Starbucks (SBUX) is hoping that handcrafted soda will be its next big winner in the growing world of premium beverages.
The java giant is expanding the test of carbonated beverages that began at some of its Seattle stores in April. Starbucks began offering spiced root beer, lemon ale, and ginger ale sodas in stores in Austin and Atlanta last week.
These aren't bottled pop or fountain-poured creations. Baristas are making each soda as it's ordered from scratch with a carbonation machine and flavored syrups. The fizzy iced beverages are being sold in the same Tall, Grande, and Venti sizes as their signature coffee brews. Pricing varies by market, though they have generally been priced between $2 and $4 each.
If Starbucks is serious about expanding its reach in soft drinks, it picked a great time to do so. Summer is the peak season for soda consumption. As temperatures heat up, the thirsty look to cool down with chilled beverages.
SodaStream (SODA) -- the Israeli-based company that got soda sippers excited about fresh homemade pop -- has historically posted its strongest profitability during the third quarter of the year as consumers load up on carbonators and syrups. Jamba Juice parent Jamba (JMBA) also experiences a seasonal spike in smoothie consumption during the summer months.
Starbucks knows this. It introduced Starbucks Refreshers -- its line of iced fruity energy drinks that are lightly caffeinated with green coffee extract -- last summer. Just last week, it expanded the original line by adding a third flavor: Valencia orange.
Starbucks is, of course, no stranger to chilled beverages. Its Frappuccino line has spawned countless contenders. It was serving iced lattes and blending up fruit smoothies before the burger giants hopped on the trends.
Premium soft drinks also aren't the end of the chain's cool products being tested these days. A "cool foam mocha" -- chilled espresso is flavored with mocha and poured over a creamy foam -- is being poured in some of its Nashville stores.
However, the push to offer spiced root beer, lemon ale, and ginger ale bears watching because it gives the coffeehouse operator another way to win young customers and even adults who don't necessarily care for coffee- or tea-based menu items.
Apple juice, milk-based drinks, and smoothies may seem to be more than enough for the ever-expanding Starbucks menu, but as the U.S. is the world's largest consumer of carbonated beverages, it makes sense to give flavored sodas a shot.
Having carbonation machines at its stores also opens up the possibility for even more concoctions. The stores in its home turf of Seattle that kicked off the original soda test in April also began using the power to carbonate by fizzing up sparkling iced teas and carbonated versions of its Starbucks Refreshers beverages.
Starbucks Will Eventually Need a Pop
Expanding its menu options in a way that also grows its audience is never a bad thing, but it will eventually be a necessary thing. Starbucks is doing well these days. Same-store sales are positive, and there's still plenty of room for global expansion.
However, growth is already starting to slow. Analysts foresee revenue growing at a 12.1 percent clip for the fiscal year that ends in September, and 11.8 percent in fiscal 2014. Most chains would kill for those numbers, but this is Starbucks. Investors have bid up the shares to a foamy 30 times this year's projected earnings.
For the stock to stay hot, investors will want to see more growth at the store level. The clearest path to get there will be to expand offerings that are popular outside of the morning caffeine rush. Attempts to flesh out Starbucks product line with food items have produced mixed results, but expanding into an entirely new beverage category may be just the ticket to fizz up sales before they go flat.
Motley Fool contributor Rick Munarriz owns shares of Jamba and SodaStream. The Motley Fool recommends SodaStream and Starbucks. The Motley Fool owns shares of SodaStream and Starbucks.