News emerged today unveiling an agreement between BKC and SBUX to offer Seattle’s Best Coffee in approximately 7,250 Burger King restaurants across the United States by September 2010. This is a positive for both companies.
On their last earnings call, SBUX made it clear that they saw growth potential in the Seattle’s Best Coffee brand. Management stated that its research strongly suggested that SBUX had an “opportunity to position SBC with new customers” and that they “plan to create compelling franchising and distribution opportunities in 2010 and beyond”. SBC is already in Subway restaurants. Starbucks sees SBC as an opportunity to increase its overall share of the coffee market. We believe that the partnership with Burger King will offer an effective vehicle for Starbucks to gain further traction in the market.
BKC stands to gain from the agreement also. For the second fiscal quarter, ended 12/31, Burger King’s traffic grew year-over-year in all day parts except breakfast. In order to compete with McDonald’s during the breakfast day part, it has been clear that a premium coffee program would greatly aid that effort. Serving SBC in Burger King is likely to have a positive impact on breakfast traffic. It was reported that BKC will begin rolling out the coffee brand in the summer to better compete with MCD’s McCafe drinks and be nationwide by September. During BKC’s most recent earnings call, management hinted at upcoming initiatives to address their breakfast offerings, “…we obviously have a lot of activity happening in our pipeline against breakfast. We do have upcoming in April, some breakfast value news that we will be advertising in the market.” Whether or not there is more incremental news regarding Burger King’s breakfast menu, I view this news as a modest positive for the company.