If you had to choose between Sodastream International Ltd (NASDAQ:SODA) and Starbucks Corporation (NASDAQ:SBUX), coffee should win. However, according to The Wall Street Journal, Starbucks Corporation (NASDAQ:SBUX) is testing soda in some of its shops made with a Sodastream International Ltd (NASDAQ:SODA) -like device. The goal is to bring customers into its stores in the afternoon when business is light because people aren’t as interested in coffee.
Serving fancy, and expensive, soda isn’t a bad idea. However, latching onto the SodaStream fad doesn’t mean the push is going to work. It requires customers to completely rethink the Starbucks Corporation (NASDAQ:SBUX) concept, which isn’t likely.
Although the company is doing well, recent moves show that it is desperately looking for a way to move beyond coffee. Soda is one example of this. However, over the last few years, it has also purchased tea merchant Teavana, French bakery firm Bay Bread, and juice maker Evolution Fresh.
It’s tough to change
It isn’t easy taking a brand into new areas. For example, Yum! Brands, Inc. (NYSE:YUM) tried to shift its KFC brand toward more healthy grilled fare. However, you go to KFC for fried chicken, not healthy food. With the fried chicken image ingrained in customers’ minds, it isn’t surprising that franchisees were angry at the push.
Although the chicken concept has been in the news because of all of the problems KFC has faced in China, Yum! remains a solid company. The top- and bottom-lines will probably suffer in the near-term, but long-term growth should resume as China’s chicken problems fade.
With a P/E near 24, the shares are a bit expensive compared to the P/E of around 19 at McDonald’s Corporation (NYSE:MCD), which has a similar global reach and has been better able to broaden its reach.
For example, McDonald’s Corporation (NYSE:MCD) has fairly successfully introduced such things as fancy coffee, salads, and wraps to its menu. While the company is known for burgers, it hasn’t had any trouble expanding out its menu. But, it already attracts customers throughout the day, so the extension into new areas has been easier to achieve.
Although same-store sales comparisons have been relatively weak this year, the company is a leader with a long history of revenue, earnings, and dividend growth. It’s probably a better option than Yum! today.
So, will soda work?
Starbucks Corporation (NASDAQ:SBUX) is attempting to get customers into its restaurants at times when they are thinking about other food concepts. That’s going to be tough. At the same time, it is deviating from the core product for which its known. That’s a double whammy that probably won’t work out too well. Don’t expect much of a boost from soda.
The company would probably have better luck trying to aggressively expand the French Bakery concept, Teavana, or its fruit drink line. Investors should forget about the soda fad and look to the collection of acquisitions that the company has made to push growth. If those don’t work, Starbucks has bigger problems than soda.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends McDonald’s, SodaStream, and Starbucks. The Motley Fool owns shares of McDonald’s, SodaStream, and Starbucks. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Coffee House Soda Doesn’t Taste Any Better originally appeared on Fool.com is written by Reuben Brewer.
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