LOS ANGELES (Reuters) - Chief Executive Howard Schultz called Starbucks Corp’s Via Ready Brew “perhaps the biggest opportunity” in company history as he prepared for the instant coffee product’s North American roll-out on Tuesday.
With Via, the coffee chain that introduced espresso drinks to the masses, hopes to steal a big slice of the $21 billion global instant coffee market from established players like Nestle SA’s Nescafe and Kraft Foods Inc’s Sanka.
“This is the biggest investment we’ve made in a national launch,” said Schultz, who is navigating a turnaround at Starbucks while looking for new products to drive profits.
Starbucks will trumpet Via’s debut in the United States and Canada with a week-long advertising campaign that will highlight in-store taste tests pitting Via against Starbucks brewed coffee.
Some analysts have questioned whether U.S. coffee drinkers will flock to Via, particularly since it will compete with familiar and far less expensive products.
Schultz said that due to the higher quality of Via, it would not compete with existing instant coffee products. He added that Via did not cannibalize Starbucks main business in markets where it was tested.
“This is not your grandmother’s instant coffee,” Schultz said. “The quality of Starbucks Via is a mirror image of the quality and taste of Starbucks brewed coffee.”
While the CEO said that Via “exceeded expectations” when it was tested in Seattle, Chicago and London, he declined to reveal expectations for Via profits, the cost of the advertising campaign or the timing of Via’s launch in other parts of the world.
A trio of single-serve Via packets will sell for $2.95 in the United States and 12 packets will sell for $9.95. Those prices are significantly higher than Nescafe’s Taster’s Choice single-serve packets that sell in Los Angeles for roughly $1.50 for six and around $4 for 20.
Starbucks aficionados “won’t balk at the price” of Via if they believe it delivers on taste, said Bill Smead, portfolio manager of the Smead Value Fund in Seattle.
SLICE OF A $21 BILLION PIE
William Blair & Co analyst Sharon Zackfia said Via’s greatest potential lies in overseas markets where instant coffee still dominates.
Still, she does believe that Via has added some U.S. coffee drinkers to the ranks of instant coffee users.
“I think (Starbucks) can get a slice of the pie,” she said. “In Seattle and Chicago, I think they’ve grown the pie.”
Analysts say that grocery stores will be key to Via’s success.
Schultz said Starbucks does not yet have a partner to sell Via in supermarkets, but he promises that such a deal will be announced in 2010.
Meanwhile, Schultz said, shoppers can find Via at Starbucks cafes, on United Airlines flights and in Target, Costco, REI, Office Depot and Barnes & Noble stores.
“We think (Via) will have similar results to Starbucks frappuccino and ice cream” products sold in grocery stores, portfolio manager Smead said.
Starbucks partners with PepsiCo on bottled frappuccino and with Unilever on ice cream.
“I don’t think it will be the core of the business, but it will be a very profitable line,” Smead said of Via.
Zackfia said it has been hard for analysts to predict what Via’s impact would be, so they have taken a very conservative approach with regard to its impact on Starbucks profits.
“It could be a potentially positive wild card,” Zackfia said.
Reporting by Lisa Baertlein; Editing Bernard Orr
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