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Howard Schultz sees a new multi-billion dollar opportunity for Starbucks

Nicole Sinclair
Markets Correspondent

On Tuesday, Starbucks (SBUX) announced a new line-up of cold beverages that will become the foundation for a new “cold bar” of coffee and espresso products.

Founder, Chairman and CEO Howard Schultz told Yahoo Finance this is an important needle-mover for the company.

“This is a big deal,” he said. “Over 15 years ago we really created a category that did not exist. And that what was ready to drink coffee in the form of frappachino. That turned about to be north of a $1 billion business in a joint venture with Pepsi. Now we’re seeing a new white space—and that is a multi-billion category growing by leaps and bounds in cold coffee.”

Schultz added that the opportunity for cold brew could follow what has happened with iced tea.

“There’s no consumer brand in the coffee space other than Starbucks that’s best positioned to take advantage of this opportunity. And as a result of that, cold brew and nitro will define the category and I think create incrementality for the brand and once again provide innovation. What we’re doing is right in the sweet spot of our core business innovating around our core coffee, and I think it’s going to be a multi-billion dollar opportunity for our company.”

In addition to bringing handcrafted vanilla flavor to cold brew coffee, Starbucks will also debut a handcrafted doubleshot on ice espresso beverage and introduce “Nitro” cold brew in select cities.

In the fourth quarter of 2015, Starbucks reported a 20% increase in its overall iced portfolio after the introduction of cold brew in its retail stores. Nitro cold brew, which has been available in the company’s Seattle Roastery, is the second highest selling beverage there.

According to industry experts, U.S. iced coffee consumption has grown by 75% in the past decade and cold brew sales grew 338.9% between 2010 and 2015.

“We know from the experience we’re having in our Roastery and other test stores, this is a big opportunity for the company and the category,” Schultz said.

Schultz added that cold brew has been especially appealing to millennials.

“It’s not that different with what’s happened with craft beer,” he said. “Cold brew is an opportunity to really provide the kind of coffee that has finesse. It’s clean, it’s steeped over 20 hours, it’s a wonderful blend of African and Latin American coffee. The kind of taste, health benefits in terms of very little calories, no sugar, clearly it’s a great product not only for millennials but all people…The way we deliver it on a tap that’s very similar to craft beer.”

Cold brew also speaks to Starbucks’ push to extend day-parts through meal, snack and even alcohol offerings.

“10 years ago Starbucks stores used to close at 6 or 7 o’clock at night,” Schultz said. “With regard to what we’ve been able to do around innovating around need states and day parts,we’ve created new beverages that are defined to satisfy our customers during other parts of the day.”

The cold brew lineup fits right into that, according to Schultz.

“I think that cold brew and nitro and what we’ve done with food and what we’re doing around evenings all demonstrates that we’ve got a fixed asset of rent and labor and we think our customers want to leverage the third space and sense of community in our stores other than morning and afternoon,” he said. “And that’s what’s been driving the comps and traffic at Starbucks. Our ability to create new beverages that are both innovative, refreshing, indulgent… cold brew and nitro are in the sweet spot of that.”