Starbucks Could Give the Juice Business a Look

According to reports from the New York Post, Starbucks (NASDAQ:SBUX) has recently hired veteran juicer Yohana Bencosme, the former manager of the famous Manhattan juice bar Liquiteria. ^[1] Yohana Bencosme is entrusted with training staffers in Starbucks’ Seattle headquarters and with this move Starbucks looks keen to expand its menu and enter into the juice business with the addition of smoothies, wheatgrass and acai. Starbucks’ competitors in the broader market for specialty coffee include McDonald’s (NYSE:MCD), Caribou Coffee (NASDAQ:CBOU) and Peet’s Coffee (NASDAQ:PEET).

See our full analysis for Starbucks

Starbucks and the Juice business

• We believe Starbucks is trying hard to diversify its core operations. There were reports that it is trying to expand into the grocery business. According to Starbucks’ sustainability director Jim Hanna, climate change is going to affect coffee production and bean farmers already have seen the effects including changing rainfall patterns, severe weather, and the presence of new pests. He believes this could pose a threat to company’s supply chain in the coming years.
• Starbucks might want to attract the  younger segment to its store with the launch of a juice bar business. This consumer segment mainly children has remained distant from its stores.
• Starbucks has major expansion plans in Asia specifically in China, India and South Korea. Asian people are known to have a liking for tea and, gradually, it has become a part of their culture. Despite Starbucks’ strong momentum in these regions especially China, it makes sense if it has a wider assortment of offerings as this helps in targeting a wider customer base.
• Starbucks enjoys a strong brand across world. It is comparatively easier for Starbucks to get access to the customers when it introduces a new product.

We believe Starbucks’ management has a long term vision in mind for the company. It is likely that they want to shift away from their present image of a mere coffee chain and diversify into allied businesses including juices.  

Our price estimate for Starbucks stands at $37, implying a discount to the market price.

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1. See: Starbucks Eyes Juice-Bar Business, MSN Money [↩]