Unpopular Seattle's Best Logo Could Hurt SBUX

Think that logos, color schemes and packaging design are just artsy-fartsy afterthoughts that are a poor substitute for a good product? Well, PepsiCo (PEP) would beg to differ. Pepsi is still taking heat from its short-lived redesign of Tropicana orange juice packaging in 2009. After less than two months and a 20% drop in sales the company reverted back to the original branding for the orange juice. Pepsi then botched another flagship product with its alteration of Gatorade (or G as it is currently called) as volume sales of the sports drink fell by 13.7% in the first quarter after its logo change.

More to the point: With about $9 billion in annual sales currently, a drop of just 1% in Starbucks sales slices a whopping $90 million off the bottom line!

This logo logjam goes far beyond aesthetics. With a planned rollout of Seattle's Best to 30,000 locations in the next year – including placing the SBUX coffee at Burger King restaurants and even in upscale vending machines – this could sap the momentum of what could be a truly redefining move for Starbucks.

Just as Gap Inc. (GPS) found a low-priced niche for its Old Navy brand stores and built the franchise up to rival its parent Gap stores, Starbucks has the potential to broaden its base. Every misstep here matters. The Seattle coffee icon has made huge strides to diversify beyond pricey premium coffees, including the launch of a Starbucks summer menu with new iced coffees and custom Frappucino drinks, as well as a concerted effort to boost Starbucks retail products line, including bottled drinks, ice cream and more on sale at your local grocer.

But without a low-priced coffee brand that connects with consumers, Starbucks risks missing out on a large group of value-conscious caffeine junkies. And like it or not, the first experience many consumers are going to have with the brand is this logo.

The stock has done very well recently as the company has gotten back on its feet after the recession undercut sales. Starbucks earnings and sales have been strong, sending the stock up almost 9% year-to-date as of Thursday's close, compared with a 3.5% slide in the broader market. What's more, Starbucks' first-ever dividend gives investors just more proof why SBUX is a stock to buy. But a lot is hanging on the Seattle's Best launch, and investors would be wise not to underestimate the power of branding.

Starbucks is sticking by the logo for now, but at a critical time for Seattle's Best it had better pay attention to consumer tastes. That goes for the product packaging as well as how pleasing SBUX coffee is to the palate.

As of this writing, Jeff Reeves did not own positions in any of the stocks named here.