Starbucks to enter soft-drink wars this summer

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Starbucks, eager to make money well beyond the realm of coffee, is officially entering the soda wars.

This summer, the coffee shop’s baristas will offer a handcrafted carbonated beverage dubbed “Fizzio” in 3,000 stores in the Sunbelt, as well as in Singapore, South Korea and several cities in China, CEO Howard Schultz said Thursday.

The move follows what he said was “the overwhelming success” of the company’s recent experimentation with carbonated beverages, and aims to provide a “healthy, all natural, preservative-free alternative to sugar-filled sodas, with the theater of a custom handcrafted beverage.”

The soft drinks will initially come in three flavors -- “golden ginger ale,” “spiced root beer” and “lemon ale,” but Schultz said “we’ll be adding additional, locally relevant flavors as the summer progresses.”

Prices haven’t been announced, but during last summer’s tests in a Seattle store the carbonated drinks started at $2.45 for a 12-ounce tall.

The Seattle coffee giant’s fizzy ambitions are part of its strategy to maintain rapid revenue growth and keep shareholders happy. That means making the most of its extensive retail empire to peddle things other than coffee.

The company recently has launched big efforts in baked goods, cold-pressed juice and tea, including a partnership with Oprah Winfrey to offer a chai variety at its Teavana stores. Starbucks is also experimenting with the sale of wine and beer in the evening at several locations.

On Thursday, the company raised its earnings forecast for this fiscal year as the slew of new products is expected to boost sales.

Profit in the fiscal year through September will be as much as $2.68 a share, Seattle-based Starbucks said Thursday. That’s a touch higher than its previous forecast of as much as $2.67 a share and tops the $2.66 average projection of 29 analysts compiled by Bloomberg.

Starbucks reported second-quarter profit of $427 million, or 56 cents a share, a 9.8 percent rise, meeting analysts’ estimates. Revenue rose 9.1 percent on revenue of $3.87 billion, below analyst expectations of $3.95 billion.

Starbucks said same-store sales rose 6 percent in the U.S. in the quarter through March 30, surpassing estimates. Shares in the company rose 1.4 percent to $72.06 in after-hours trading after the release of the earnings report.

In the U.S., “the single largest contributor to the comparable sales growth in the quarter was food,” Chief Operating Officer Troy Alstead told Bloomberg. “It resonates with customers.”

Starbucks’ profits have also received a boost in recent years from low coffee prices. But a drought in Brazil, the largest producer of the commodity, has provoked a sharp spike in the market for coffee beans in recent months.

Starbucks doesn’t anticipate any impact to its bottom line from coffee prices this year, as the company has contracts in place for all its supply, Alstead said in an interview with The Seattle Times. It also has significant hedges in places for 2015.

But the real impact of the drought on Brazil’s coffee harvest won’t be clear until later this summer, he said.


This story includes information from Bloomberg News