Starbucks revamps bakery food ingredients

LOS ANGELES Tue Jun 2, 2009 7:02pm EDT

The Starbucks sign is seen outside one of its stores in New York July 3, 2008. REUTERS/Chip East

The Starbucks sign is seen outside one of its stores in New York July 3, 2008.

Credit: Reuters/Chip East

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LOS ANGELES (Reuters) - Starbucks Corp, which has tried for years to jump-start a much-criticized food division, plans to revamp its menu at the end of this month to

lure health- and cost-conscious consumers.

On June 30, the world's top coffee chain will begin selling baked goods without high-fructose corn syrup or artificial flavors and dyes, and will introduce salads and other items.

"Food has been the Achilles' heel of the company ... That statement will be long buried after we launch this program," Michelle Gass, Starbucks' executive vice president of marketing, told Reuters on Tuesday.

The new campaign -- which will be promoted with the tag "Real Food. Simply Delicious" -- follows last year's health and wellness push that added food like oatmeal, smoothies and a protein plate to Starbucks' repertoire.

The ingredient changes, which also include removing preservatives where possible, will affect about 90 percent of the baked goods Starbucks sells and are part of the coffee chain's ongoing efforts to appeal to increasingly health-conscious consumers as recession has damped spending on little luxuries like lattes.

Food prices will not rise as a result, Gass said.

Further, this summer in Dallas, the company is testing a Frappuccino formula that Gass says mirrors what the company is doing with food.

Starbucks' latest move lands as fast-food chains like McDonald's Corp sell more coffee and cappuccinos.

Food accounted for 17 percent of sales at company-operated Starbucks cafes in its fiscal year ended September 2008, up from 15 percent in fiscal 2006.

HEALTH AND WELLNESS

High-fructose corn syrup, a commonly used and relatively inexpensive sweetener in foods ranging from sodas to hamburger buns, has been a lightning rod in the obesity debate.

Nutritionists urge people to restrict calories and focus on natural over processed foods that include preservatives, artificial dyes and flavors and high-fructose corn syrup.

"There is a push toward more natural types of ingredients," said McAdams Wright Ragen analyst Dan Geiman, who noted that companies like Pepsi have introduced new soda products made with cane sugar.

Starbucks' "belief is that health and wellness is a unique opportunity," said William Blair & Co analyst Sharon Zackfia.

Restaurant operators like Chipotle Mexican Grill Inc and Panera Bread Co have emphasized natural ingredients and carved out successful niches in the competitive restaurant market -- despite premium prices.

"To the extent that you can have better quality ingredients, if it favorably impacts the taste profile, that clearly helps," Zackfia said.

Oatmeal is the company's top-selling food item, but analysts said it is difficult to parse out the impact of recent Starbucks' food initiatives because the economic downturn has damped afternoon beverage sales.

In 2007, Starbucks removed artificial trans fat from its food, changed its default milk used in beverages like lattes to 2 percent from whole milk and limited to 500 the number of calories in its food items. It also uses hormone-free milk.

Reworked baked goods that will debut at month-end include Banana Walnut Bread, which is made from 11 ingredients -- a number closer to home-made, a reduced fat Very Berry Coffee Cake that is 20 percent fruit, and an organic blueberry bar that was previously available only in the Pacific Northwest and a handful of other markets.

More indulgent treats include reformulated oatmeal cookies as well as double chocolate cookies and brownies.

A new Strawberry Banana Vivanno will be added to the menu, which will also include low-calorie salads and breakfast sandwiches made with egg whites.

Shares in Starbucks ended down 10 cents at $14.82.

(Reporting by Lisa Baertlein; Editing by Edwin Chan and Steve Orlofsky)

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