Starbucks' Surprise Success: Oatmeal

Women, Millennials Make New Breakfast Item Into Best-Seller That Could Reinvent Its Category

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CHICAGO (AdAge.com) -- Starbucks seems to have a slam-dunk new product: oatmeal.

Yes, that mush your grandma pushed on you as a child is shaping up as the company's most successful food launch of all time. Within just a few weeks -- and despite unseasonably warm weather in many markets -- oatmeal has become the best-selling food item throughout Starbucks' entire system, knocking reduced-calorie coffee cake from the top spot.
Hot product: Has been selling well even in warm weather.
Hot product: Has been selling well even in warm weather.

Michelle Gass, the company's senior VP-marketing and category, admitted there was a low bar for comparison. But even so, oatmeal's rise to the top of Starbucks' menu is a bit of a stunner.

"I don't know why," said Darren Tristano, analyst at Technomic, "but [millennials] are eating oatmeal. It blows me away."

But it's not only the younger generation fueling the oats. Many women are big oatmeal eaters -- they are usually 6% more likely than men their age to consume it -- and they eat more when they get older, said NPD Group VP Harry Balzer. About a quarter of women 18 to 34 dish up oatmeal every two weeks, but that number nearly doubles to 46% by age 65.

Reinvention
Of course, those percentages could climb higher if Starbucks manages to make oatmeal trendier. Mr. Balzer theorized that the chain could be reinventing the product, much like the shift to individual packets from the stovetop version did a generation ago. He added that it's a savvy move on Starbucks' part, as the chain's high-ticket items also appeal more to women.

And don't discount a wider resurgence. The category has been boosted in the past over claims that it reduces cholesterol, and in tough economic times, comfort foods -- such as oatmeal -- tend to see an uptick.

According to Information Resources Inc., grocery sales of oatmeal (excluding Wal-Mart) were $896 million over the past year. While that figure was flat, some relatively new and healthier segments of the category are growing at retail. Quaker's Simple Harvest Oatmeal -- a multigrain product with dried fruit -- saw sales grow nearly ninefold over the past year to $20 million. Sales of Quaker's Weight Control oatmeal are also up 6% to $29 million, even though the company's more traditional varieties were flat to slightly down over the same period.

Quaker did not return calls for comment on this story.

Lynn Dornblaser, an analyst with Mintel, said that Starbucks is obviously watching grocery trends and targeting health-conscious women who would normally bring a packet of oatmeal to work. The coffee chain's instant product is served in a cup with a special vented lid, and customers are given a choice of brown sugar, nuts and dried fruit toppings.

"I saw two women in the office this morning who normally have a Starbucks cup and an oatmeal packet, but they had their Starbucks coffee cup and a Starbucks oatmeal cup, and I thought, 'It's working,'" Ms. Dornblaser said.

Quiet rollout
Oatmeal anchors Starbucks' raft of better-you breakfast items introduced after Labor Day. Breakfast has gotten quieter marketing treatment than the company's launch of Pike Place Roast earlier this year, and in-store displays and outdoor work have comprised the advertising buy. Starbucks also sent out offers for free oatmeal to 1.5 million rewards-program members last month.
Michelle Gass, senior VP-marketing and category, Starbucks
Michelle Gass, senior VP-marketing and category, Starbucks

In a drive-thru culture, it's hard to believe that consumers would be willing to pay more for a breakfast that comes with a spoon, several packets and needs to steep for at least three to five minutes. But for Starbucks, the trick is in convincing consumers not to go elsewhere for their food fix. "Who wants to make two stops?" Ms. Gass said. "We're getting existing customers to buy food."

Sharon Zackfia, a William Blair analyst, said that strong September sales bode well for a warm product. "If they're saying it's already doing well, that's pretty encouraging," she said. "The true test of oatmeal will be when the weather gets colder."

She added that the product has higher margins than the average pastry. And it costs more. Oatmeal retails for $2.50, while most pastries are less than $2. Of course it's still cheaper to bring your own.
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