any case, it looks as if the tea category’s growth has very strong potential in the upcoming years.  As a healthy alternative to carbonated beverages and coffee, tea may be growing at these beverage category’s expense.  And it may provide competition in more than the traditional setting of your grocery store’s beverage aisle, as coffee shops and natural food stores are increasingly stocking tea options.

Taking this one step further, how can beverage manufacturers like Coca-Cola and Pepsi protect their carbonated offerings?  Since the beverage conglomerates also have tea offerings in their beverage portfolios (Coca-Cola with Nestea and Honest Tea, Pepsi with Lipton and SoBe), a solution may be a two step process.  First, gain distribution within these natural food stores (and other alternative channels like tea shops and pharmacies) for their respective tea beverages.  Next, understanding that there may be space and refrigeration limitations within the store, provide a health-branded cooler (of course, also include the manufacturer’s logo somewhere) to resolve these limitations, and bring in quick-moving and higher margin carbonated soft drinks.  These carbonated products can offset the cooler’s cost and provide these alternative channel retailers with a wider beverage selection to grow their customer base.

So the next time you step into a natural food store, keep a look out for the tea offerings they have available.  Are the tea offerings all-natural and names that you have rarely heard of?  If so, look out for these beverages in your traditional grocery store aisle in the near future, as they may be gaining wider acceptance in the market.  Or are they the Honest Teas and Liptons that you are familiar with?  If so, then the beverage manufacturer has successfully entered the alternative channel to expand their tea’s growth.

Starbucks Buys Evolution Fresh, Naked Juice to Disappear in Starbucks?

Numerous headlines were made this week when Starbucks bought Evolution Fresh, a super-premium healthy juice company.  For Starbucks, this signals their entry into the health and wellness juice category, and may also spell the end of Naked Juice in Starbucks locations.  First of all, who is Evolution Fresh and what makes them so special?  Second of all, how will this affect the partnership between Starbucks and PepsiCo, with Pepsi bottling and distributing Starbucks Frappuccinos and Doubleshots?  Will Pepsi’s Naked Juice follow the path of Happy Planet juices, the first juice and smoothie manufacturer in Starbucks coffee shops that was later replaced by Naked Juice when Pepsi and Starbucks entered into the distribution agreement?

In answer to the first question, Evolution Fresh differentiation is its unique pasteurization technique called High Pressure Pasteurization (HPP).  This technique allows the liquid to be pasteurized in the bottle using little to no heat, maintaining the juice’s nutritional value as well as prolonging the shelf life.  Other juices like Naked and Odwalla uses a  technique called Flash Pasteurization”, which uses high temperature heat for 15 – 30 seconds to kill off bacteria and microorganisms.  The main difference would be the use of heat to pasteurize the beverage, as flash pasteurization’s use of heat may slightly shorten the juice’s shelf life and also cause the loss of some vitamins.

Relating to the business and marketing aspects of this acquisition, Starbucks may have to look for a new distribution partner for their Frappuccinos and Doubleshots.  With Naked juices being replaced with Evolution Fresh in Starbucks coffee shops, Pepsi may likely decrease their priority on re-stocking Starbucks products when inventory runs low.  Other distribution options for Starbucks include regional beverage distributors or food distributors that sells products int he same grocery supermarket channels.

It will be  interesting to see how the two companies treat each other when the partnership officially terminates – amicably or otherwise.  With Starbucks initiating this juice purchase, they will be direct competitors in the juice category.  Will Pepsi purchase or create their own coffee brand?  After all, Coca-Cola does have their own boutique Chaqwa coffee brand, so maybe Pepsi will be developing their own coffee beverage to add to their overall refreshments portfolio.

Monster Java Original Phased Out?

Sources say that Monster Java Original is being phased out from their Canadian coffee line-up soon (when they sell off existing stock).  Can’t say that the flavor is going to be missed or not since I have not tried this flavor myself.  What I can say is that the coffee line-up is likely over-extended and too similar in packaging to other flavors.  With the exception of the Irish Cream, the other flavors’ packaging are all shades of brown, making it very hard to distinguish between them.  Even when the store employees restock these cans, they aren’t sure which flavor they are really restocking!  Phasing out the Java Original was probably the best thing Monster could do with their coffee portfolio.  However, this doesn’t mean they won’t be introducing another coffee flavor soon.  The Monster Nitrous were supposed to hit store shelves this summer and have yet to be seen in cooler or beverage aisles.  The Monster X-Presso Hammer has been rumored to be making a Canadian entrance.  At least those drinks will have different packaging so consumers can easily differentiate between the different flavors.

Another point of interest is the ready-to-drink cold coffee market has many players and Monster’s offerings are not competitive enough.  The leader cornering this category is Starbucks with their frappuccinos.  After that the category gets a little muddled with Rockstar, Monster, Master Cafe, and many smaller regional players.  Starbucks’s success on the frappuccinos are most likely a result of their specialty in coffee (what else do people know Starbucks to be famous for?), and Master Cafe is similar in their coffee specialty.  Rockstar and Monster are mainly energy drink brands, while their coffee portfolio’s price points, packaging, and formula are very similar to one another making it hard to tell them apart.  Monster clearly was a follower in this category, and has not put in enough resources to make this a good product or to heavily promote it to make it succeed.

And when you’re a follower with a less appealing product, you’re likely to meet the same fate as the Monster Java Original.  If the Monster X-Presso Hammer is going to be coming to Canada, let’s hope Monster does a better job with it than the Java Original.