By Sabrina Escobar

Starbucks is betting big on the rapidly growing health and wellness market.

On Thursday, the coffee chain announced it was expanding its test of two new drinks, the Coco Matcha and Coco Cold Brew, to over 400 stores in New York City, Los Angeles, Chicago, and select cities in the Midwest.

The Coco line -- which layers matcha or cold brew foam on top of coconut water -- is part of a series of health-focused changes Starbucks has made to its menu over the course of 2025.

These include testing protein cold foam in coffee, adding a falafel wrap to its permanent menu, introducing low-calorie ready-to-drink options, and removing sugar from its matcha powder. In July, the company said matcha beverage sales rose nearly 40% after offering the unsweetened option, "showing that customers are embracing health and wellness-forward choices."

The company plans to roll out even more healthy options in 2026, including gluten free and high protein choices "to create food that's as artisanal as our beverages," CEO Brian Niccol said in a July 29 earnings call. Niccol, who used to head up Chipotle Mexican Grill, was tapped to head up Starbucks last August.

The focus on wellness is a crucial component of the new CEO's vision for the company, dubbed the "Back to Starbucks" plan. The plan also prioritizes improving the cafe experience and bringing staffing up to more adequate levels to meet both in-person and mobile demand. Niccol said in July the turnaround efforts were ahead of schedule, with more customers spending time in cafes and transactions trending higher.

The healthy menu items could help hasten the strategy. Chris O'Cull, an analyst at Stifel, believes Starbucks' new products will be a key sales driver in fiscal 2026. The protein cold foam could be especially lucrative.

"The current upcharge for flavored Cold Foam is approximately $1.25, and we believe that pricing Protein Cold Foam at a premium could drive a meaningful check benefit," O'Cull wrote in a research note following Starbucks' earnings report.

It helps that protein itself is going through somewhat of a renaissance. Today, your local grocery store probably carries a plethora of protein-enhanced items, from traditional protein powders and bars to cereals, ice creams, and pre-popped popcorn.

The protein craze may well be a fad that wears itself out in a few years. What may not fade so quickly is an underlying shift in consumer behavior that prioritizes health and wellness.

According to a McKinsey survey from May, 84% of U.S. consumers say wellness is a "top" or "important" priority, with Gen Z and Millennials saying they were prioritizing health "a lot more" compared with a year ago. Per McKinsey, these demographics drive more than 41% of annual wellness spend and are open to experimenting with a wider range of products.

Rolling out the line of health products may better position Starbucks to cater to these new preferences, but the company still faces a steep learning curve as it figures out how to strike the right balance between offering new recipes while staying true to its core coffeehouse identity.

Starbucks also needs to address other problems that have led to declining same-store sales and lackluster profit growth. But investors are upbeat about Niccol's ability to execute on the turnaround.

Shares gained as much as 50% at the peak of Wall Street's optimism about Niccol's strategy, but they have since pared back those gains as investors temper their expectations about how quickly business can improve. As of Friday, the stock was up just under 20% since the company announced it was bringing Niccol on as CEO.

"We continue to believe SBUX's turnaround plan should support a sales recovery over time and believe leadership has a proven track record and is implementing appropriate strategies," wrote Dennis Geiger, an analyst at UBS, after Starbucks' earnings report.

That said, he maintained a Neutral rating on the stock, adding that UBS was looking for more signs sales and earnings were improving before becoming more upbeat on the shares.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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August 22, 2025 13:37 ET (17:37 GMT)

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