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Starbucks Has Yet to Capitalize on Its Mug Opportunity

NEW YORK (TheStreet) -- Starbucks (SBUX - Get Report) is doing amazing things in integrating mobile technology into its global store base. McDonald's (MCD), Burger King (BKW) and Dunkin' Donuts (DNKN) are so far behind the green and white mermaid it's laughable. As the company's mobile initiatives enhance how guests interact with the stores while there, and not there, Starbucks over time should experience a nice lift in its long-term transaction counts and average transaction value.

All this, however, overlooks one of the simplest financial opportunities for the company: Improved sales of tumblers and mugs.

According to Starbucks' vice president of investor relations, JoAnn DeGrande, there is "no purposely effort around mugs and tumblers," and the company seeks to keep "enough inventory to stay relevant."  General merchandise, DeGrandes said, is "lower margin than our coffee." Recent initiatives, noted DeGrande, include introducing "city mugs" relevant to local markets, as well as a "new reusable cup that has a 30-day or so usage." 

But with just 3%, or $446 million, of its fiscal 2013 sales derived from general merchandise such as mugs and tumblers, an uptick in sales could add to Starbucks' bottom line.

According to its Web site, Starbucks since 1985 has rewarded customers with a 10-cent discount when they bring in a personal tumbler. In 2013, the company made 46.9 million beverages at company-owned stores in the U.S., U.K., France, Germany, and Netherlands and only 1.8% of those were sold in personal tumblers. Up until a few years ago, Starbucks had a goal (which has since been revised downward) to serve 25% of beverages made in its stores in personal tumblers by 2015. Starbucks uses about 4 billion disposable cups each year.

At newly renovated Starbucks locations, the company is prominently displaying its tumblers and mugs. Starbucks also has introduced new ceramic mugs and tumblers that are akin to fashion statements for caffeine consumption, and make fantastic conversation pieces on Instagram, Twitter, or sitting inside the store surfing the Internet.

To realize the full potential of this sales and profit opportunity, Starbucks has to do what it did with the product contained in the cup: Pitch it as such a daily necessity that it becomes absorbed into customers' lifestyles. Or as pictured here (a person could draw on the mug with a marker), keep on developing interesting products that a consumer will want to invest in as a means to look cool within his social community.

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-- By Brian Sozzi CEO of Belus Capital Advisors, analyst to TheStreet. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff. At the time of this publication, Belus Capital Advisors rated Starbucks shares at a hold. Brian Sozzi is the CEO and Chief Equities Strategist of Belus Capital Advisors. He is responsible for developing and managing an equities portfolio of mid- and large-cap positions, in addition to leading the firm's digital content initiatives. He is also a personal finance columnist for Men's Health magazine.

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