Jamba Says: Thanks for the Smoothie Business Boost, McDonald's
Competition has intensified lately. Would it be up to the challenge?
McDonald's (MCD) jumped into this booming niche two summers ago, when it added mixed berry and strawberry banana smoothies to its McCafe menu. Starbucks (SBUX) dived in two years before that, giving customers thirsty for coffee-free beverages a chilled alternative with its Vivanno line.
If the country's largest restaurant chain and its most popular barista hub were powering up high-speed blenders to deliver iced-up fruity drinks, would the leading stand-alone stand hold up?
Jamba did just fine. The chain of 769 Jamba Juice stores came through with a 7.7% increase in same-store sales, marking the fifth consecutive quarter of positive store-level growth on a year-over-year basis. The streak stretches all the way back to shortly after McCafe hopped on the smoothie bandwagon.
Instead of crushing Jamba, McDonald's actually may have helped educate the market on the merits of the beverages.
Big Boys with Bigger Blenders
Starbucks had a problem. It wanted to expand its menu offerings beyond coffee beverages, but serving up breakfast sandwiches and other heartier fare wasn't sitting well with the nostrils of its clientele.
Starbucks founder Howard Schultz wasn't a fan of the new items, complaining that the smell of burned cheese overwhelmed the brewed java aroma that he strove to maintain in his effort to provide an authentic European coffeehouse experience.
He had the chain switch out the smelly products, but Jamba still needed premium beverages to market to children or adults who weren't in the mood for coffee or tea.
Vivanno was born. The company pitched the beverages as being prepared using real ingredients. There would be no artificial flavors, dyes, or high-fructose corn syrup. Each 16-ounce smoothies would each pack less than 300 calories, and be fortified with at least 15 grams of protein, 5 grams of fiber, and a serving of fruit in the form of a whole banana.
Starbucks would even offer customization suggestions. Add a shot of espresso to the chocolate banana smoothie. Ask for some green tea powder to be sprinkled into the orange mango banana concoction for an antioxidant kick. On a diet? Ask for nonfat milk for the dairy component of their frosty beverages.
Starbucks validated smoothies as lifestyle drinks with wellness benefits, something that Jamba had been pitching for years with its nutritional boosts.
McDonald's had other ideas.
The key to McDonald's success in recent years has been its barbell approach. On the low end, the iconic Dollar Menu is there to give penny-pinching diners more bang for their buck. The challenge for the chain was to beef up the higher end of its menu. The success of premium chicken sandwiches and salads helped, but McDonald's aimed higher with its McCafe line of fancy coffee drinks.
A few years ago, the idea of ordering a caramel mocha or a cappuccino through the McDonald's drive-thru would have seemed absurd, but premium beverages have helped boost same-store sales at the burger giant. Smoothies were added in the summer of 2010, giving Mickey D's a bigger-ticket beverage than soda or milkshakes for diners who weren't in the mood for java-based drinks.
Other burger chains are now scrambling to catch up.
Jamba isn't slowing down. It -- like every smaller smoothie shop operator -- knows that its advantage is specialization. McDonald's and Starbucks limit their smoothie options to just two or three. Jamba can spin the flavor wheel, rolling out entire new lines including its most recent Fit 'n Fruitful all-fruit blends that serve as meal replacements, complete with weight-burner boosts.
Jamba is looking to grow beyond its stores. It's beefing up its scaled back JambaGo offering that's now available in 30 different schools. The company also has a growing number of licensing deals to get its lifestyle brand products out in retail distribution.
As a refreshing -- and typically healthy -- beverage, the smoothie has arrived.
Arm your blenders!
Longtime Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Jamba. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks and McDonald's. Motley Fool newsletter services have recommended writing covered calls on Starbucks.