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[10 comments]

Starbucks Markets Seattle's Best for 'Regular People'

May 14, 2010

By Tom Ryan

In response to heightened fast-food competition, Starbucks is re-branding Seattle's Best and moving quickly to expand the coffee brand to convenience stores, drive-through kiosks, coffee carts, vending machines and mobile trucks.

The company has already reached deals to sell Seattle's Best, a competitor acquired in 2003, at Burger King and Subway restaurants and at AMC Entertainment movie theaters. In all, Seattle's Best is expected to reach about 30,000 distribution points by the end of its fiscal year. At the start of the year, Seattle's Best coffee and coffee beans were only sold in the chain's own shops inside nearly 500 Borders bookstores, as well as in about 2,500 supermarkets.

"We are determined to turn the traditional coffee model on its head with innovative new approaches in every phase of our business -- partnerships, retail, and packaged goods -- and to take our premium coffee to the places our customers go in their everyday lives," Michelle Gass, Seattle's Best Coffee president, said in a statement.

The move responds to competition from McDonald's, Dunkin' Donuts and other fast-food chains but also broadens the company's reach to more "regular Joes." In the past three years, the percentage of Americans drinking premium coffee jumped to 35 percent from 29 percent, Tom Ehlers, a veteran Starbucks exec who is vice president of retail for the Seattle's Best unit, told the Wall Street Journal, "Regular people have found their way to great coffee."

He likened the Seattle's Best venture to Old Navy, the lower-priced concept from The Gap Inc.

Seattle's Best also has a mellower taste than Starbucks that could carry wider appeal. The updated, cleaner logo, similar to Target's logo, is an effort to create a more accessible look than Starbucks.

Pricing will vary widely based on where it is sold, similar to Coca-Cola, according to the Journal. In grocery stores, Seattle's Best beans will cost consumers less than Starbucks-brand beans but more than conventional brands.

On the downside, operating franchisees gives Starbucks less control over quality. Operating a brand in downstream channels could also impact Starbucks' upscale image. Finally, Seattle's Best could cannibalize Starbucks customers.

Discussion questions: What do you think of Starbucks' mass-market rollout of Seattle's Best? What do you think of the comparison of the Seattle's Best opportunity to Old Navy? What are the risks to the Starbucks brand's image?

FINANCIALS:     [NASDAQ:SBUX]

Discussion Questions:

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How would you rate Starbucks' planned rollout of Seattle's Best?

Comments:

I think this will help Starbucks. First, it allows them to sell what I think is a better tasting coffee while at the same time get their coffee into more outlets. Starbucks learned that putting a store on every corner didn't work. So maybe getting their coffee into other outlets a little at a time will work better. Not everyone one likes Starbucks because of the burnt flavor. Seattle's Best helps them capture the non-Starbucks customer--the ones that avoid going to Starbucks to get their coffee.

David Livingston, Principal, DJL Research

Terrible logo. Doesn't say coffee, delicious or anything but my kid manipulated Target's. As to the rollout of Seattle's Best--what took them so long? Over a year ago in my blog I wondered if Starbucks was getting ready to franchise Seattle's Best. They haven't taken full advantage of being able to be their own angel to their own devil. This could do it much like the positioning of various brands within the Hilton and Marriott brands does.

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Bob Phibbs, President/CEO, The Retail Doctor

Having different brands positioned to appeal to different market segments is not unusual. Neither is employing different business models for the distinct brands.

I doubt that most people realize or care that Seattle's Best is owned by Starbucks, so I believe the downside for Strarbucks brand (assuming there is one) is minimal. That may not be true for Seattle's Best. I just reread a Mark Twain quote in Dan Ariely's book "Predictably Irrational" about Tom Sawyer that I think may be appropriate "Tom had discovered a great law of human actions, namely, that in order to make a man covet a thing, it is only necessary to make the thing difficult to attain." Customers sought Seattle's Best because it was not something you found everywhere. When it is, will they care? Can anyone say "Krispy Kreme"?

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Steve Montgomery, President, b2b Solutions, LLC

I like the "good/better/best" strategy behind this move. (Assuming that Seattle's Best is positioned as "good," and Starbucks as "better," there is still room in the brand portfolio for a true premium brand.) It not only gives the opening-price brand more mass appeal, but it provides some brand credibility for the outlets that carry it. A smart move, without a lot of public recognition that Seattle's Best is actually a Starbucks company.

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Dick Seesel, Principal, Retailing In Focus LLC

Absolutely brilliant strategy at Starbucks to market the Seattle's Best brand to the mainstream near-luxury marketplace. This strategy helps to separate the approach between the Starbucks brand and the Seattle's Best brand in a very smart way.

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David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates LLC

I understand the positioning of "regular people" but I wonder if it wouldn't be better to characterize this initiative as for "regular occasions." "Regular People" recalls a kind of of Milwaukee's Best positioning that I'm not sure Seattle's Best wants.

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Ben Ball, Senior Vice President, Dechert-Hampe

This is a great move. Starbucks has paid special attention to their brand and positioning. Nothing could hurt the original Starbucks position more than offering it in Burger King. Without an alternative brand, the down market is closed to this coffee company.

Forget about the taste of the coffee, the original Starbucks brand is based on the Starbucks experience. It was the refocusing on the Starbucks experience more than the coffee itself that turned the recent Starbucks decline into renewed growth.

Seattle's Best does have some brand cachet. It is thought better than regular brands in the stores and will be perceived as a better coffee than DD or McD.

Great move!

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Gene Detroyer, Professor, Independent

Imagine that! A creative marketing and branding concept that has Starbucks at one level of the "coffee food chain" and their other brand, Seattle's Best at another level. Sounds reminiscent of the automobile industry when, at one time, each manufacturer had one or maybe a second line of models, each appealing to a different segment of the automotive buying cost and wants.

This is not to forewarn Starbucks that they are traveling a road to ruin and government bailout (LOL).I don't think that will happen. Can you imagine the uproar if the government had to bail out a coffee shop?

From a more positive side; I see this as very creative and a way Starbucks gets a stronger hold on the coffee drinking dollar(s). Some companies are just better at this than others. Starbucks definitely is. After all, who would have ever thought a company could go to a banker and borrow millions of dollars to open a chain of small coffee houses and become this successful?

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

Starbucks has done a wonderful job in segmenting the market with Seattle's Best. If you want a coffee house experience, Starbucks owns the market. For those who want coffee with a fast food experience, it has Seattle's Best. That event is pushing Mickey D's to a fast food alternative and out of the premium coffee experience business which takes the pressure off Starbucks from trading down and gives them the opportunity to trade up in markets and locations that require that of them to remain competitive. Sounds pretty smart to me.

Michael Boze, Principal, Retail and Marketing Strategies

This is a brilliant move on behalf of Starbucks. Having just a 4% share of the coffee market in the U.S., there is plenty of room to grow the Seattle's Best brand -- and doing it so strategically within the C-store, fast food and grocery segments maintains a clear distinction between the higher end Starbucks coffeehouses and the mass retail/food channels. Seattle's Best has a better flavor profile than McDonald's and will do quite well in the fast food segment.

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Jeff Hall, President, Second To None

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