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Starbucks red cups runneth over with holiday cheer (and wide profit margins)

Starbucks' holiday season red cups, seen in 2012 during its "Come Together" campaign in Washington, DC.

It’s red cup season at Starbucks, starting today. That means eggnog and peppermint lattes are back for the holidays.

Specialty drinks are big moneymakers for the world’s largest coffee-shop chain, and its growing number of competitors.

Starbucks employee Dave Olsen made the company’s first eggnog latte in his home kitchen in 1986. Today the company has more than 100 people doing flavor R&D.

“Even right now we’re working on next year’s holiday beverages, so it’s always something we’re experimenting with,” says Starbucks Spokeswoman Linda Mills.

No wonder. Starbucks first quarter profit jumped 10 percent on the sale of specialty drinks last holiday season. Some competitors have caught on. Dunkin Donuts sells gingerbread lattes now, too.

“There are some magic words in retailing -- limited item,” explains Purdue retail management professor Richard Feinberg.  

He says department stores can promote huge holiday inventories, but coffee shops just have coffee. “What they need to do is come up with special items to break the habit consumers have of getting the same thing in the same way every single day.”

Even if it’s just putting plain coffee in a pretty red cup.

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