Starbucks’ Latest Genius Move

Dec 08, 2004

By George Anderson

When Ray Charles’ recorded his last album before he died, “Genius Loves Company,” do you think he knew the songs would speak so directly to the retailers selling his collection of duets?

For Starbucks, which helped finance and market the album, the track Mr. Charles performed with Willie Nelson, “It Was A Very Good Year,” must seem apropos. Not only is the coffee chain riding a wave of new product introductions and store openings to record results, it can now claim to be a force in music retailing. According to a report in the Los Angeles Times, Starbucks has sold more than 350,000 copies of the album at the full retail price of $15.95.

For others in the music retailing business, the track “Heaven Help Us All” performed with Gladys Knight might be the song they’re singing today. It wasn’t bad enough that they’ve been watching Wal-Mart, Apple Computer and others taking market share but now Starbucks is selling more copies of a hit album than they are and at a higher price to boot.

As one anonymous music industry executive told the Times, “It’s another nail in the coffin of traditional music retailers. They take this as yet another party taking a bite at their apple.”

Geoff Mayfield, the director of charts for Billboard, sees Starbucks’ success with genius a little differently. “The market they isolate there is people who don’t spend a lot of time in music stores and it’s an impulse purchase. I haven’t heard a lot of protest from traditional retailers.”

Ken Lombard, president of music and entertainment for Starbucks said, “The way people discover and buy their music is evolving and a big part of our model is to make it comfortable for discovery.”

According to Mr. Lombard, the success of “Genius” has others thinking about working with Starbucks. “It has caught the attention of a lot of people in the music industry and a lot of artists, and we’ve been hearing from them. You’re going to see a lot more titles added. Music is an added value to the Starbucks experience.”

Moderator’s Comment: How will Starbucks’ success with “Genius Loves Company” affect: 1) its own business and 2) music retailing as a whole?

Ken Lombard was sure to let everyone know that Starbucks sees music as an incremental sales and profit opportunity. “We are in the coffee business; that’s
not going to change,” he said, “but we are also open to helping our customers find music they want and will like.”

George Anderson – Moderator

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