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Starbucks' Juice Gamble, and 3 Deals That Changed Everything

NEW YORK ( TheStreet) - Starbucks' (SBUX - Get Report) shares are up over 40% for 2011, but what if the caffeine-fueled juggernaut jumps into the New Year with a deal that leaves its coffee identity in the dust?

In November, the Seattle -based company announced a plan to revolutionize the juice and health food markets with a $30 million purchase of juice-seller Evolution Fresh. While a minor deal compared to Starbucks' $34.6 billion market cap, history has shown that small, strategic deals can quickly become as important to profits as an acquirers core business.

If Starbucks' juice foray goes as planned, it may join the likes of Disney (DIS - Get Report), PepsiCo (PEP - Get Report) and Google (GOOG - Get Report) in benefitting from an opportunistic diversification, just as few are watching. It also would be another big move for Starbucks' aged-Sumatra loving Chief Executive Howard Schultz, who was named the business person of the year by Fortune Magazine in December.

Starbucks' juices move comes as the company targets growth away from in-store coffee sales. Since 2008, Starbucks stores are barely up in number, while revenues have grown 12.5%, bolstered by its burgeoning specialty and consumer products businesses. To grow revenue and fuel shares, Starbucks is increasingly diverse in its in-store wares and products offerings.

That contrasts to growth from an epic store expansion in the mid-2000s, which led comedian Lewis Black to proclaim he'd located the end of the universe when spotting one Starbucks across the street from another. Even if the universe's limits are still unknown, the store growth gave way to an underperformance in shares and a new model emerged.

As Starbucks halted store growth with the return of Schultz as CEO in 2008, its consumer products business since doubled sales and is now a key to the company's $1 billion-plus in annual profit. Starbucks Frappuccino bottles, packaged coffee and Tazo Tea bags are among the brands within CPG, which are sold in Starbucks stores, supermarkets and via distribution agreements with other foods giants like Kraft (KFT).

Within Starbucks' branded retail outlets, foods from egg wraps to whoopie pies, in addition to rollouts of new coffee drinks like Pumpkin Spice Latte's, easy-to-brew Via coffee packs and smoothie offerings have bolstered in-store sales. Evolution Fresh products and plans for new specialty juice-selling retail outlets are expected to add to Starbucks' diversification.

See top rated restaurant stocks for more on Starbucks.

When announcing the deal, Starbucks said that it will first sell Evolution Fresh juices in its coffee-selling chains outlets -- and in mid-2012 it will use the purchase to introduce a new health and wellness line of stores. To make the investment pay off relative to expectations, Starbucks said it will also invest in distribution and growth of juices products.

Nevertheless, Evolution Fresh is a small deal for the roaster founded in Seattle's Pike Place market in 1971 and that carries its name as an homage to a character in Herman Melville's Moby Dick. In announcing the deal Schultz said on an analyst call, "even though this is a small acquisition in size, it is a significant strategic decision and direction for the company." The purchase, "will reinvent the $1.6 billion super-premium juice segment, its significant next step in entering the larger $50 billion Health and Wellness sector," Starbucks added in a press release.

If Evolution Fresh were to be the coup that Schultz expects, the $30 million acquisition may create a juice bar that one day houses juicers as recognizable as the Starbucks barista.

Continue to see other small acquisitions that juiced the profits of some U.S. blue chips.
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DIS $90.26 1.60%
GOOG $681.92 -0.32%
PEP $96.87 -0.77%
SBUX $54.92 -0.40%
AAPL $93.65 -0.66%


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