Thursday, December 8, 2016

Starbucks's $10 Cup of Coffee Is Priced Just Right

[ed. I've been in the Roastery in Seattle on Pike (although I didn't know it at the time). I'd just stopped in to get a Serious Pie pizza, which, as I found out, is situated in a small enclave adjacent to the main dining room. The whole operation looked like a brewery to me... massive roasting equipment, drying bins, conveyor-belts running all over the place and other stuff going on while hundreds of people sat around drinking coffee, working on laptops, taking pictures and just soaking in the vibe (and tourists pouring in all the time). It was, generally, kind of weird. I kept asking myself "what is everyone doing here?"(I'm not much of a coffee drinker myself), but people seemed to be outright giddy about being in the happening place.]

It's not about the $10 cup of coffee.

Critics have derided Starbucks Corp.'s push into higher-end coffee bars, which the chain discussed in detail on Thursday, at an all-day confab with Wall Street investors and analysts. Skeptics questioned whether millennials would pony up for pricey drinks such as the $10 Nitro cold-brew coffee, which is infused with nitrogen gas. Others poked fun at descriptions of exotic beans small-batch roasted in Seattle.

They are missing the point.

Starbucks is not trying to change its current business model by going even more upmarket than it already is, nor is it trying to convince folks to spend more on its run-of-the-mill drip coffee just because it's served by hipsters in hats and leather-lined cloth aprons (the new uniform of the higher-end Roastery stores).

On the contrary, Starbucks has launched a completely separate, brand new restaurant chain -- one that rejects the old model of brick-and-mortar ubiquity, while also getting back to the chain's roots.

Back in the 1970s, CEO Howard Schultz fashioned Starbucks in the vision of a "third place"-- corporate jargon for somewhere for people to hang out when not at work or home. But over the years, many of the 25,000 stores worldwide have basically turned into fast-food stations, where people get their coffee fix and get out.

Store Count

Starbucks aims to get up to 37,000 stores by 2021, which would overtake McDonald's store footprint

Many of the stores don't look all that different from McDonald's higher-end McCafe's. Starbucks has invested in drive-thru's, mobile ordering and payment and virtual baristas, to speed up the process and get more money flowing through the chain.

The problem is, this model depends greatly on foot traffic. And with consumers spending increasingly less time at the malls and shopping centers Starbucks locations were built to serve, the company knows it can no longer rely on the "pull" model of intercepting existing foot traffic. Instead, it will have to create more of a "push" model, giving consumers reasons to get off their couch and come in to get a coffee.

Traffic Jam

Shopper traffic at retail stores is in a steep, years-long decline

Enter Starbucks Reserve and Roastery stores. They are more wine bar than coffeehouse, replete with tastings, mixologists and educated baristas. They're a place to take a date, to sit at the bar and experience the tastes and smells, as you'd do at a wine bar or craft brewery.

Indeed, customers at the already opened Roastery outpost in Seattle spend an average of 40 minutes at the restaurant, according to the company. Compare that to the few minutes it takes to swing by a Starbucks on your morning commute and pick up the vanilla latte you pre-ordered on your cell phone. It's a totally different business model.

by Shelly Banjo, Bloomberg |  Read more:
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