Starbucks Strategy on chocolate drink

Starbucks, the world's largest coffee company, is taking another crack at selling a chocolate drink following a rare flop a year ago with its now defunct Chantico beverage.

This time the Seattle-based coffee giant is leaning on Hershey, which has been in the chocolate business for 113 years, for some help.

The two iconic businesses announced Thursday a partnership in which they would create and market, under the Starbucks brand, a handful of products that will include high-end chocolate bars, truffles and chocolate-covered coffee beans.

The new items also will include fruits, nuts, herbs and spices.

The first product, set to hit grocery stores this fall, is a premium chocolate drink that will be heated, according to Starbucks. The company declined to say how it would be packaged or prepared.

Also Thursday, Starbucks' stock price, which has languished all year, shot up more than 6 percent on market rumors that PepsiCo Inc. was looking to expand its partnership with Starbucks.

A Starbucks spokesman quickly shot down the speculation and said that while Starbucks and Pepsi have a long-standing relationship with the bottled Frappuccino coffee drink, there are no changes in the works.

Starbucks stock closed at $27.71, up 4.6 percent, on the Nasdaq stock market, then declined in after-hours trading.

Along with Frappuccinos, Starbucks, which charges a premium price for its coffee drinks, has been successful in marketing coffee liqueurs and a line of premium ice cream.

However, the last time Starbucks tried its hand at a chocolate drink, the company failed miserably.

In January 2006, Starbucks pulled Chantico -- a high-calorie, rich chocolate drink it had hailed with much fanfare and named after an Aztec goddess -- from its stores. The thick drink lasted just one year, after customers soundly rejected it.

Gerry Lopez, president of Starbucks Global Consumer Products Group, said the affiliation with Pennsylvania-based Hershey, the nation's largest candy maker, should help this time around.

"Chocolate has always been on our radar screen," Lopez said. "In the broader retail marketplace it was evident we needed a partner. ... We needed someone as emotionally attached with chocolate as we were with coffee. It's something we couldn't do on our own and they couldn't do on their own."

Stores expected to carry the goods include QFC, Target and Safeway, Lopez said. Seattle-based Starbucks, however, declined to say when the goods would appear in its coffee stores.

Financial terms of the arrangement were not disclosed.

Christopher Baldwin, a Hershey senior vice president, said the premium chocolate market is a $1 billion industry that is expected to double in value within the next five years. He said the new partnership would allow Hershey, which has struggled to revive sales, and Starbucks to gain a foothold in that arena.

"Starbucks has transformed the coffee business in the U.S. Together, Hershey and Starbucks can transform the premium chocolate category in the U.S.," Baldwin said.

The arrangement comes after Tully's Coffee in November announced a partnership with Ghirardelli Chocolate.

That deal allowed the Seattle-based java company to offer drinks made with Ghirardelli white and dark chocolate and caramel gourmet sauces and to sell chocolates in Tully's stores.

Lopez said he wasn't even aware the smaller coffee rival had sold chocolate, and he added that many coffee houses have long had a history with chocolate.

Hershey's announcement with Starbucks came on the same day the candy maker said profit for the second quarter plunged 96 percent after the company spent heavily to start transforming its production lines and revive flat sales.

source:seattlepi.nwsource.com