Starbucks' Darwinian Twist
This article is part of ourRising Star Portfolio series.
Starbucks (NAS: SBUX) is taking a tip from Darwin and the concept of survival of the fittest. The coffee giant's shelling out $30 million to buy California juice company Evolution Fresh, allowing it to go in a different direction to juice up additional growth.
This acquisition will differ from other, lower-profile acquisitions Starbucks has executed over the years, like Ethos water in 2005 and Tazo tea in 1999. In this case, Starbucks plans to open up Evolution Fresh retail juice bars as quickly as next year, so it's going beyond the grocery route to encompass the whole retail experience. (Right now, Evolution Fresh juices are available in Whole Foods Market (NAS: WFM) and PCC outlets on the West Coast).
Generally speaking, I'd be concerned about Starbucks delving heavily into an area that diverges from its usual caffeinated expertise. I had a hard enough time when I fretted that instant coffee might tarnish its brand. (I was wrong. Starbucks pulled this off beautifully with its VIA launch.) Still, I think this is a real winner.
My Foolish colleague Rick Munarriz went into great detail about Starbucks' juicy acquisition yesterday, addressing whether Starbucks' aggressive move into this fruity, juicy arena hurts Jamba Juice (NAS: JMBA) , PepsiCo's (NYS: PEP) Naked, or Coca-Cola's (NYS: KO) Odwalla the most. After all, with Starbucks as a parent, Evolution Fresh will go national.
I recently bought shares of Starbucks for the socially responsible Rising Star portfolio I'm managing for Fool.com, and this acquisition makes this holding even more exciting. (Incidentally, shares of Whole Foods and Pepsi also reside in the portfolio.) Starbucks is addressing the growing health and wellness category, pouring nutritious products that are good for consumers. The super-premium juice market is a $1.6 billion category; the overall health and wellness arena represents $50 billion.
Meanwhile, not only does Evolution Fresh represent a super-premium juice offering, it's also a fairly artisanal one. Founded by the original founder of Naked Juice, Jimmy Rosenberg, Evolution Fresh is touted as one of the only remaining "true juiceries" left; it still cracks, peels, presses, and squeezes its own raw ingredients into the juices. Using its high-pressure pasteurization process, Evolution Fresh's "never heated" juices can boast higher quality and nutritional benefits, since they retain nutrients better than other juices do.
By addressing the health and wellness category (a category that's also strongly inhabited by Whole Foods Market), Starbucks is giving shareholders more reason to be jazzed than its traditional caffeine buzz. What a great evolutionary add-on to Starbucks' core business. This kind of survival-of-the-fittest move sounds awfully healthy to me.
At the time this article was published Alyce Lomax owns shares of Starbucks, PepsiCo, and Whole Foods Market in her personal portfolio. The Motley Fool owns shares of Starbucks, Coca-Cola, Whole Foods Market, and PepsiCo. Motley Fool newsletter services have recommended buying shares of Whole Foods Market, Starbucks, Coca-Cola, and PepsiCo. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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