Starbucks’ Chilling Success: Cold Beverages Capture 75% of US Sales

Starbucks (SBUX) is strategically capitalizing on the growing popularity of cold beverages. In its fiscal third-quarter earnings report, Starbucks revealed that its US cold beverage business now constitutes a whopping 75% of total drink sales. CFO Rachel Ruggeri emphasized the surging trend towards cold drinks, particularly among younger consumers like Gen Z and millennials, who have a preference for colder beverages.

Starbucks' Chilling Success: Cold Beverages Capture 75% of US Sales
Starbucks’ Chilling Success: Cold Beverages Capture 75% of US Sales

During an interview with Yahoo Finance, Ruggeri highlighted the immense potential of cold beverages for the global coffee giant. Cold drinks witnessed an 8% increase in sales last quarter, outpacing the 2% growth in hot drinks. She underscored the widespread appeal of cold beverages across different times of the day, contributing to sustained business throughout the day.

Ruggeri elaborated on Starbucks’ commitment to innovation in cold beverages, mentioning the introduction of new items like blended lemonade refreshers. The company launched frozen lemonade refreshers for the summer in late June. Sales of cold espresso beverages also experienced a 13% year-over-year increase last quarter, driven by offerings like the Iced Shaken Espresso.

According to Ruggeri, the trend toward cold beverages is here to stay. Starbucks’ stock has seen a 5% year-to-date increase as of August 1st.

The cornerstone of this cold trend is ice, and Starbucks is considering a shift from cubed ice to nugget ice, which consists of smaller pellet-shaped ice pieces similar to those found at Sonic.

“We’re in the early journey of our nugget ice,” Ruggeri explained. The testing of nugget ice is currently underway in Starbucks’ busiest cold beverage stores to enhance their cold beverage capacity.

Ruggeri reported positive feedback from both employees and customers during the testing phase. She stated that nugget ice is not only more convenient for staff but also provides a superior blending experience. Customers have also expressed their appreciation for this type of ice.

Starbucks plans to make nugget ice available at all its locations, although the full integration of this new ice may take some time.

“Eventually, it will be piped into the stores, so [employees] no longer have to carry buckets of ice,” Ruggeri mentioned, highlighting the company’s commitment to enhancing the overall customer experience in the realm of cold beverages.

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