I took the challenge and was not all that impressed, but VIA is a line extension for the brand that makes some sense.
Right about now, a successful new product in Starbucks stores would solidify the turn in fortunes at the company. Given Starbucks’ massive retail distribution system in the United States it does not take much to move the needle on sales and profitability. The instant coffee market is a $21 billion category at retail and is dominated by Nescafe and Sanka. There is definitely room for SBUX to take some market share with a high margin product. Obviously, the $21 billion in instant coffee sales are through other channels of distribution so the potential opportunity for SBUX beyond its own store base is big.
This past weekend it was media blitz with VIA ads everywhere, and for the first time in the company’s history, these ads were on TV. While it is way too early to call VIA a success or a failure, I was not overwhelmed and the bloggers are mixed on the product. I am not yet convinced that the typical Starbucks consumer would want to buy instant coffee. Instead, as I said before, I think VIA’s real potential lies in SBUX’s ability to steal market share from both Nescafe and Sanka in the grocery channel.
That being said, on an annual basis, a 1% improvement in SBUX’s U.S. same-store sales growth represents about $65 million in incremental sales. For SBUX this means that each store needs to generate less than $30 a day in incremental sales from VIA (implies only about 10 units per day at $2.95) in order for the company to generate 1% in same-store sales on an annual basis. I believe that the company’s goal is significantly higher than that. That $30 of sales per day per store would add $0.02 to $0.04 in annualized EPS. It is important to remember that VIA is a fiscal 2010 event as the product was just launched early in the first quarter of fiscal 2010. That being said, we look forward to hearing how the product is faring thus far when the company holds its 4Q09 earnings call on November 5.
The table below shows the estimated sales and earnings potential for VIA, but again, we think the company’s targets are higher than what we are assuming. We know there are millions of instant coffee drinkers in the United States, but the question is can SBUX convince them to drink VIA and will they go to Starbuck’s stores (or the web) to buy VIA.
