Starbucks Serves Up Hot Breakfast

Discussion
Mar 06, 2006
George Anderson

By George Anderson

Turnabout is fair play. Others, from convenience stores to Dunkin’ Donuts to McDonald’s, are gunning for Starbucks’ coffee business, so why shouldn’t it try to grab some of the
hot breakfast sandwich market it has been missing out on for years?

The company announced it would expand the current number of stores testing breakfast sandwiches from 250 to 600 by October of this year. The chain currently has more than 7,000
company-owned and licensed coffee shops operating in the U.S. and Puerto Rico.

Starbucks is offering egg and cheese sandwiches on English muffins with trimmings such as peppered bacon and Black Forest ham. It currently sells the sandwiches, which are prepared
off-premise by vendors, in shops in Washington, D.C. and Portland, Oregon. It will add San Francisco and Chicago to the markets testing the sandwiches.

Many believe that Starbucks’ test offers the chain an opportunity to see if it can make a business of breakfast sandwiches without a lot of inherent risk.

Linda Bannister, an analyst with Edward Jones, told The Associated Press, “If Starbucks can get food right, it gives them a whole new leg of growth.”

Starbucks has reported that sandwich sales have increased test store revenues by roughly three percent on average.

Tom Barr, who heads up Starbucks’ food division, is looking for the chain to expand the program even more moving into next year.  

Moderator’s Comment: What impact do you think Starbucks will have on the breakfast sandwich market? Is the chain taking a clearly differentiated Starbucks’
approach to the business?

Tom Barr said sandwiches are simply a normal function of Starbucks trying to keep its customers happy. Sandwich choices, according to The Associated
Press
report, include “eggs Florentine with baby spinach and havarti, and herbed sausage and egg with aged sharp cheddar.”

George Anderson – Moderator

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16 Comments on "Starbucks Serves Up Hot Breakfast"


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Mark Lilien
Guest
14 years 11 months ago

Coffee probably is 80% to 90% gross margin, before labor. It’s unlikely that any breakfast additions have margins like this, so the strategy is only a winner if more coffee gets sold.

Jay Gordon
Guest
Jay Gordon
14 years 11 months ago

It will be interesting to see whether the Starbucks demographic goes for breakfast sandwiches in a big way. It doesn’t strike me as a natural fit. However, Starbucks will likely offer a quality product; I wish they were testing it in Philly so I could try it.

The other challenge for Starbucks will be price points. That hasn’t been an obstacle for the company’s coffee business, but are even Starbucks’ customers ready for the $10+ breakfast?

Stephan Kouzomis
Guest
Stephan Kouzomis
14 years 11 months ago

Starbucks has cautiously been testing foods for 6 to 10 years. Good for Starbucks! And it continues to grow in sales and bottom line without food. Foods are tricky, especially if you demand superior quality, and Starbucks does. And, they are smart in this. Every company, either already in or going into meals and food products selling to a very loyal base of consumers, must test market; for it is more than the food offered that needs addressing.

Yes, it is a perfect fit and will keep its shoppers happy, as well as bring in new ones, if not the one’s that switch back and forth to competitors. Needless, to say, watch for greater same store sales, and increased bottom line. Hmmmmmmmmm

Warren Thayer
Guest
14 years 11 months ago

A healthier, good-tasting breakfast alternative would be a good differentiator, and should drive in more traffic as well. I’d be test marketing different price points and menus now, so I think their rollout is prudent.

Camille P. Schuster, PhD.
Guest
14 years 11 months ago

If the company is thinking about its goal of creating “community” with its customers, introducing breakfast sandwiches is an important step. For those consumers coming to Starbucks in the morning who might be interested in spending more time there, having a food choice with protein is very important. Many Starbucks have sandwiches, salads, and bakery goods available the rest of the day for those consumers who want some food to eat while they sit and chat or listen to music or surf the Internet. Offering breakfast sandwiches is likely to be successful in those areas in which a number of consumers like to read the newspaper or meet friends for breakfast. Outsourcing the breakfast sandwiches is a great way to test the concept.

Gene Hoffman
Guest
Gene Hoffman
14 years 11 months ago

When a company such as Starbucks does something extremely well -serving high-ticket exotic coffees that are preferred by millions who are mainly on the “go” – it will be well-tested to duplicate that achievement with an array of exotic sandwiches that might increase the labor cost per unit, and possibly slow down traffic flow if “Starbuckers” want to start having breakfast on Starbucks’ premises. Let’s await the results of like-store sales to see what current trends reveal.

Kai Clarke
Guest
14 years 11 months ago

This is just a logical choice for Starbucks. It is applying the principles of Coffee, Community, and Chat to all of its’ restaurants. Starbucks is already doing the same thing with its baked goods, so why not with hot sandwiches? This helps increase their share of the snack dollar which they have been missing out on. This move will also let them offer a higher ROI on each square foot of their investment. I can easily see this growing into a larger offering of full sandwiches all day, and even offering other drink offerings, like Soda to attract more of their mainstream audience.

Bernice Hurst
Guest
14 years 11 months ago

My reaction is entirely addressed to the potential quality of the product. Outsourcing sandwiches full of ingredients that need to be cooked which then cool down and are re-heated and frequently sold to be taken away whereupon they cool down again does not sound appetising to me. Eliminating the final cool down by encouraging more customers to eat in sounds like a major strategic change for the business. And still customers would be eating re-heated sandwiches. Apart from the taste issue there is bound to be some degree of risk; sooner or later someone is going to complain about food poisoning (re-heated soggy bacon anyone?). One of the few advantages of other fast food restaurants as I see it is that the food is cooked on the premises. But eggs, and English muffins do not respond well to this sort of treatment and I think the menu choice is foolish to say the least, breakfast or not.

Don Delzell
Guest
Don Delzell
14 years 11 months ago

As Starbucks continues its expansion of product offerings in attempts to promote store growth, a natural concern should be the diminution of focus. Music, merchandise, bakery items…now hot breakfast sandwiches. At what point are the core competencies exceeded, and at what point is the opportunity cost in terms of time, energy and attention too high?

Contrary to belief and hope, adding new businesses within a “box” is not a particularly effective retail strategy. Selectively adding businesses in which a competitive advantage can be sustained or created, which leverage existing core competencies and infrastructure…those are effective.

Is this an effective strategy for Starbucks? Perhaps. As with others, the careful and gradual test and roll out are good signs. Still, I can’t help but wonder about the actual fit of prepared hot foods versus coffee. Anyone who’s ever been a part of the QSR business knows how fundamentally difficult it is to actually manage the fundamentals of that business.

Ed Dennis
Guest
Ed Dennis
14 years 11 months ago

Coffee, Community and Chat may be Starbucks’ war cry but their business is “TAKEOUT”. The blather is all about image. Over 80% of Starbucks coffee sales go out the door. Many of these customers are not eating breakfast or lunch with their coffee. Some of this is due to time constraint. If Starbucks could offer quality finger food to go and manage a system to allow the consumer to “build their own product,” like they do with their coffee drinks then I think that Starbucks could expect to sell “food” with 15% of their orders, at a minimum. One of the keys to Starbucks success has been the personalization of product by their customers. Moving this to food is possible but will require a super premium presentation to work the way a Starbucks customer would find enchanting.

Phillip T. Straniero
Guest
Phillip T. Straniero
14 years 11 months ago

Like some of the other commentators, I agree it is only natural for Starbucks to use hot food to satisfy and maintain the interest of its current clientele and add some new appeal to folks who do not or very infrequently visit their stores. Breakfast continues to be the meal most adults do not eat at home and given the “carry out” nature of the Starbucks business it can only add to their same store sales over the long run.

The only “caution flag” for me is to be sure the addition of hot food does not add to the wait time of their most loyal customers!!!

Bill Bishop
Guest
Bill Bishop
14 years 11 months ago

I think the impact could be huge because the Starbucks organization has shown that they have an extraordinary degree of discipline when rolling out a new concept. Whether or not the product is exceptional, putting a new breakfast sandwich line into the Starbucks offer will serve as a platform for growth and one more reason to make their stores a destination.

Mitch Kristofferson
Guest
Mitch Kristofferson
14 years 11 months ago

Hot food has been a hole in the Starbucks offering so it’s no surprise they’re trying this. From a customer receptivity perspective, I think it’s a no brainer. For many people they serve the best coffee – worth a trip on its own – and this move will greatly increase the convenience of getting the whole meal in one stop. Those that shop Starbucks for breakfast once a week and walk out with a sweet roll now might buy food twice or more per week. The key as others have said will be execution. On average, their stores aren’t as well staffed, trained, or managed as they were in the “old days” of the 90’s…

Mark Burr
Guest
14 years 11 months ago

Just look at Starbucks’ same store sales comp’s then ask yourself again if they’ll be successful. So far, they seem to turn everything they do into pure gold – even if it is only for a golden image. Starbucks isn’t likely to steal too many customers away from the ‘golden arches.’ What the trick is here is that they can have the market thinking they can. That is success at its optimum best. Talk about it, think about it, say something about it and you have the market thinking you can, reacting as if you could and responding as if you were a threat.

I’d put my money on positive results, whether they actually are or not.

Herb Sorensen
Guest
14 years 11 months ago

It seems likely (I hope they have researched this) that their customers need/want this breakfast item when they come in. It’s all about the guest, not moving more merchandise. I think that is the Starbucks philosophy. It has worked and is likely to work with this, too.

Kevin Fay
Guest
Kevin Fay
14 years 5 months ago

Convenience is THE key these days – “One stop; shop-n-go”. The easier, the better. You cannot blame them for giving what today’s consumers want.

Now, if they would also offer healthy alternatives (e.g. egg whites, tomato and Canadian Bacon [very lean] on a whole grain English muffin or a GymBurrito) they could really seize an underserved market. Many Americans are finally acknowledging the obesity problem in this country; and it all boils down to two simple things: lack of exercise and poor eating ‘choices’ (choices includes actual food AND quantity).

Besides, competition is good.

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