Tuesday, July 21, 2009

Starbucks to Sell Beer and Wine...?

It’s been quite the year for big-ticket rebranding efforts. Kentucky Fried Chicken has been transitioning over to Kentucky Grilled Chicken in an effort to ditch the negative health connotation linked with deep fried food. Pizza Hut has begun its transformation to The Hut - in an attempt to connect more with Gen Y. Starbucks has now started down the yellow-brick road of rebranding in an attempt to gain the upper hand in the Coffee Wars.

Two days ago USA Today broke the story that Starbucks is not only experimenting with a new name, but also several new additions to their menu - beer and wine. Opening next week in Seattle, the birthplace of the Starbucks brand, is the pilot store called “15th Ave. Coffee and Tea inspired by Starbucks” (seems a little long winded to me, but what ev).

15th Ave. Coffee and Tea will feature all of the same menu options as any other Starbucks, however it will have a liquor license. It will offer a half-dozen kinds of beers and wines — most with connections to the Northwest, and priced between $4-$7.

Starbucks has been attacked from all sides like Kobe on game night. However, unlike the Black Mamba, Starbucks isn’t coming home with a ring. During the recession, Starbucks has endured store closures, layoffs, and same-store sales declines. They’ve also been hit with a full-court press by McDonald’s, as their competitor infused their McCafe with a $100M marketing budget.

Starbucks’ solution: increase foot traffic during the evening hours, where store sales are at their lowest. It’s a viable strategy, but are beer and wine the answer?

In order to address Starbucks’ proposed solution, I think it would behoove them to take a closer look at the problem at hand.

The Problem(s):
  • Starbucks has the highest price point among its competitors (McDonald’s and Dunkin’ Donuts).
  • Demand for coffee peaks in the afternoon then tampers off into the evening.
  • Coffee can be considered a luxury good in a recession (easily replaced by brewing at home).

Bite the bullet and compromise on price. While it may have an immediate negative result on net profit, they could start making up some of the ground they’ve lost to McCafe and Dunkin’ with consumers who are price conscious. Their competitor's biggest selling point (in relation to Starbucks) is that their product is less expensive. If you take that away from them, what do they have?

Give recession weary consumers a reason to come to Starbucks instead of brewing their coffee at home (i.e. FREE WI-FI). When I was at school, there was a small locally-owned coffee shop right next door to the campus Starbucks called Espresso Roma. It always got the same, if not more, traffic than the Starbucks. Why? It was a better place to get work done at because it offered free Wi-Fi. This seems like a no-brainer, which makes it even more impressive that Starbucks is seemingly the only company left that actually charges customers for Wi-Fi.

If they’re still hell-bent on increasing traffic in the evenings via alcohol, why not sell alcohol that at least has something to do with their pre-existing brand image? Rather than beer and wine (yes I recognize that these are common in European coffeehouses), why not sell drinks like Spanish/Irish coffees and peppermint schnapps infused mochas around Christmas? Unlike beer and wine, this would not be a complete 180 from the brand image and would actually complement their current product offerings quite nicely. After all, Starbucks already produces their own coffee flavored liqueurs.

What are your thoughts? Would you go to a Starbucks for a late night beer with your friends? What alcoholic drinks (if any) would you consider purchasing from a Starbucks?

--Now Let Me Clear My Throat--

Josh Groth


Colin said...

To be honest, Starbucks is the only coffee joint anymore that doesn't sell beer and wine, it's kinda become commonplace because that's what the local shops can hold over Starbuck's head.

Plus, I know it's a hoop to go through, but starbucks has offered free wi-fi for coming up on 2 years now with a gift card. It sounds like a hassle, but I've had the same card and as long as you spend something on it, they give you 2 hours a day.

Doesn't seem like much but I can't spend more than 2 hours in one place anyway. Cheers!

Michael O said...

Really solid post. Lowering its price point and offering free wi-fi might go a long way in recapturing market share. I also totally agree about the risk of Starbucks potentially shifting too far from its core competency by moving into alcohol sales.

But one of the most interesting tidbits in this post was hearing that Starbucks is experimenting with changing store names and de-emphasizing the name Starbucks. I know a lot of people (myself included) that tend to prefer cozy, quirky, locally-owned neighborhood coffee shops to Starbucks (Espresso Roma is a good example, and there's also a myriad of them in Portland). This might be a strategy to brand itself as such.

Anonymous said...

I disagree on the wi-fi and price point. yes, it's a bit rougher now with a down economy but if they try to be like Mc Donalds they lose the up-market feel of their brand and they can never get that back. Starbucks is going for fair trade/feel good. Mc Donalds is where food is produced for 10 cents and the ingredients have an unknown origin.
Also, the free wi-fi is causing a lot of coffee shops to close their doors since people sit at a table and STAY way too long without purchasing. Starbucks needs their tables cleared to have new sales.

That's just my two cents.

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