• by Karlene Lukovitz  @KLmarketdaily, May 8, 2010

After a concentrated period of regrouping and refocusing, Starbucks is on the move -- and its expansion of Via Ready Brew in the U.S. and other markets is a pivotal component of a worldwide push to leverage synergies across business segments, channels and media platforms.

It's still early in the game for Via, introduced last September, but the new line's roles within that global game plan as a revenue stream, door-opener and template for ongoing brand expansion is becoming increasingly visible.

Via started with 12,000 North American retail outlets (Starbucks locations and some presence in chains like Costco and Target), grew its base by 3,000 by March 2010, and will have total U.S. outlets of more than 37,000 by the end of June through distribution in Target, Costco, Kroger, Walmart, Safeway and CVS.

While Starbucks doesn't report sales breakouts at the product level, CEO Howard Schultz has confirmed that the instant coffee's sales have consistently exceeded expectations, and the rollout speaks for itself. "You don't expand a retail program if it's not meeting its goals," sums up Bill Cross, VP, restaurant & food brand licensing for the Broad Street Licensing Group. (Starbucks is not a Broad Street client.)

And if Starbucks has any concern about Via's potentially damaging its premium coffee image or eating into its on-site sales, as some branding mavens have predicted, it's certainly not showing it.

The company is supporting Via's domestic retail expansion with an even larger-scale TV, print, in-store and sampling campaign than the one that accompanied Via's launch (its biggest up to that time) -- including a "mug" themed TV spot, launched May 7, that specifically targets premium coffee purchasers who want taste, in convenient form, at the office.

To amplify the message and encourage passalong, a personalized "mug shot" campaign was simultaneously launched on StarbucksVia.com. Consumers who create a virtual coffee mug by uploading photos from their computers or Facebook pages are being offered a coupon good for $1 off a package of Via. In addition, Starbucks is introducing Via iced coffee in all of its North American stores (and online) by late June.

Meanwhile, Via has been rolled out to all Starbucks U.K. locations, and is being launched in Japan. In Japan, a $5-billion at-home coffee market that "hasn't seen much innovation in over 50 years," Starbucks is going after a "very big prize," Schultz noted in remarks during the company's April earnings call for its fiscal 2010 second quarter, which ended in March.

Via is not only a major growth opportunity in its own right -- instant coffee, long much more popular in countries outside the U.S., accounts for about 40% of total coffee sales globally, or about $21 billion -- but an overall brand entrée to a literal universe of potential new customers.

"Contrary to the speculations of 'brand experts,' Starbucks isn't cannibalizing its coffee shop sales with Via," says Cross. Instead, the company is tapping into demand for a quality instant coffee alternative, serving the at-home/at-work needs of existing customers and -- more important -- gaining brand exposure with potential customers throughout the world for both its own retail locations and its growing lines of branded consumer packaged goods, he points out.

Starbucks is clearly convinced that it can not only grab significant instant coffee share in international markets, but leverage Via to create synergies that feed its rapidly growing store locations in China (which it believes will become its second-largest market after the U.S.) and the greater Asia Pacific region, as well as throughout Europe.

Furthermore, unlike its other branded products at mass retail -- bottled Frappuccinos, packaged coffees and ice cream, distributed through licensing agreements with PepsiCo, Kraft Foods and Unilever, respectively -- Starbucks handles its own retail distribution for Via. And while that obviously requires greater corporate investment and resources, it also means potential for much greater payoff -- both domestically and abroad.

The Via strategy, coupled with Starbucks' increasingly aggressive expansion of its retail CPG business, speak to the company's recognition that "consumers view at-home and in-restaurant as two very different types of drinking/eating occasions," observes Cross.

Indeed, during the Q2 earnings call, Schultz stressed both the company's "enormous" expansion and profit opportunities across the 52 countries in which it now competes, and its ability now to offer consumers innovative new products "in multiple brands and form factors and across new and established categories, formats and channels."

In a subsequent Wall Street Journal interview, Schultz also confirmed that the marketing strategies for new-product launches in the works will follow Via's model, meaning a heavily promoted debut in its coffee stores, followed by more aggressive marketing for mass retail rollouts. Based on the CEO's emphasis on digital media/social networks' integral role in the company's new "360-degree conversation" customer marketing strategy (Starbucks is now the #1 brand on Facebook and one of the leading brands on Twitter, he noted during the earnings call), heavy, ongoing engagement through social media for Via, and all brand extensions, also seems a given.

Starbucks' total-company net revenue gain of 9% (to $2.5 billion) in Q2 included a 7% gain in U.S. comparable-store sales resulting from a 3% traffic uptick and 5% increase in average check size. But the performance also reflected a 7% gain in international comparable-store sales, reflecting Starbucks' strategic extension of "learnings from the transformation of the U.S. business" to the global arena, in Schultz's words. (The gains in no small part reflected the worldwide success of the new My Starbucks loyalty card program, as well as a two-month U.S. marketing barrage stressing the value, quality and differentiation of Starbucks' on-site and CPG products.)

Starbucks has not revealed examples of CPG launches planned over the next 12 to 18 months, but signs of expansion are already being seen in the U.S. Starbucks recently introduced its first non-coffee ice cream flavors (two Frappuccino varieties, plus Signature Hot Chocolate), as well as a Vanilla Light offering within the bottled Frappuccino line.

The Frappuccino-flavored CPG product extensions are part of a broader strategy to rejuvenate Starbucks' Frappuccino franchise -- which according to Cross represents 15% to 20% of on-site sales, but has seen significant decline in recent years. Starbucks, which attributes the "softening" to insufficient innovation, has also launched a "However-You-Want-It" Frappuccino initiative offering thousands of ingredients options. The customizable push is being supported by an online virtual "create your own" tool, plus a nationwide media campaign aimed at the young adult women who comprise the line's core customer base.

As for global markets, Frappuccinos are just one example of Starbucks' numerous brand extension/synergy possibilities. Starbucks already sells a Red Bean Frappuccino variety in Asia and plans to launch a Black Sesame flavor in China this summer, reports Cross.

Starbucks' total revenues from licensed retail products rose 9.8% in Q2, and 3.1% over its first two quarters, to total $636.5 million YTD (12.1% of total net revenue). In fiscal 2009, licensed products rose 4.3%, to $1.22 billion, representing 12.5% of total net revenues. Licensed products sales included Starbucks Doubleshot and Doubleshot + Energy lines, as well as bottled Frappuccinos, ice cream and packaged coffee at mass retail.