Looking beyond coffees, Starbucks Corporation (SBUX) recently announced the opening of its first Evolution Fresh juice store in Bellevue, Washington, four months after it acquired Evolution Fresh, Inc. in November 2011.
Evolution Fresh offers premium juices made from fresh, natural ingredients as well as other food items like wraps, salads, soups, vegetarian and vegan dishes and others. The juices are never heated and are made by a process called High Pressure Processing (HPP) technology which preserves the flavors, vitamins and nutrients of the vegetable and fruits. Management believes the cold-crafted juice category represents a $3.4 billion market.
Starbucks has also redesigned the stores to meet the Leadership in Energy and Environmental Design (:LEED) certification. The stores are located in upscale areas, use locally available materials, recycled components and other things which help in reducing waste and conserving energy.
Starbucks purchased Evolution Fresh, Inc. for $30 million and the latter already sells juices in grocery stores. Starbucks plans to introduce Evolution Fresh juices in its company owned retail stores later this year.
In another development, Seattle’s Best Coffee, a part of Starbucks, announced the opening of a new drive-thru shop in the suburban location of Northlake, Chicago. The drive thru shop, aiming to meet the needs of commuters, will offer car friendly coffees, sandwiches, snacks and freshly baked food items throughout the day. Seattle’s Best Coffee menu will also include the latest popular beverages like Caramel Candy and Birthday Cake lattes, and Caramel Pretzel and S’mores mochas. The store will be open all days of the week from early morning to midnight.
We currently have a Neutral recommendation on Starbucks. The stock looks more appealing near term with a Zacks #2 Rank (a short-term ‘Buy’ rating).
Continuous product innovation has always helped the company maintain decent earnings growth. However, intense competition from peers like Dunkin Brands (DNKN), McDonald's (MCD), and Green Mountain Coffee Roasters, Inc (GMCR) coupled with high coffee prices on account of bad weather conditions and an abnormal increase in farming costs induces us to maintain a sideline view on the stock.
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