Starbucks has gotten a lot of attention — and revenue — from its Frappuccino drinks. Now, with Frappuccino sales down, Starbucks plans to push other cold drinks to make up the missing income.
On its third quarter conference call Thursday, Starbucks Chief Operating Officer Rosalind Brewer said the beverage company will stress chilled drinks such as nitro cold brew draft coffee, its fruity Refreshers, iced tea and cold brew coffee.
It’s crucial for Starbucks to make up the lost Frappuccino revenue, because it accounts for 11 percent of Starbucks U.S. revenue.
All those categories are up, says Brewer, and she said nitro cold brew is “really resonating with our male millennials.” A reason could be that Starbucks is marketing the nitrogen-infused coffee much like craft brewers do beer, with baristas handing out samples and pulling it from a draft spigot.
But sales of the other cold drinks are “not enough yet” to offset the decline in Frappuccino sales during the first three quarters of its fiscal 2018, compared with last year, Brewer said.
But there will be an especially big push for draft nitro coffee, which Starbucks expects to have available in 2,800 stores during the 2018 fiscal year, which ends in October. By the end of fiscal 2019, Brewer estimated it will be in 6,000 stores.
Last month, Starbucks CEO Kevin Johnson told investors the company really didn’t know why people were losing interest in Frappuccinos, which have enjoyed strong sales in recent years.
Frappuccino sales in the first two quarters of fiscal 2018 fell 3 percent from 2017, Johnson said. By contrast, Frappuccino sales rose 4 percent in fiscal 2017 from the year before, and the company was seeing double-digit Frappuccino sales growth earlier this decade.
Last year, the company won the Internet when it launched the Unicorn Frappuccino, a pink and blue drink that I wrote tasted like a child’s birthday party.
It has tried a number of times to mimic its social media success with other variations, like the Zombie Frappuccino and a Christmas Tree version, though none of the follow up drinks matched the Unicorn’s popularity.
Frappuccinos generally cost more than other Starbucks cold drinks, running $4 and up, and they also have many more calories than the company’s basic coffee and tea drinks.
Starbucks customers are much more interested in cold drinks than hot coffee and tea. Iced drinks are now more than 50 percent of its business, compared with 37 percent five years ago.
So, consumers at least are interested in staying with cold drinks, but they are showing they want drinks that are less gimmicky and with fewer calories.
Starbucks hasn’t always fared well with its cold beverage innovations. In In 2014, Starbucks rolled out Fizzio handcrafted carbonated sodas, which came in root beer, ginger ale and lemon ale. Starbucks installed Fizzio machines in 3,500 stores in 16 states, mainly out west.
At the time, Starbucks was competing with home carbonation machines. But it ran into some significant problems.
Baristas told me that the machines frequently broke, and there were long down times awaiting repairs. And Starbucks’ minimal locations meant customers could not count on getting one of the carbonated beverages unless they found a Starbucks with a Fizzio machine.
Starbucks quietly dropped Fizzio in fall, 2016.
In other news from the conference call, Brewer said that Starbucks soon will be adjusting its Rewards program, which underwent an overhaul a couple of years ago.
The program used to offer free drinks and food depending on the number of items a customer purchased. Starbucks then changed that to stars given out based on the value of what was purchased.
It takes 125 stars for a customer to earn a free drink or food. Brewer said that will change to allow customers to obtain lower priced items sooner while redeeming fewer stars. But, they will have to exchange more stars for food or for packaged coffee.
More details of the rewards program change will be announced later.