Starbucks takes new path

08 March 2011

SEATTLE: Starbucks, the coffee house chain, is seeking to build a unique model encompassing both the retail and consumer products sectors.

Having witnessed declining sales due to the economic downturn, the firm has closed 900 under-performing stores, alongside redesigning 1,000 branches in the last year alone.

"There was a dramatic change in consumer behavior. On a parallel track, Starbucks has to assume responsibility for decisions that were made. There were self-induced mistakes," Howard Schultz, its ceo, told USA Today.

"We had to navigate through our own issues and deal with the cataclysmic financial crisis. The past two years we've done our best work. We're a much stronger brand because of the recession."

He added: "The qualitative scores of the Starbucks brand, speed of service, cleanliness of store, trust in the brand and overall satisfaction are at record levels going back a decade."

Embracing technologies like mobile payments and loyalty cards, and taking a leading status on social media, have equally played a role.

"Over the past 18 months, we've become more relevant to our core customer and younger audience. The maturation of the company has enabled this. These are the best of times for Starbucks," said Schultz.

While Starbucks traditionally defined itself as a "third place" for shoppers, the corporation's ambitions now extend into broader categories, a move anticipated by the removal of the word "coffee" from its recently-modified logo.

As a further signifier of this trend, the organisation's Via instant coffee brand is on sale in 30,000 supermarkets and equivalent outlets.

"Beyond coffee, Via will become a portfolio of other things," said Schulz. "The future of Via is not only what it is today. Other coffee products and other things will emerge from the technology we created."

Starbucks may be celebrating its 40th anniversary, but is also forging a model for the coming decades, based on delivering offerings "complementary" to its existing stable.

"We're deeply committed to creating a consumer product business with a wide variety of other food and beverage products," Schultz said.

"In addition to a national footprint in retail stores, we're developing a world-class consumer products business that will give us the capability to build brands and distribute them ourselves into grocery stores."

Via, and a bottled Frappuccino, were initially solely sold in Starbucks prior to being rolled out elsewhere, and this approach could prove a useful one.

"What we're going to do is first introduce products to our stores before we introduce them to the grocery trade. If you look at coffee, tea, food and juice, we think there are inherent opportunities," said Schultz.

"If you look at health bars or grab-and-go products that are in our stores, we think we can significantly enhance them and make them more widely available.

He added: "Our hope is that the scale will rival the size of our US retail business."

Schultz expressed confidence about Starbucks' prospects, as it is "uniquely positioned" to bridge the gap between the retail and FMCG sectors.

"No national retailer has created this capability into grocery. And no Coke or Pepsi has created a national retail company," said Schultz.

"We'll be the first company to operate on both channels and integrate it with a significant rewards program."

Starbucks plans to open somewhere in the range of 100 to 200 branches in the US annually for the short-term at least.

But markets like Brazil, Russia, India and China also present huge possibilities, Schultz added.

Data sourced from USA Today/Wall Street Journal; additional content by Warc staff