Starbucks plans instant coffee debut

LOS ANGELES Fri Feb 13, 2009 12:34am EST

A pedestrian passes a branch of Starbucks Coffee, in central London November 25, 2008. REUTERS/Toby Melville

A pedestrian passes a branch of Starbucks Coffee, in central London November 25, 2008.

Credit: Reuters/Toby Melville

LOS ANGELES (Reuters) - Starbucks (SBUX.O) is moving into the instant coffee market as it works to shake off its reputation as a seller of pricey coffee drinks.

The Seattle company plans to unveil Via instant coffee on Tuesday and to make it available next month.

Starbucks says the new drink item was 20 years in development and replicates the taste of Starbucks coffee. A trio of single-serve Via packets will sell for $2.95 (2.08 pounds) and 12 packets will be priced at $9.95.

The move pits the company, which already sells its coffee beans in grocery stores and in its own shops, against giant food sellers with established instant coffee brands. They include Nescafe maker Nestle (NESN.VX) and Sanka seller Kraft Foods KFT.N.

Instant coffee, which Starbucks says has a $17 billion global market, was more popular decades ago in the United States and remains a staple in parts of Europe and Asia.

In the latest quarter, the United States contributed $2 billion of the company's $2.6 billion in total revenue.

MOVE TO VALUE

Starbucks started paying the price for building too many stores at around the same time that the U.S. economy hit the skids. Its customers are visiting less often and some have switched to brewing coffee at home in a bid to save money.

"Starbucks is trying to go where the customer is," said Telsey Advisory Group analyst Tom Forte.

Forte said the move fits with the company's recently announced plan to offer breakfast food and coffee drinks at a discount.

That move landed as fast-food giant McDonald's (MCD.N) has been adding lower-priced espresso drinks to its already dominant breakfast business.

Starbucks is "giving a customer an opportunity to experience the brand at a lower price point," Forte said. "The company is being aggressive in trying to generate sales in an increasingly weak economic environment."

Since its business began slowing in late 2007, Starbucks has closed more than a thousand stores, cut staff and reworked its menus.

Last year it rolled out loyalty programs and began offering discounts on purchases -- particularly during its slow afternoon hours.

William Blair & Co analyst Sharon Zackfia, who said she wanted more details on the new product and the company's plans, said she was keeping expectations in check.

"I don't think it's going to move the needle much one way or another ... I would be pleasantly surprised," Zackfia said.

(Editing by Andre Grenon, Matthew Lewis and Carol Bishopric)

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