August 14, 2007 / 2:58 AM / in 10 years

Starbucks aims high for its consumer products brand

SEATTLE (Reuters) - Starbucks Corp. (SBUX.O) sees ample room for growth in selling Starbucks-branded products such as coffee beans, ice cream and chocolate in supermarkets and convenience stores, a company executive said on Monday.

Gerry Lopez, president of Starbucks’ consumer products group, said the company is still far from maximizing its opportunities to sell the coffee chain’s branded goods to outside retailers.

Lopez’s challenge is to expand the Starbucks brand, already seen by many as ubiquitous, to areas outside of its stores without diluting a brand strong enough to drive people to pay a hefty premium for a cup of coffee.

The main opportunity, according to Lopez, comes from the sales of Starbucks coffee beans, or packaged coffee, to supermarkets where sales of premium coffee are growing at more than 10 percent a year in the face of flat to lower overall coffee sales.

“We are far from hitting the limit on this thing,” said Lopez in an interview with Reuters. “Clearly, there is a lot of runway down there.”

Starbucks sold 56 million lbs (25.4 million kg) of packaged coffee at supermarkets and other retailers last year. It sells packaged coffee with joint venture partner Kraft Foods Inc. KFT.N, accounting for about 4 percent of U.S. market share.

Packaged coffees account for about two-thirds of the consumer products group’s revenue, which reported a 24 percent increase in net revenue to $87.1 million in the quarter ended July 1. The segment accounts for nearly 20 percent of Starbucks’ total operating profit.

    The coffee chain said mainstream U.S. coffee brands like Folgers, manufactured by Procter & Gamble (PG.N), and Maxwell House from Kraft account for about 50 percent of supermarket coffee sales.

    However, as consumers become more educated about a product category like coffee or wine, they often consume more premium brands. Starbucks said it can sell its coffee beans at more than three times the price of mainstream brands.

    “Given the option for quality, people will exercise it. We are proof of that,” said Lopez.

    In line with that strategy, Starbucks said it plans to start selling “Limited Reserve” coffees in U.S. supermarkets. It will offer bags of rare coffee beans from high-end farms in Asia, Latin America and Africa.

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