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Starbucks Looks to Put Life Into Nighttime Business

January 25, 2012

Starbucks was built on the premise of delivering coffee-based drinks to consumers looking for a third place beyond home and work to congregate. The approach has worked remarkably well over the years and helped the company drive traffic, particularly during the mornings. But what to do evenings when consumers want to socialize without the caffeine rush? Why, sell beer and wine, of course.

According to reports, Starbucks is expanding a six-location West Coast test of beer and wine sales to as many as 25 locations around the country by the end of the year. Sold by the glass, beer goes for $5 and wines for $7 to $9. Starbucks will also be expanding its food menu at beer and wine locations to include focaccia with olive oil and fruit-and-cheese plates.

The key to this move, as a Bloomberg News piece points out, is whether Starbucks can adjust its menu without alienating its core customer base.

Bill Chidley, senior vice president at Interbrand, told Bloomberg that Starbucks' move would be seen as "controversial," but, "it makes sense if you think of the way that McDonald's grew its business by going into breakfast."

Some Starbucks customers interviewed by the Los Angeles Times were resistant to the new concept.

"If I wanted a beer, I'd go to a bar," Doug Tanaka, told the Times. "I bring my grandkids in here. I don't want to have to deal with a drunk if I'm having coffee."

FINANCIALS:     [NASDAQ:SBUX]

Discussion Questions:

Discussion Question: Will Starbucks adding beer and wine at some locations be a success or will it alienate core customers at the chain?

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Instant Poll:

Will Starbucks' experiment with beer and wine sales be successful or unsuccessful?

Comments:

Having led a startup coffee franchise to over 125 units, I can tell you this is a smart move. 90% of coffee drinkers drink their coffee in the US before 11 a.m. -- what the heck do you do with your store that is open until 11 p.m. to gain nighttime traffic? In essence, the coffeehouse is able to morph into a casual nighttime conversation spot. They've tried the cafe rout and it didn't work, this is minimal change to the operation. Again, very smart.

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Bob Phibbs, President/CEO, The Retail Doctor

My usual disclaimer -- I am a Starbucks groupie and I frequent one Starbucks or another three times a day, every day of my life, and my clients are very glad that I do, because with each venti cup of java I get a rejuvenated rush of brainstorms and problem solving capabilities! All that said, I am not happy when Starbucks tries to become something other than "Starbucks." I don't want my coffee shop to be selling wine and beer. No! Starbucks please don't do it. You are welcome, as an alternative, to raise the price of coffee once again!

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

The Starbucks atmosphere and clientele will not be negatively affected with the addition of spirits to their menu. There will be no Khan-like hordes of rampaging drunkards descending upon the local Starbucks, disrupting the peaceful coffee imbibers and conversationalists.

It is a solid extension of their core competence, selling beverages and light meals in a setting that provides for comfortable camaraderie.

Charles P. Walsh, President, OmniQuest Resources, Inc

With beer at $5 and wines at $7-$9, I don't think that guy in Los Angeles has to worry about having to deal with many drunks. I think it'll fly, albeit with some ruffled feathers making headlines for awhile. But of course it'll be harder than ever to get those freebie Wi-Fi users out of their chairs so you can sit down.

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Warren Thayer, Editor & Managing Partner, Frozen & Refrigerated Buyer

Seems like a pretty innovative test to me. On the surface, I'll bet the demographics of their core customer and those who like beer, wine, and cheese cafes are very similar. And, this is a test. Nothing ventured, nothing gained.

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Al McClain, CEO, Founder, RetailWire.com

Of course it will! Drinking leads to loudness and sometimes chaos and the whole Starbucks "vibe" is built around calm and togetherness. I look at the Starbucks near my house and it's backed every night by people studying, on social media or just hanging out on the street. Introduce alcohol into the mix and nothing good results.

This is NOT the same thing as McDonald's moving into breakfast at all. They were targeting the same customer, just at a different day part. Your 8:00 p.m. triple-frapped, light foam, soy-milk latte with a shot of peppermint customer is not the same customer as your, "Gimme a Bud Light," guy.

Of course, in 24 hour Starbucks, one could go in, get hammered and then drink red-eyes until you were "sober." Might just give new meaning to the idea of full service.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

If you are willing to pay $5.00 or more for a cup of coffee, then most likely you will enjoy being able to get a glass of wine there in the afternoon.

Starbucks has built a place for people to sit and relax; this is just great brand extension.

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Mel Kleiman, President, Humetrics

I admit I am not a Starbucks customer, so I don't have a large number of shopping occasions to base my observations on. I agree that expanding the menu to other day parts is a good use of the real estate, but expect that many will object to the addition to beer and wine to the menu. The questions is, will they shift their coffee purchases to another venue?

I expect Starbucks will find that success of this effort is location driven. Where their evening customer base is youth oriented (but of legal drinking age) there may be enough customers who prefer a Starbucks to a bar or lounge, so losing those that object will net positive sales. Bottom line, I really don't see customers who go to Starbucks only in the morning, midday, etc., changing their purchase habits because beer is being sold at that location at night.

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Steve Montgomery, President, b2b Solutions, LLC

Assuming Starbucks intends to reinforce its positioning as the third place, between home and work, the evening day part has been an elusive one for the company to conquer. As noted the company does risk confusion and perhaps alienation of customers by such a move. It is always difficult speaking out of both sides of your mouth.

In essence, Starbucks is attempting to apply its "Cheers" approach to coffee to a more literal interpretation of Cheers in the evening hours. This is why we have test markets. However, I might recommend that Starbucks focus on wine and cheese, eschewing beer at the outset, to determine consumer acceptance. If wine and cheese fit (which seems to be closer to the profile of a Starbucks customer) then Starbucks could slipstream beer for the next test market.

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Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph's University

On a trip to Italy, Howard Schultz noted that coffee bars existed on practically every street. He learned that they served as meeting places or public squares. His vision was not coffee. It was always that meeting place. And, in the afternoon and evening, those coffee places also served wine and to some degree beer.

This is just an extension of Schultz' vision. Will it work? Imagine where most people you know would rather visit with a friend over a glass of wine. Over a small table at Starbucks, or at the local bar?

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Gene Detroyer, Professor, Independent

While the idea of a "third place" is to create a place to meet and talk as a community, serving beer and wine can also create a "third place," these two versions of a third place are not the same. One creates a place for quiet conversation, meetings, and work. The second often results in louder conversation which is not always conducive to quiet conversation and work. This does not seem to appeal to the same groups of people.

Starbucks stopped serving egg sandwiches (other than egg salad) because the smell took away from the smell of coffee. Will beer and wine also take away from the smell of coffee?

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

Warren has made me rethink my position.

If what ought to be a $1.00 cup of coffee sells for $5.00 at Starbucks, then a beer will cost $10.00 - $15.00 and a glass of decent wine (what else would they sell?) ought to be priced in the $15.00 - $20.00 or even $25.00 a glass range.

Maybe there is less danger here than I first thought ....

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Ryan Mathews, Founder, ceo, Black Monk Consulting

Starbucks has mastered the process of experimentation and line extensions, while preserving the loyalty of its core customers. Line extensions into more "evening friendly" fare would seem to make sense, and even if less than successful, Starbucks will continue to serve core customers.

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Verlin Youd, Principal, VPY LLC

I say more power to them. I'd like a glass of wine with a cheese plate if I was there at night, so it should be well received. I'm guessing that they will have a Starbucks branded wine as well to sell by the bottle, which would make sense from a brand perspective. It should do well.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

Being in the beverage business, it makes sense to offer more and leverage their real estate with outstanding walk up and easy parking access to their adoring public. I for one am not a fan of their coffee. It has a burnt taste - because I drink it black/no room -- I don't fall into the trap of adding sugar based syrups and chocolate to mask the bean. I am in a Starbucks on West 45th street at noon and it is indeed a wonderful social experience.

How many times do you go out for a movie and wonder where you can go for a dessert and perhaps a glass of wine? Often. Leverage the real estate and if parents or peaceful Starbucks fans complain loudly enough at a less than family atmosphere due to beer and wine being served, the store will adapt. Bouncers needed at Starbucks? I doubt it. There is risk in serving underage consumers -- so beware on that one. Let alone the commercial insurance risk that is associated with taking this step.

I agree, it could very well be location based -- makes sense in a Lincoln Park area of Chicago, but not so much in a heavily concentrated urban area where plenty of options are available. Beer in the bottle is not my favorite and neither is headache inducing wine -- which I assume will be the fare at these locations.

David Slavick, Director, Loyalty & Retention, FTD.com

I don't know, it's a bit of a seismic shift in that, when you see that green logo, you think "jolt." But if they have the same quality approach to the beer that they have with coffee, it could work.

Regardless, it seems that the urban stores (walking traffic) would have much more success with this venture, we'll see -- love to test it out!

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Lee Peterson, EVP Creative Services, WD Partners

I'm surprised by the positive response this has received here, and don't share in the optimism; I don't share the Prohibitionists hysteria, and I don't think it will be a disaster, but I don't see beer/wine as a natural extension of coffee/pastries, so I don't see any particular reason it would succeed. Perhaps it makes sense in a few hipster markets, and as they're only trying it in 25 locations -- which must be about .0001% of their total -- maybe that's all they're looking for.

'notcom'

As a former bartender, I am very familiar with the "aroma" of a bar. It's "eau de spilled beer" and doesn't lend itself well to coffeehouse smells. Turning Starbucks into a bar might sound like a good idea in a boardroom, but the associated decorums can be polar opposites. The tame, polite customers served before 11 a.m. are not so tame and polite with a few belts under their belts (and/or suspenders). When sales are not promising enough, do you initiate Ladies Night with the resulting hunter/hunted atmosphere? Do you change the music?

Contrary to what some have written here, this is not a core customer issue. Beer, wine, and darkened hours will attract a different kind of customer, one which may only rarely intersect with the coffee crowd or affect them in any way. Some questions, though: Can I get a shot of Baileys in my double-shot latte at 7 a.m.? Does Baileys make soy, low-fat, or non-fat versions?

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M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

Will drive through service be included? Silly question? Not really. It just might be expected. It certainly will be by me as a customer that won't want to go inside -- ever, if this is deployed.

I may be a contrarian on this issue, however, I think it may sound good but have serious, if not fatal, execution efforts.

The first and foremost issue will be licensing. Due to the number of locations and the diverse communities they serve, I'm shocked that no one has commented on licensing. Further, they will have age restrictions on their employees. Even a larger issue, they will have the liability concerns of serving alcoholic beverages. If I were a local community where this was implemented, I would 'sting' them daily.

It's a real disappointment that an innovative retailer like Starbucks can't be more innovative. They are putting more of their base at risk than they think. There are also far more issues that go with this endeavor than it just being a 'cool' idea. I used to think of Starbucks as the Dairy Queen for the adult - a great treat and a great experience. Now, I'm not sure what to think about a neon Bud Light sign in their window.

There are more than enough joints to grab a beer or a glass of wine out of a box. There are few that offer an alternative with a great experience. It's not their core. It's not a fit for their experience. It's not a innovative plan for success. In fact, it could destroy their unique experience altogether.

'Scanner'

Maybe, just maybe -- it will depend on what type/brand of the beer and wine they serve...Think about it.

Mark Baum, SVP & CCO, Food Marketing Institute

This is a dubious brand extension. The Starbucks brand is coffee in a relaxed social setting. I have always been opposed to a successful brand extending into new and unrelated areas. Does anyone remember Lifesaver soda?

Beer and wine in Starbucks? What's next? Martinis? If Starbucks wants to go that route, I suggest they start a new chain with a new name. How about Starbooze?

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John Karolefski, Editor in Chief, CPGmatters.com

If only it was that easy to get a liquor license. I understand that liquor licenses are extremely local and political and they will not just give it up to Starbucks unless Starbucks support local politicians on the board...cough, cough.

However on another note, this is a great study in repurposing and adding a new channel of hospitality. I went on a date with someone who wanted to sit down at Starbucks even though I do not drink coffee. Now I can go to Starbucks and drink beer instead on future dates.

Ed Dunn, Founder, (Stealth Operation)

Starbucks has been talking about this for at least ten years. Let's get going!

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Cathy Hotka, Principal, Cathy Hotka & Associates

Trying to mimic the concept of a French cafe by the Seine, where people are gathered to enjoy a frosty glass of beer or sample fromage et bon vin on their way back from the Louvre or before the hit the night-club, while watching passers-by with baguettes under their arm may seem romantic and within Starbucks' reach, but I'm not as convinced about the ability of the concept to scale up across their whole chain. In select cases (locations) and within the RTA context, it might work but it doesn't feel that it's a scalable proposition for all kinds of reasons. Of course they can test and we'll be here to evaluate their success.

'dimitristx'

The reason Starbucks became successful was because it just focused on coffee. It is the coffee specialist, which differentiated it from the thousands of other diners, bars and and delis that sold a combination of coffee, food and alcohol. Therefore, this move could easily weaken consumers' perception of Starbucks and cause them long-term damage.

I'd tread carefully with this one.

Mark Goldsmith, European Category Marketing Manager, Spectrum Brands

Starbucks clearly needs to find ways to monetize its real-estate at non-peak coffee hours.

I live a block away from one of the first Starbucks to serve alcohol in Portland, OR. What's interesting is that it's a beautiful store, that always seems busy until closing time, but I almost never see people with beer or wine.

In this store at least, the presence of the bar doesn't seem to have eroded the coffee experience at all (the store also has Starbucks high-end Clover system for gourmet coffee by the cup, which is much more popular than the beer or wine). I just rarely see beer or wine glasses on tables. I wonder if presence of the bar, helps this store establish credibility as an evening place, without making the venue a primary destination for alcohol consumers.

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Jason Goldberg, VP Commerce Strategy, Razorfish

This is not the same marketing strategy as McDonald's. Their market segmentation in "Breakfast Menu" is the same as their targets for another two times a day. Serving beer and wine at night is the matter of "changing concept" that relates to a customer's attitude. Starbucks' atmosphere has pushed so many direct customers, and many indirect customers like the parents' comforts have been pulled by Starbucks' clientele. This concept has not been easily achieved.

farhad badie, Marketing Manager, Trans Wholesale & Distribution co.

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