Market Overview

Could Starbucks Eye Acquisitions As It Looks To Expand Its Consumer Products Business?

Like many other consumer product companies, Starbucks (NASDAQ: SBUX) was hit hard by the recession. In a recent interview with Bruce Horovitz from USA Today, Starbucks CEO Howard Schultz discusses the company's comeback, culture, and growth outlook.

There is no doubt that Starbucks has changed American culture. The growth of Starbucks has made it cool to hang out in coffee shops again. Starbucks has a very unique culture that has rubbed off on our society. Starbucks allows its customers to have a place to hang outside of home or the office. It creates a warm welcoming ambiance for its customers to come to and relax.

Starbucks continues to find ways to innovate around the coffee bean. Its Frappuccino's have grown to a $2 billion business according to Schultz and the new instant coffee, Starbucks Via has become a hit sensation, which Schultz is especially proud of. Schultz adds that Starbucks is constantly trying to sell new products in stores and it even has beer and wine in some of its locations, which has shown to be successful, though one product that will never hit the shelves is tobacco.

Schultz says that Starbucks plans on expanding rapidly, even a rate of 100 to 200 stores annually for some time, isn't out of the question. With Starbucks being so prevalent already, where is the room to expand so rapidly? Schultz adds that he would love to see a location in Vietnam. Since the US market is already quite penetrated, the main growth driver will be abroad. Now the question is will Starbucks' same model that made it a success in the US be as profitable overseas in different cultures?

CEO Schultz has recently said that Starbucks is looking to possibly make acquisitions to expand its consumer products business. According to a recent Reuters report, Starbucks is looking for growth beyond its namesake cafes, the world's biggest coffee chain has made clear its intentions to strike deals in the fast-growing single-cup brewing segment. There could be a number of ways Starbucks will approach this growth story the the CEO indicated that the company is due for an acquisition.

Since coffee bean prices are on the rise and even though Starbucks has already locked in coffee prices for 2011, it may bode well for the company to enter a space it has not dominated yet like food or another type of beverage. Starbucks food selection and quality has improved over time and CEO Howard Schultz made this point as well. Cosi (NASDAQ: COSI), which is a smaller restaurant chain based in Illinois could be a good fit as it has a similar ambiance and welcoming environment similar to Starbucks. It is well know for its creative flatbread sandwiches and salads, which is something that could mesh well with the Starbucks experience. Cosi is still recovering from the recession but don't count them out to be a contender or even a possible takeover target.

Another chain that could be a good suitor for Starbucks is Jamba Juice (NASDAQ: JMBA). Jamba Juice is well known for its fruit smoothies and sandwiches. Jamba could be a solid integration with Starbucks because of its high smoothie market penetration. Not only does it have a dedicated customer base, its food selection is also quite healthy as many of Jamba's products are organic. Jamba operates in 22 states and has over 700 locations, which may be small compared to Starbucks, but would be a nice addition to the coffee giant's balance sheet.

SBUX is trading higher at $34.36

JMBA is trading higher at $2.28

COSI is trading flat at $1.40

DISCLOSURE: No position in SBUX, JMBA, COSI

Posted-In: Bruce Horovitz Howard Schultz Reuters usa todayLong Ideas Rumors Trading Ideas Best of Benzinga

 

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