Jamba Juice's Sweet Future: Could It Be the Next Starbucks?
Jamba is still small. Starbucks (SBUX), clearly, is not.
However, the leading stand-alone smoothie chain operator has a lot more in common with the retail giant that revolutionized the way we drink -- and how much we're willing to pay for -- coffee than you probably think.
Jamba Juice recently signed a deal with global food giant Nestle (NSRGY) to gain control of the energy beverage that bears its name. Jamba All Natural Energy Drink was licensed to Nestle, and the company sold the line in three flavors throughout the Northeast.
Jamba is taking control of the beverage line -- and acquiring Nestle's product formulation -- because it wants to broaden its reach outside of its 769 smoothie bars.
Nation's Restaurant News compares the move to when Starbucks took back control of its consumer packaged goods from Kraft (KFT) last year.
Starbucks was once small, too. It turned to established consumer giants to put out everything from coffee-flavored ice cream to bottled Frappuccino beverages. Instead of putting out its bagged beans directly, Starbucks went with Kraft. Now Starbucks has control of its consumer packaged goods business, and it has raised the possibility that its packaged products may one day match its coffeehouse revenue.
Copying What Works
At the store level, neither Starbucks nor Jamba Juice are beyond copying what's working for the other company.
When Starbucks chose to expand outside of beverages, baked goods seemed like a logical fit. The move was well received, until the company introduced meaty egg sandwiches that offended the nostrils of java junkies who had grown fond of the store's aromatic coffee bean splendor.
Jamba learned from Starbucks' mistake. It expanded into baked treats that include pretzels, rolls and waffles. It added oatmeal. Flatbreads have found a niche in its West Coast stronghold.
Starbucks, meanwhile, took a page out of the Jamba playbook when it added smoothies a few years ago.
Competition Can Be Validation
Starbucks rolled out its Vivanno line of smoothies four years ago. McDonald's (MCD) jumped into this booming niche in 2010 when it added fruit smoothies to its McCafe menu.
Imitation may be the sincerest form of flattery, but if it dilutes the market, it's more of a backhanded compliment.
Thankfully, that hasn't been the case here. Jamba has posted five consecutive quarters of positive store-level comps, so sales have been growing even as McDonald's and Starbucks have been whirring their blenders. We're not talking about baby steps, either. Jamba's comps soared 7.7% in its latest quarter, and that's stacked on top of a very positive quarter a year earlier.
Jamba's push to turn its brand into a major player in the wellness arena is legitimate. There's a reason the company tapped a Safeway (SWY) executive to be its latest CEO instead of just hiring someone from the inside who knew all about the smoothie and juice bar business.
Jamba's packaged products have been all over the place. There's a line of fruity coconut water, fruit cups, and even a frozen home-smoothie kit for kids. All of these lines are licensed to third parties, and Jamba expects its royalties to triple to $3 million this year.
It will be interesting to see what it does with its energy drinks. This has been a crowded market with Red Bull and Monster dominating the niche, but Jamba All Natural Energy Drink sets itself apart from the carbonated pick-me-ups found elsewhere.
Under Nestle's watch, the small 8.4-ounce cans contain 70% real fruit juice. The energy boost comes from 80 milligrams of caffeine derived from natural sources. It truly is an all-natural beverage that even sidesteps the popular high-fructose corn syrup as a sweetener.
Is Jamba the next Starbucks? It would be an insult to Starbucks to call any company the next Starbucks, but Jamba is making a name for itself at the retail level in a premium beverage category.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Jamba Juice. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks and McDonald's, as well as writing covered calls on Starbucks.