NEW YORK — Starbucks Corp. has evolved its approach to menu innovation over the past two years to focus less on food and more on beverages. Previously, efforts were evenly split between food and beverage, said Patrick J. Grismer, chief financial officer.
“There’s no doubt that food remains an important part of what we offer,” Grismer said during a Dec. 3 presentation at the Morgan Stanley Global Consumer Conference in New York. “We recognize that we are a beverage-forward concept. Beverage is our key point of differentiation. It contributed five of the six points of comp sales growth in the most recent quarter in the US. And so by applying more focus and more resource to beverage innovation and driving more consumer research to drive more insights around what is going to resonate most with our customer base, particularly young customers, we’ve identified those insights that have allowed us to introduce new products that have performed better than in earlier years.”
In particular, cold beverages have figured prominently in Seattle-based Starbucks’ beverage growth over the past couple of years, he said, citing success of nitrogen-infused cold-brew coffee.
“And this speaks to what appeals to young people and also what resonates across all dayparts,” Grismer said. “Cold beverages have performed very well for us, not only in the afternoon or as you would expect during the warmer months, but truly year-round. And even in the morning hours where oftentimes, consumers are looking for something that’s more refreshing, not necessarily something that is strictly hot.”
Starbucks also is leaning less into limited-time offers, what the company calls “sparks,” which drove spikes in the business and created disruptions in store operations, Grismer said. The new strategy is developing beverage platforms that the company may build upon over time. An example is Cold Foam, a line of iced coffee beverages topped with a creamy, frothy cap. Cold Foam was first introduced in Starbucks Roastery locations in 2014 and expanded to Starbucks stores nationwide in 2018.
“We used Cold Foam to launch our Cloud Macchiato platform,” Grismer said. “We introduced Cold Foam with the hugely popular Pumpkin Cream Cold Foam beverage that was part of our fall lineup. And Cold Foam is the key differentiator for the Irish Cream Cold Foam that we launched just today. So those are some examples of how we have introduced platforms that help us introduce new innovation in ways that don’t drive a lot of disruption in our stores.”
Meanwhile, Starbucks’ Frappuccino sales have declined as consumers pivot away from indulgent beverages, creating a negative impact on afternoon sales, Grismer said.
“What has happened is two things,” he said. “No. 1, the reduction or the decline in Frappuccino sales has plateaued. It’s still a meaningful part of our business, but we’re not seeing the rate of decline that we had seen in previous years. And at the same time, we’ve been very successful with what we’ve launched by way of new cold beverages that have taken up some of that demand. So not just Nitro Cold Brew or Cold Foam Cold Brew but also our Refreshers line and our line of flavored iced teas. Those have all performed really well and have contributed to the turnaround in our afternoon business for the last few quarters.”