NEW YORK (Reuters) - Starbucks Corp (SBUX.O), whose chief executive is trying to fight “misperceptions about affordability” for the coffee chain’s brands, unveiled on Tuesday its new Via Ready Brew instant coffee that sells for less than $1 per cup.
The latest move from the Seattle company, which grew rapidly by selling pricey lattes and other “affordable luxuries,” comes as management has changed course since its business succumbed to over-expansion and the world tumbled into recession.
Starbucks now hopes that Via will expand its reach in the $17 billion global instant coffee market by appealing to travelers, campers, home coffee brewers and other coffee lovers who have their coffee outside one of the company’s 12,000 global cafes.
The company, which recently announced another round of store closures and job cuts, will begin selling Via next month in select markets in the United States and in London. A trio of single-serve Via packets will sell for $2.95 in the United States and 12 packets will be priced at $9.95.
“The coffee consumption landscape is ripe for disruption,” Starbucks Chief Executive Howard Schultz said. “This is a big move for us -- an opportunity to reinvent a category, create new rituals and grow our customer base.”
Schultz said Via’s target customer in the United States is the brewed coffee drinker.
Overseas, the company aims to win over new instant coffee users and to steal market share from established brands such Nestle SA’s NESN.VX Nescafe and Kraft Foods Inc’s KFT.N Sanka.
The company already faces mounting competition from U.S. rivals who are doing a good job of weathering the economic storm.
Fast-food leader McDonald’s Corp (MCD.N) is rolling out its McCafe espresso drinks. Panera Bread Co PNRA.O, which has offered new coffee and breakfast items, plans to test steel-cut oatmeal after Starbucks’ instant oatmeal found success.
Instant coffee is not exceptionally popular in Starbucks’ key U.S. market, but Starbucks said it accounts for about 40 percent of coffee sales outside the United States.
To that end, Starbucks said instant coffee accounts for 81 percent of coffee sold in the United Kingdom and 63 percent of coffee sales in Japan. Starbucks has stores in both of those markets.
Morningstar analyst R.J. Hottovy said it will be difficult to convince Starbucks fans the instant coffee is the same quality as what they are used to getting in stores.
“This is a tremendous opportunity, especially globally. But it’s going to be a little tougher in the U.S. market,” he said.
Since its U.S. business started slowing in late 2007, Starbucks has made plans to shutter about 1,000 stores worldwide, revamped its breakfast menu, announced discounted breakfast combinations, introduced new smoothies and other drinks and rolled out loyalty and discount programs.
Starbucks already sells bags of ground coffee, prepared drinks and some branded food items through grocery stores in the United States and certain overseas markets.
In January, Schultz told analysts that Starbucks is increasingly viewing its consumer packaged business as central to its business strategy.
Kraft distributes products for Starbucks. Its chief executive told Reuters it has been “very actively engaged” in new Starbucks ideas, but declined to comment on Via.
Starbucks shares were down 48 cents, or 4.7 percent, at $9.65 in afternoon trading on the Nasdaq.
Additional reporting by Ruben Ramirez in New York and Brad Dorfman in Chicago; Editing by Dave Zimmerman