First it was instant coffee, now it’s flavored

SAN FRANCISCO (MarketWatch) – After five years of product development, Starbucks Corp. sells bags of cinnamon, caramel and vanilla flavored coffees at Target Corp. stores, one of its latest moves to attract more drinkers.

Flavored coffee follows Starbucks’ entry into the instant coffee market last fall with the launch of Via, a product that is expected to generate $ 100 million in sales in its first year. The company plans to use the two products to gain a foothold in grocery stores, where it already sells regular coffee, coffee drinks and ice cream.

Movements are part of Starbucks SBUX,
-0.84%
broader plans to expand its brand and increase sales outside of its cafes.

“Starbucks is really tackling the broader coffee market and trying to strengthen the brand away from home and at home,” said Greg Schroeder, analyst at Wisco Research. “They will grow the [flavored coffee] Marlet.”

At an investor conference in Sanford Bernstein on June 2, Starbucks chief executive Howard Schultz said selling Starbucks coffee in grocery stores has enabled the company to reach many customers who do not frequent their cafes, tapping into new sources of income and profit. He pointed out that 50% of the purchased Via packages are consumed at home.

Called Starbucks Natural Fusions, consumers can choose from a choice of cinnamon, vanilla, or caramel flavored coffees. The 11-ounce bags, priced at around $ 8.99, will be rolling out to Safeway and Kroger supermarkets over the summer. Interestingly, they won’t be offered at the company’s 11,121 US coffee shops.

On grocery store shelves, Starbucks will carry flavored brands such as Godiva, Dunkin Donuts, Millstone and Maxwell House. JM Smucker Co. SJM,
-0.18%
says Millstone; Kraft Foods Inc. KFT
Maxwell House product.

Sales of flavored ground coffee and whole bean coffee in the United States in 2009 reached $ 199 million at supermarkets, drugstores and mass food retailers. This is a 28% increase from the $ 155 million in 2005, Starbucks said. Data excludes sales at Wal-Mart, Sam’s Club and Costco stores.

Starbucks flavored coffee is the brainchild of Tom Jones, director of beverage research for the company, and Emily Sussman, senior product manager. Jones was the master tea blender at Tazo Tea, helping to develop peach and mango tea concoctions.

Early on, Jones said the goal was to create a product that eschews artificial ingredients and makes flavors more subtle. The coffees use real ground cinnamon from Sumatra, sarsaparilla root from India and ground nutmeg from Indonesia.

He wanted to reverse the equation by doing more on the coffee.

The project was rigorous. Jones said it took a year to find the right blend of Latin American Arabica beans to form the basis for the flavored blends. Sometimes, he said, he tasted four different roast profiles in one day, created by Starbucks’ in-house team of coffee roasters and tasters.

At the company’s headquarters in Seattle, there is an area adjacent to the office booths known as the “tasting room.” There, a small team regularly performs taste tests to find coffees the company can sell.

“We start with a roast that complements the flavor we’re trying to get,” according to Jones. “It’s such a different approach to making flavored coffee. “

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