Starbucks Adds a Few Doses of Flavor to Perk Up Its Packaged-Coffee Sales

Armed With a Buzzy Campaign, Giant Taps Retail Market With Natural Fusions

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NEW YORK ( -- Coffee purists might turn up their noses at flavored coffee beans, but Starbucks' packaged-coffee division expects the category will be its next avenue of growth.

FEVER FOR THE FLAVOR: The primary target for the Natural Fusions line will be Starbucks customers who are going elsewhere for flavored coffees.
FEVER FOR THE FLAVOR: The primary target for the Natural Fusions line will be Starbucks customers who are going elsewhere for flavored coffees.
The coffee giant, looking to grab back flavored-coffee fans forced to seek out other brands, is rolling out caramel, vanilla and cinnamon coffee beans to retailers and supporting it with one of the most extensive campaigns it's ever done for its packaged-coffee division. It's an interesting move for the company, which has shunned flavored coffee beans in its own retail stores.

The line, dubbed Natural Fusions, may be somewhat of a departure, but so was Via. "Flavored coffee isn't the first thing you think of when you think of Starbucks, but they've shown they're willing to explore other platforms," said R.J. Hottovy, an analyst with Morningstar. "We've seen Via exceed expectations in the last year. So, it's a measured gamble for the company at this point."

Michele Waits, director-packaged coffee at Starbucks, said that after three years in development, Natural Fusions, created in partnership with Kraft, does live up to Starbucks' standards. It is more "coffee forward" she said, when compared to other flavored coffees on the market. The $377 million category is dominated by players including Dunkin' Donuts, Millstone and Godiva.

The impetus for the launch was two-fold. The company discovered that 60% of its bagged coffee customers were buying flavored coffee, albeit from competitors, because Starbucks didn't have an offering. And it was looking for ways to grow, beyond just line extensions and additional distribution.

"Starbucks really invented the premium-coffee category within grocery. Over the past couple of years, we've been building more and more distribution. We've got close to 90% reach now," Ms. Waits explained. "We were forced to regroup in '08 and '09 and figure out how we were going to grow beyond just extensions and new distribution. It's analogous to the door growth at our retail stores."

Ms. Waits said the primary target for the new products will be those Starbucks customers who are going elsewhere for flavored coffees. The secondary target will be flavored-coffee users who are not purchasing Starbucks. "Originally, we thought the more fertile ground would be the Starbucks user who hasn't bought flavored before. But those people are hard to convert," she said.

Ms. Waits says that during consumer testing, 75% of consumers said they intended to buy the product, which is above the norm for new-product testing. In terms of demographics, the group interested in the products tends to skew female, with the sweet spot being women aged 45-plus. That was pretty much what Starbucks expected. What was unexpected was that the products were still viewed as a morning coffee, rather than an afternoon treat.

"It's a variety play for [consumers]," Ms. Waits said. "It's still primarily a morning coffee. It's just going to be an addition to the repertoire."

The products won't be available in Starbucks' own retail stores just yet, but executives don't rule that out as a possibility. The packaged-goods division will be targeting loyalists and consumers who visit Starbucks' stores, however, through the Starbucks Rewards program.

Mr. Hottovy says he believes Starbucks could move Natural Fusions into its own stores, depending on how it performs at grocery in the coming months. "It could develop into a nice revenue stream for the company," he said.

"They've learned their lessons over the last decade about not getting too far out of the coffee-purist space. We won't see another venture in entertainment. But [we will see] reasonable extensions of current products," he added.

No TV is planned as of yet.

In addition to direct marketing, the campaign, which is rolling out now, will include print, digital, newspaper inserts, in-store marketing and sampling. Ms. Waits declined to comment on spending behind the effort. Starbucks spent $33 million on measured media last year, according to Ad Age's Leading National Advertisers report. Creative depicts a romance between the flavor -- a vanilla bean, cinnamon stick and cubes of caramel -- and the coffee bean. BBDO, New York is Starbucks' creative agency.

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