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Starbucks Continues to Innovate With Blonde Espresso Launch

Zacks Equity Research

In a bid to capitalize on the growing demand for espresso beverages, Starbucks Corporation SBUX has launched a mild version of espresso — Starbucks Blonde Espresso. This is the first core espresso alternative to be launched by the company in the United States in more than 40 years.

Coffee lovers can now choose from two espresso varieties — Signature or Blonde. The Signature espresso is essentially dark and rich while the latest Blonde espresso is citrusy and mild. The coffee beans for Blonde Espresso are sourced from Latin America and East Africa.

The company has already been offering a second espresso option in few international markets since 2013 and has also introduced it in Canada last year. Owing to the success of this method of offering an alternative option, this Seattle-based coffee chain giant has decided to add this to its core espresso menu in the United States. The item will be a permanent one on the menu.

Blonde Espresso is also available in pods for the Verismo System of Starbucks and joins its portfolio of lighter roast offerings, which were introduced as whole bean packaged coffee and brewed options in 2012.

Starbucks has been strengthening its portfolio with innovation in beverages and core food offerings. Beverage innovation has been a significant contributor to comps for Starbucks over the years. According to National Coffee Association, demand for espresso beverages is on the rise with nearly 25% of past-day daily coffee drinkers choosing espresso in 2017. With this new espresso alternative, Starbucks is expected to cash in on this growing demand and entice coffee drinkers who are not familiar to strong and bold coffee flavors.

Also, given the decelerating performance in the United States, menu innovation becomes pertinent for driving comps. The company’s Americas segment (accounting for 70% of total revenues) posted 3% comps growth in fiscal 2017, considerably down from 6% growth in fiscal 2016. In fact, transactions remained unchanged year over year and ticket grew 4%. This compares unfavorably with 5% growth in transaction and 1% increase in ticket in fiscal 2016.

Meanwhile, Starbucks’ shares have gained only 1.9% in the last year, comparing unfavorably with 19.7% growth of its industry. However, the trend in fiscal 2018 earnings estimate revisions is encouraging, as it moved 2.2% north over the past 60 days. This signals at analyst optimism surrounding this Zacks Rank #3 (Hold) stock’s performance in the near term.



Stocks to Consider

A few better-ranked stocks in the same space are Famous Dave's of America, Inc. DAVE, McDonald's Corporation MCD and Good Times Restaurants Inc. GTIM. Famous Dave's of America sports a Zacks Rank #1 (Strong Buy), while the other two companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

Famous Dave's of America is expected to see 600% earnings growth for 2017.

Earnings for McDonald's are expected to grow 9.9% in 2018.

Good Times Restaurants’ fiscal 2018 earnings are projected to grow 33.3%.

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