UPDATE 1-Starbucks goes beyond coffee with first juice bar

Mon Mar 19, 2012 7:56pm GMT

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By Lisa Baertlein

LOS ANGELES, March 19(Reuters) - Starbucks Corp opened the first store in its new Evolution Fresh juice bar chain on Monday, its biggest move outside coffee aimed at boosting the company's position in the $50 billion health food sector.

The juice bar business is, however, fragmented and intensely competitive and some analysts say the Evolution Fresh shops could have lower margins than Starbucks' coffee shops.

With Starbucks yet to detail how many juice bars it plans to open, the popularity of its first shop, located in an upscale shopping area in Bellevue, Washington, an affluent city just east of Seattle, will be closely watched.

"Mixologists" at the new shop dispense a variety of juices - including apple, coconut water, carrot and beet - from taps to create "hand crafted" concoctions with names like "sweet burn" and "field of greens". The 8-ounce drinks sell for $4.99 and the 16-ounce drinks are priced at $7.99.

The juice bar also sells bottled Evolution Fresh fruit and vegetable juices, smoothies and food, such as oatmeal, wraps, salads and soups. The menu includes vegan and vegetarian options and so-called super foods like kale and quinoa are well represented.

Fresh fruit and vegetable juices have gained in popularity in the United States with some health-conscious consumers using them as meal replacements, while others drink them as part of "cleansing" diets.

The world's biggest coffee chain bought Evolution Fresh for $30 million in cash in November to get a piece of that business. At the time of the purchase, Starbucks Chief Executive Howard Schultz said successful independent juice bars have annual sales of well over $1 million per unit.

Analysts have said that is a bit less than an average U.S. Starbucks cafe but more than a typical store for rival Jamba Inc , a publicly held juice and smoothie chain that recently introduced new squeezed-to-order juice blends. That move from Jamba came months after Starbucks and McDonald's Corp introduced their own smoothies.

"Starbucks is one of the savviest companies in terms of what they do, of probably any company," said John Sicher, editor and publisher of Beverage Digest.

While Starbucks ranks among the nation's best companies at marketing and Americans are willing to spend money on healthy beverages, he declined to predict whether consumers would embrace the concept.

Bernstein analyst Sara Senatore noted that some of Starbucks' recent roll-outs - particularly its Via instant coffee and K-cups coffee refills for Green Mountain Coffee Roasters Inc's popular Keurig one-cup brewers - have far exceeded analysts' expectations.

"The lesson from those is not to underestimate Starbucks' ability to execute a concept very, very well," Senatore said.

The Evolution Fresh store opening comes just ahead of Starbucks' annual shareholder meeting on Wednesday.

Investors in Seattle-based Starbucks have seen shares in the company soar since it restructured by slashing costs and closing nearly 1,000 stores around the world. The stock, which was trading at just under $10 in February 2009, was trading above $53 on Monday.

Starbucks' purchase of Evolution Fresh was in line with its strategy to sell a broader range of products through its own cafes, grocery stores and other retail outlets.

Since purchasing the company, Starbucks has expanded distribution of its bottled juices beyond a handful of retailers that included Whole Foods Market Inc to more grocery sellers.

Evolution Fresh bottled juices will be sold in Starbucks' company-owned stores this year, replacing Naked Juice products from PepsiCo Inc.

Pepsi and Coca-Cola Co, owner of Odwalla, are big players in the $5 billion packaged juice category where Evolution Fresh competes.

San Bernardino, California-based Evolution Fresh was started by the founder of Naked Juice. It uses a heat-free, high-pressure pasteurization process. The company says that process retains more of the nutrients in the juice, compared with the conventional heat pasteurization used by some rivals in the refrigerated juice category.

Many independent juice bars do not pasteurize their made-to-order juices. (Additional reporting by Martinne Geller in New York and Anthony Bolante in Seattle; Editing by Edwina Gibbs and Richard Chang)

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