Millennials & Gen Z's thirst for cold drinks is boosting Starbucks' bottom line

Cold coffee is a hot business for Starbucks (SBUX). In the company's third quarter conference call, Starbucks CEO Laxman Narasimhan said that 75% of its U.S. beverage sales were from the sale of cold drinks. In addition, Narasimhan says that cold foam is now "the fastest-growing customization at Starbucks." Overall, Narasimhan says customizations, such as cold foam, "contribute to over $1 billion in revenue annually."

So who is buying all of those drinks?

Starbucks CFO Rachel Ruggeri tells Yahoo Finance Live "it's definitely skewed more towards a younger consumer. We have a large consumer base of millennials and Gen Z and their taste and preferences tend to be more cold." "It is definitely an increasing trend and we don't see it going away," Ruggeri adds. Ruggieri says that, overall, beverage sales grew by 10% in the quarter. "We did see growth of about 2% weighted on that 10% from a hot perspective, but we also saw cold grow about 8%," Ruggeri said.

Recently, Starbucks has started changing out ice cubes for ice nuggets. Ruggeri says part of the reason the company is making the switch is to nugget ice is because of the cold drink demand. Ruggeri says the nugget ice blends faster and that eventually it will be piped into the stores so employees don't have to carry buckets of ice.

Click here to see Julie Hyman, Diane King Hall, and Brooke DiPalma's full interview with Starbucks CFO Rachel Ruggeri.

Video Transcript

JULIE HYMAN: I was also struck to see that 75% of the beverage sales are now cold beverages. And this wasn't even in the height of summer when it's super hot. Is this a secular change in how people consume coffee? Is this like the knew-- is this just what it is now, that people are going to drink cold coffee year round and that's it?

RACHEL RUGGERI: It's definitely skewed more towards a younger consumer. And so we have a large consumer base of millennials and Gen Z, and their tastes and preferences tend to be more cold. Now, I'm way over Gen Z and I love cold espresso, so. But it is definitely an increasing trend, and we don't see it going away.

What we're encouraged about in the quarter is that our beverage grew 10%, and that was a combination of growth in both hot and cold. So we did see growth of about 2% weighted on that 10 from the hot perspective, but we also saw cold grill about 8%.

So we continue to innovate in both areas so that we can, you know, offer coffee and continue to lead in coffee for all of the different customer tastes and profiles, but definitely cold is a big opportunity for us, which is why you see us continuing to innovate in areas like ice shake and espresso and refreshment, and even with our new blended lemonade refreshers.

Those are all areas for us to be able to continue that growth in cold, which not only grows in the morning but actually has a position across all dayparts so we see a lot of opportunity ahead, but it's definitely not going away.

- And one investment that got a lot of buzz this past quarter among consumers is those new ice nuggets that you guys are switching over to. How much money do you expect to save at the end of the day with this investment, and what's the response so far?

RACHEL RUGGERI: Well, what I'd say is we're in the early journey of what we call our nugget ice. And being able to put nugget ice in our stores, we've hit our highest volume of cold stores so that we can actually support the capacity. And that's largely what the nugget ice is about-- it's to be able to support the capacity of the cold demand.

And so we'll continue to roll out across our stores. Early on what we're seeing is, it's better for partners, it's easier in terms of overall it blends faster. Eventually, it'll be piped into the stores so they'll no longer have to be, you know, carrying buckets of ice. And so it's a better option for the partners and creates a better experience, but at the same time, our customers love it.

And so the combination of that, you know, gives us confidence that we'll be able to continue to fuel the growth-- cold growth that we see, you know, with improvements and advancements like nugget ice.