September 8, 2014
Starbucks to launch express and premium tasting locations
Starbucks last week announced plans to launch two formats: one express concept targeting busy commuters and the other a tasting room targeting more-leisurely coffee connoisseurs.
The express format will be tested in New York City in early 2015 and is designed to address "the increase in urbanization and decentralization of retail," Starbucks said in a statement. With drive-through stores accounting for more than 40 percent of U.S. company-operated stores and delivering higher than average sales growth than non-drive-through locations, Starbucks said it saw a significant opportunity to serve commuters with a smaller and speedier format.
In addition to more-limited offerings, Starbucks’ digital payment platform, including mobile ordering, will be emphasized to expedite speed of service in the locations.
"The evolution of our store experience is a direct reflection of how our customers are interested in both accessibility to the brand as well as speed and convenience. Our scale affords us the unique opportunity to bring a flexible portfolio of options rooted in our core commitment to coffee quality," said Cliff Burrows, group president, U.S., Americas, and Teavana.
At the same time, Starbucks announced plans to open its first Starbucks Roastery and Tasting Room in Seattle by December. The 15,000 square foot location will represent the marriage of "coffee theatre and manufacturing."
Starbucks Roastery and Tasting Room will enable Starbucks to expand its small-batch Starbucks Reserve coffee presence from 800 to 1,500 stores worldwide by the end of 2015. It will also support the opening of at least 100 new stores in the next five years dedicated to the higher-priced Starbucks Reserve line.
Starbucks first introduced its line of Black Apron Exclusives premium coffee 10 years ago. In 2010, Starbucks Reserve was launched. It recently opened its first-ever Reserve location in Latin America as a three-level store that exclusively serves Colombian coffee.
Said Howard Schultz, chairman, president and CEO. "We plan to take this super premium experience to cities around the world, elevating the Starbucks experience not only through these stores but across our entire business."
- Starbucks Accelerates Growth of Store Formats and Debuts Coffee Retail and Roastery Experience – Starbucks
- Starbucks gets fancy with Reserve roastery, tasting room, coffees – Los Angeles Times (tiered sub.)
- Starbucks to try tasting room; express stores – USA Today
- Starbucks plans new types of coffee shops – CNN
Discussion Questions
Do you see a bigger opportunity for Starbucks with express formats or premium tasting locations? What challenges do both formats face?
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Starbucks has the greatest magic in appealing to consumers since slot machines were put in the southern Nevada desert. What challenges do both Starbucks formats face? Is there enough roadway and parking.
This is how Starbucks does segmentation. We are seeing in these formats the volume and margin opportunities present in the marketplace. They are competing against third-wave, super-premium start-ups that appeal to intellectually- and emotionally-driven consumers, and the Dunkin’ Donuts of the world.
As consumer tastes become more sophisticated, Starbucks has to elevate the entire game, not just compete with products and services.
This is where consumer behavior, engagement strategy and store design come together and I for one, nerd out. I will be interested to see how this rolls out.
With their scale and scope, Starbucks has many different consumers that they have historically been serving from the same couple of formats. Both of these new formats serve real segments and although at opposite ends of the spectrum, they both seem to be a fit for the Starbucks brand.
Incremental opportunity in both! One addresses Starbucks’ sluggish service and the other addresses a stale quality issue. Much of the sales will be a cannibalization of existing stores.
All that said, there will be lessons learned which Starbucks can retrofit into their core stores. That will be a good thing!
I believe there are many customers that will use both Starbucks’ formats. The bigger opportunities number wise will be the express format; probably more labor and time-intensive with much more traffic (pun intended), but lower total returns; premium tasting locations will have fewer attendees, but making bigger purchases (dollar-wise) per capita. Which one do you think will be the more profitable?
Clearly the much bigger opportunity is in the express formats. This new two-pronged initiative is all about covering their flanks. On the express side, McDonalds, Dunkin’ Donuts, and 7-Eleven are just a few of the players to have really stepped up their game on quality offerings with speed and convenience advantages.
On the premium tasting front, there are emerging players trying to introduce upscale offerings as a differentiator. Starbucks will experiment here in order to be able to rapidly respond to these threats or take advantage of adoption by consumers.