Starbucks a Great Testing Ground for Grocery Sales
When Starbucks introduces a product into grocery stores it already knows whether the item can generate repeat purchases. That’s because it has first tested those very same items in its own stores before mass producing them for food retailers.
According to a Wall Street Journal report, Starbucks is looking to expand the number of products it places in grocery stores and it’s looking for its own coffee shops to serve as the testing ground.
Starbucks, which first got into selling its products in supermarkets in 1996, has been encouraged by the response to the rollout of its Via instant coffee at retail. Sales in the U.S. are reported to have exceeded $100 million.
The company is also looking to eventually introduce Tazo tea and Seattle’s Best products in grocery stores after testing them in its own locations.
Diane Dietz, executive vice president and chief marketing officer at Safeway, told the Journal, "When they test and sample things they’re constantly tweaking things so that when they go national [with a product] they have a solid program."
According to the report, Starbucks’ CEO Howard Schultz wants to use the company’s rewards program to provide consumers with incentives to buy its products wherever they are sold.
"We will reward customers who buy Starbucks products in the grocery store with opportunities to get rewards in our stores and vice versa," Mr. Schultz said. "That’s a sea change in our ability to integrate these two channels of distribution."
Discussion Questions: Does Starbucks have an advantage over other food and beverage brands when it comes to new product launches in grocery stores? Will the testing Starbucks does get it a pass on some of the fees imposed by retailers taking on new products?
Starbucks has a heck of a test lab with millions of shoppers walking by its products every day. They have a great opportunity to test new products and new concepts. A few weeks back we were talking about e-stores for CPGs. The Starbucks stores bring a lot of the same opportunities to learn with a much larger and more mainstream audience.
Two things Starbucks needs to watch out for: 1) Their retail environment is so different that things that work there may just get lost on the grocery store shelf. 2) They risk brand dilution if everyone can buy everything everywhere vs. having the special experience of going to a Starbucks. A few years ago they got too far out over their skis with music and merchandising. They need to be careful not to let hunger for growth take them too far off their main mission again.
While it seems like an advantage to have a “laboratory” to test out new products in the field, it’s important to note that the buyer and the buying process is vastly different from the Starbucks store to the supermarket. And Starbucks runs a much bigger risk if they start to blur the lines between the two. Starbucks needs to decide if they want to be a boutique niche player or a broad-scale mass market retailer, but they constantly send conflicting signals. Then they can decide whether/how to use their stores for testing purposes.
Starbucks has a tremendous advantage in supermarkets because the brand name and the logo are associated with the addictive Starbucks experience in their own cafes and stores. However, I don’t truly believe that using their own stores as a test market to predict supermarket sales is necessarily an accurate measure. The Starbucks experience in the stores is different than consumer products purchasing in the supermarket.
You know, to me the news here isn’t that Starbucks has an opportunity to test in its own stores before pushing out to mass retail. It’s the last couple of paragraphs of the article – that Starbucks is revamping its loyalty program to better integrate and recognize product purchases wherever they happen. I don’t know exactly how they plan to do that – I have to imagine mobile will be involved somehow – but this is yet another place where retailers are becoming disintermediated by brands. More and more brands are bypassing retailers to reach consumers directly through the products themselves – with QR codes on the packaging as just one example. If retailers want to maintain the upper hand, they better find a way to sit on top of all these brand initiatives, offering to facilitate points collection or reporting on behalf of the consumer – or their own loyalty programs may become much less relevant than they already are.
STARBUCKS has carefully and effectively nutured the “Brand” and the “Experience” for their Consumer base — details regarding Store Operations, Product Quality, Where they Harvest, Marketing, Real Estate, Research, and more speak to the Brand and Experience. This provides a tremendous leg up for STARBUCKS’ expansive plans to develop more products for sale at Retail.
The cross-channel patterns created then bounce back to reinforce the “Brand Experience” for return trips to their favorite barista.
The job of ‘getting it right’ is never done. STARBUCKS had some turns in the wrong direction a few years ago. The runway seems to be long for them at this time, and they are running on sound cylinders.
If Starbucks hasn’t already asked itself, “Are we a boutique niche retailer or a product breeder for supermarkets?” – it should. Whatever Starbucks does, within reason, is in season. But as Peter pointed out, boutique niches and supermarkets are two different selling channels. But if East is ever to met West, Starbucks has a good opportunity to accomplish that. Let’s watch this carefully.
I’m with Peter–two completely different environments; however, the opportunities for cross-promotion offer a tremendous advantage. The growing number of retail/wholesale and restaurant/wholesale brands should take a note. California Pizza Kitchen, Chang’s and for that matter, Origins, Lucky, Mango, Aldo…it’s all good!
Starbucks is a great testing ground for new items and I like what Schultz is doing. In fact, I could see Starbucks testing products for National Brands that don’t compete with their brands. As long as the target consumer is similar to the target Starbucks consumer it should work. Starbucks could run these tests for National Brands for a fee and then provide results. If the pre-test with Starbucks eliminates or greatly reduces new item introduction fees with retailers it would be a very attractive option for National Brands. Not every item would work, but items including crackers, cookies, cereal, energy bars and some HBC items would. By building consumer awareness through sales at Starbucks stores I believe you could convert consumers to purchase these items in grocery stores. Even a coupon follow up program to help drive conversion from Starbucks to grocery would be very interesting. This has the potential of being another income opportunity for Starbucks and added value for loyal Starbucks consumers. As long as they control these tests and don’t clutter the store, I am very interested in seeing this idea expand.
The rewards program at both Grocery and Starbucks is very attractive as long as they can find a way to work with Grocery and their POS systems to handle the savings. That always seems to be the challenge. Maybe it is a Catalina coupon that the consumer redeems at Starbucks or on their next shopping trip to that retailer.
Starbucks has taken product testing to a new level by conducting scheduled tastings in stores. These focus groups give the company hands-on experience with the ways that customers interact with products.
Starbucks indeed has a good testing lab in their stores for products that can be launched in grocery. The greatest advantage is that they have a well-fed (or drunk?) group of advocates who can represent their brand to other potential customers. The built in advocacy group is what other marketers would kill for.
However, one factor to keep in mind is that Starbucks frequent customers are a small segment of the grocery store audience, and may not represent enough volume for the grocery market. Products must meet the needs of best customers and the Starbucks brand, but also be accessible to a broader audience who do not frequent the home of $4 lattes on a regular basis.
I’m with Nikki on this one. The intriguing nugget of opportunity is how Starbucks will enhance customer advocacy by bridging their loyalty program across store channels–regardless of where the product purchase takes place.
I agree with David that Starbucks has a tremendous advantage in knowing what the customers like. How that translates into supermarket sales is different. But they definitely know what their customers like and making it available in retail stores gives them a great opportunity for growth.
My guess is that Starbucks is well aware of the potential impact that selling their product via retailer could do to their image. I’m sure they’ve done their research and that is why their product is more expensive than others. They are trying to maintain the “boutique” image.
Bottom line, I think they have a definite advantage. They have loyal customers going into retail stores just to pick up a bag of their coffee for tomorrow morning.
From our experience working with CPG companies and grocers (esp large grocers), if you can walk in to a grocer and say, “this product is a very hot seller, here’s the results”, you win. Actually, you both win. Right now, most CPG cannot do that…their test results are research results (online/test labs, etc.) at best. So, Starbucks, with thousands of stores, is not only in a position to show actual results, but they could (if they so choose) make the product exclusive to their stores or exclusive to a specific grocer. HUGE!
Ultimately, knowledge is power, and SBUX will have the knowledge. Retail is their leg up to that power.
Advantage? Are you kidding? Not only does Starbucks have an advantage over the competitors; they actually charge a “Starbucks size” price to those coming in the stores to try the new product. How many manufacturers of any type product can say they already make a profit on a new item before it even hits the store shelves?
Sends on the demographic and shopper profile of the individual stores, but it would seem this is a good choice. Although, the “Paradox of Choice” and behavioral economics would warn against this.
Never thought I’d see the day when Starbucks was an impulse buy at the checkout or just another coffee along side Folgers at Costco, but….
Is it working? Okay, so I am a sucker for coffee. I bought the bag at Costco and I bought the Via in the checkout lane for my college student. There’s one born every minute I suppose and that one is Scanner. However, there is no question that Mrs. Scanner makes the best coffee in the world no matter what the brand. She always has and always will. I’ve never questioned it and never will…:-)