Starbucks recently introduced a new selection of protein lattes and cold foam drinks to its menu in the U.S. and Canada. This launch is aimed at enhancing the company’s turnaround strategy and is available year-round. The introduction of these products coincides with a slight increase in Starbucks’ stock prices, which have dipped nearly 10% this year but saw a rise of over 2% following the announcement.
Potential Impact of New Protein Drinks
Wells Fargo analysts view these protein beverages as a significant catalyst for boosting U.S. sales. They estimate that if these drinks are integrated into customer orders at a 10% rate, it could lead to approximately 2.5 percentage points added to same-store sales, translating to an increase of around $720 million in revenue.
The U.S. market for quick-service protein drinks is estimated at $10 billion. If Starbucks captures even 10% of this market, it could mean an additional $1 billion in sales. The growing trend of health-conscious consumers is likely to expand Starbucks’ customer base, with 70% of Americans seeking to incorporate more protein into their diets.
Starbucks’ Historical Challenges
- Starbucks has previously experimented with new beverages, but not all have been successful.
- Former CEO Laxman Narasimhan launched drinks such as Summer-Berry Refreshers, which did not significantly impact growth.
- Howard Schultz introduced the Oleato line, which garnered initial interest but failed to connect with consumers long-term.
Current Strategy Under CEO Brian Niccol
In light of past challenges, current CEO Brian Niccol implemented a structured “Starting 5” stage-gate process for the protein drinks. This approach tests market demand in select locations before a broader release. Analysts note that this method may increase the chances of customer acceptance compared to previous launches.
During his tenure at Chipotle, Niccol successfully executed a similar strategy, resulting in profitable menu innovations like queso blanco and lifestyle bowls. If Starbucks’ protein drinks succeed, it could validate Niccol’s ongoing turnaround initiatives, which include cost-saving restructuring measures expected to generate over $175 million in annual savings.
Outlook and Investor Sentiment
Despite these positive developments, Starbucks faces ongoing challenges. Analysts predict core North American sales may remain stagnant, while rising coffee prices and the financial burden of restructuring could hinder profitability. Wells Fargo has adjusted its earnings forecasts for the fiscal years 2025 and 2026, mentioning that effective execution of the turnaround is still in its early stages.
Starbucks’ stock currently reflects investor skepticism, with shares down approximately 10% since the release of its fiscal third-quarter earnings. Wells Fargo maintains a price target of $105 per share, indicating a cautious but optimistic outlook.
In conclusion, while Starbucks’ short-term challenges persist, the introduction of protein beverages aligns with evolving consumer health trends. With a successful execution, these new offerings could play a pivotal role in restoring investor confidence and revitalizing the company’s growth trajectory.
