Starbucks’ five-year plan includes doubling food sales
Coffee has made Starbucks a household name, but food sales are going to be a big reason for the chain’s continued growth in the years to come. That’s a key takeaway from Starbucks’ biennial investor conference yesterday, where the chain announced plans to drive foods sales and expand sales of beer and wine to several hundred more stores in 2015.
The rollout of Starbucks La Boulange line of baked goods and sandwiches has helped boost same-store sales growth in recent quarters by two percent. The chain is looking to build on that success in the years to come with added sales during breakfast and other day parts.
Starbucks has identified lunch as a major opportunity for the chain to boost revenues and profits. For its 2014 fiscal year, the chain saw year-over-year lunch sales grow 14 percent. The chain has been testing new sandwiches designed for the lunch crowd and is confident in its new product pipeline, where items go from initial development to test within six months.
As several reports point out, Starbucks is increasing its menu offerings at a time when others, most notably Burger King and McDonald’s, are trimming items to provide customers with faster service.
Starbucks also has its sights set on expanding what the chain calls its "Evenings" program, which includes beer, wine and fruit-and-cheese plates. According to the company, stores with this program saw a sales lift in the mid to high teens for the day-part. Starbucks expects that it will eventually have evening service in place at up to 25 percent of its store base in the U.S. The chain has concentrated on bringing the program to stores in urban areas and those near theaters and restaurants to capture customers out for a night on the town.
Cliff Burrows, group president for the Americas, said (via Bloomberg News) that the Evenings program was most successful with the chain’s women customers who "enjoy meeting friends for a glass of wine in the evening."
- 2014 Biennial Investor Day (webcast) – Starbucks
- Starbucks Expanding Lunch Menu in Bid to Draw U.S. Diners – Bloomberg News
- Starbucks brews up five year growth plan; shares flirt with all-time highs – USA Today
- Starbucks aims to double food sales in five years – The Wall Street Journal (sub. required)
- Why Starbucks Has Bulked Up Its Menu to 255 Items – The Wall Street Journal (sub. required)
- Starbucks to expand alcohol sales, partner with Oprah – RetailWire
- Dunkin’ and Starbucks go after the lunchtime crowd – RetailWire
Discussion Questions
Is Starbucks on the right track turning its attention to growing day-parts beyond breakfast? Do you think the chain has a greater opportunity to drive incremental revenues during lunch or evenings?
Lunch is a real possibility. Evenings at Starbucks … Not so sure about that one. I can see it now—”Would you like some venti chicken wings with your Merlot?”
If done right, this could go well. Panera and local pubs would be where Starbucks could gain the business from, and quality must be high, along with value, which could be an issue. Their pastries are already expensive, and if they get into some niche sandwiches, it better be awesome or it won’t go. Starbucks has a reputation for being laid-back, a place to hang out for hours, which could be a problem if they are trying to feed the masses. Where are they going to get table turns, if the regular coffee crowd doesn’t want to leave, and make room for the hungry folks who want to sit and eat a good sandwich?
Some logistics need to be figured out, along with getting it right the first time on the types of food they sell.
Starbucks usually does things right, so IMO, they will be a force for others to pay attention to.
Starbucks has rebounded from an unsuccessful push into breakfast sandwiches a few years back. (At the time, Howard Schultz complained that the place smelled like eggs instead of coffee, and he was right.) It’s worth exploring how to get more productivity out of lunch and even dinner hours, but the company has to be cautious. Trying to emulate the Panera model without the space to deal with menu complexity could backfire on Starbucks’ core beverage business, and this week’s Wall Street Journal article about “menu complexity” at McDonald’s ought to be a cautionary tale.
They have the stores. They’re paying rent. Why shouldn’t Starbucks expand its food and beverage offerings to drive more customers into their stores during non-peak coffee hours? There is great potential here for SBUX. Remember when people wondered why McDonald’s was getting into breakfast with a non-burger menu? With their stores’ friendly ambiance and convenient locations, lunch and evenings would seem to represent a prime opportunity for growth.
The plan for their Evenings format makes great sense. The menu items are much easier to manage through their supply chain and alcohol has tremendous margins. Leveraging their brick-and-mortar infrastructure makes Starbucks an ideal place to meet after work for a glass of wine and snacks. Venti Pinot Grigio may be the next lingo, and BARista may be uniquely appropriate.
I think it’s a smart move on Starbucks’ part if the company can manage the increase in inventory and associated marketing strategies. By providing more options for customers during lunch and in the evenings, the chain will attract a wider customer base and improve overall shopping cart size among its most loyal customers. One of the keys to success will be getting more consumers to opt into the Starbucks loyalty program and mobile app.
There’s huge potential for Starbucks to expand its food offerings, assuming they heed the preferences of health-obsessed Millennials. The selection of bad-for-you breakfast items is pretty impressive! They’re going to want to get some healthier options in for lunch.
Agree with Peter that lunch has greater potential than dinner and/or drinks. At lunch at least some of the people have to get back to their offices, etc. With dinner there is no deadline to leave, meaning that the people can say longer.
Even if the customer is having only one drink they are likely to be there longer resulting in slower table turns. Plus unlike coffee the customers can’t decide to put a lid on it and then leave with drink-in-hand. Given the small footprint of most locations I don’t see this being the game changer forecasted.
I don’t bet against Starbucks. Even when they make mistakes they seem to approach fixes well. The strategy outlined makes sense, but there are a few considerations.
If they are going to serve food, it must get better. In my experience is it is far from fresh and smacks of “day-old” or worse. If we look at the fast food trends, it is all about better food.
The other issue is the stores themselves. They are conducive to sitting down for a cup of coffee and wacking away on your computer, or for a couple of folks to share a break. Three people in a group start to strain the table set-up, and they don’t have the congenial feeling of the European cafes or a local pub.
The fine people at Starbucks are pretty darn smart. They aren’t going to start adding food items randomly. They will test, survey and tweak accordingly. They already have the capability with display cases, ovens, etc. It’s not like its a complete overhaul of their system.
At Starbucks there are those that grab their latte, breakfast sandwich and run while others linger, work and sip for many hours. I simply do not see the same model when it comes to lunch.
Aside from fast food, lunch is often a destination. Starbucks just isn’t set up for the lunch crowd who would prefer sitting at tables over lounging.
But I do continue to support the Evenings concept. Absolutely! Drop by Starbucks after a movie for a coffee, wine and maybe something light or sweet. That concept has legs.
… And that’s my two cents.
I understand that all retailers want growth in new shops and increased sales in existing shops. Starbucks may be getting close to maximizing out the number of shops. Now how to grow sales inside the shop? Early food offerings did not encourage me to purchase anything. Keep in mind there is only so much that can be done in the limited space in a Starbucks. Too great a push in food could hurt sales. It is the “reason for being” argument. If you don’t have a reason for being, consumers will not come. Too much food will create a mixed message. Look at what McDonald’s is doing with their coffee offering. To a point this could be an improvement, assuming they maintain the same quality as their coffee. Otherwise be careful and let the consumer direct the show.
Very few day-part based retail brands successfully expand to additional day-parts—particularly those trying to go from “breakfast” up in the day.
Starbucks can succeed here because their brand franchise is not “coffee,” nor even “morning food”—it is social/status. It has never been cool to ask your business associates to meet you at the Waffle House (outside of the Deep South anyway!). And an aspiring entrepreneur never admits they are having coffee and checking email from McDonald’s in the morning.
Starbucks is a “happening,” to invoke the language of the Sixties, and it is just as cool in the evening (with wine available that is) as it is in the morning.
The key to their success will be avoiding getting “meal occasion stereotyped.” They are not about “breakfast”—that’s why egg sandwiches tanked. They should not be about “lunch” or “dinner” either. Instead they should be about the cool place to “gather” around those time slots. No one is going to “go to Starbucks for dinner” any more than they “go to Starbucks for breakfast.” But they will go to Starbucks to hang out at different/additional times during the day if the appropriate refreshment for the day-part is available.
The people at Starbucks are indeed smart—I like their lunch options already and the evening extension makes sense. It’s all about having that place that people want to come, talk and stay awhile. As mentioned before, they will need to have some healthy options to the dinner menu.
I really wish they would bring back the pretzels—they were really good….
Expanding offerings beyond breakfast makes smart strategic sense. At the same time, the company needs to be careful not to “break the brand”—expand to a point where the message is not about a relaxing cup of coffee in a warm welcoming environment with food.
Starbucks is fast becoming THE healthy convenient store with caffeine as the ultimate hook. When we’re on the road as a family, we look for SBUX as THE option for food, coffee, pit stop, the whole nine yards. It’s just plain good business to expand their food category to draw a broader audience (not just elitists like me).
I do believe that both Lee Kent and Ben Ball are correct—for the most part.
Ben is right that Starbucks is a “Happening” and it is true all over the world. It is the place to meet. If you haven’t seen this video, it is worth it. What other retailer has this “experience” worldwide?
The risks are simple. Can their facilities that are mostly designed for a few to stay and sit and most to come in and leave, accommodate the same thing when more of a “meal” comes into play? In addition, there is always a risk in expanding beyond your core business to an extent that you no longer have a core. Further, they already have a longer wait than their competitors for the same type of beverages. They compensate for that by being the “Happening.” Can they risk that with a far more complex offering than they already have? Will their loyal beverage customers in a cramped facility wait while the customer ahead is placing 5 sentence food orders instead of 5 word drink orders?
It has been reported that they will be expanding their adult alcoholic beverage offering beyond the 32 locations where it is being piloted. This will be foretelling on how the expansion of their food offering will go, whether that be into lunch, or as Lee suggests, the place or “Happening” to be after a movie or evening event.