Starbucks turns to happy hour to draw the crowds

Struggling coffee chain to trial alcohol sales in some US stores in bid to boost profits

Bringing happy hour to Starbucks may be easier said than done.

After experimenting with alcohol sales at six West Coast stores, the world’s largest coffee-shop chain said yesterday that it will sell beer and wine in as many as 25 locations by the end of the year. Starbucks, which has 10,700 US cafes, will also sell fruit-and-cheese plates and focaccia with olive oil.

The strategy is part of a broader experiment to find ways to lure Starbucks customers and even non-coffee drinkers into stores during slow periods of the day, especially afternoons and evenings. The trick will be doing it without alienating core customers, said Bill Chidley, a Centerville, Ohio-based senior vice president at Interbrand, a brand consulting firm.

“It makes sense if you think of the way that McDonald’s grew its business by going into breakfast” and specialty coffees, Chidley said in an interview. Still, selling alcohol may turn off some families with children, he said.

“It certainly is going to be controversial,” he said.

The wine and beer initiative is part of an effort by chief executive officer Howard Schultz to cement a turnaround he engineered starting in 2008. Starbucks shuttered hundreds of cafes after overbuilding and a consumer-led recession sent sales and profits sliding.

Sales have rebounded since Schultz reclaimed the CEO post in 2008. Revenue rose 20 percent to $11.7bn worldwide in the year ended Oct. 2, from $9.77bn in 2009.

Profit more than tripled during the same time. Starbucks has captured 33 percent of the $26.5bn US coffee and snack shop market, according a July report from researcher IBISWorld Inc. Dunkin’ Donuts chain has 16 percent of the market.

The company’s shares climbed 43 percent last year, compared with a 16 percent gain for the Bloomberg US Quick Service Restaurant Index, which includes McDonald’s, Krispy Kreme Doughnuts and Wendy’s Co.

In recent years several restaurant chains have sought to boost growth by transcending their origins.

McDonald’s has successfully moved beyond fast food into coffee beverages, opening McCafe bistros with earth-tone decor and free Wi-Fi. McDonald’s also expanded its menu offerings - including fruit smoothies, salads and wraps - with the aim of attracting people around the clock.

Dunkin’ Donuts has introduced new food to lure folks after the morning hours.

Starbucks has “plenty of business in the morning,” said Sara Senatore, a New York-based analyst at Sanford C. Bernstein & Co. The chain isn’t making full use of its workers and real estate in the later part of the day, said Senatore, who rates the shares “outperform.”

 “At a certain point, you need to grow revenue, you need to give people other reasons to come in,” Chidley said.

The new stores, which will be located in Chicago, Atlanta and Southern California, will be larger and seat more patrons than regular Starbucks cafes, Clarice Turner, senior vice president of US operations, said yesterday in an interview.

At the six stores that now sell alcohol in Seattle and Portland, Oregon, beer is $5 and glasses of wine are $7 to $9. Starbucks is creating the bar menu “so it’s relevant to local taste preferences,” Turner said, declining to be more specific.

In November, Starbucks acquired juicemaker Evolution Fresh for $30m and said it would open stores selling such drinks as pomegranate lemonade and protein shakes to broaden its market beyond coffee. San Bernardino, California-based Evolution sells organic and fresh-squeezed juices at grocery stores in the US, according to its website.

This month, Starbucks introduced blonde-roast coffee, its lightest blend yet, in an attempt to attract consumers who don’t want to drink Starbucks’ signature dark roasts. The company also revamped its coffee packaging to reflect the new categories - blonde, medium and dark.

Starbucks has had mixed success with new offerings in the past. The company pulled the plug on a yogurt-based fruit drink introduced in 2008 because it was too complicated to make. In 2006, Starbucks yanked Chantico drinking chocolate, a Spanish- inspired beverage served in 6-ounce cups, because the small size and thick drink turned off customers.

Starbucks isn’t considering bringing wine and beer to the whole chain, Turner said.

“It won’t be at every Starbucks store ever,” she said.

Still, Starbucks has the potential to put beer and wine in at least 10 percent of its stores, Peter Saleh, a restaurant analyst at Telsey Advisory Group in New York, said in an interview.

“I doubt that this is just an opportunity for 100 or 200 restaurants,” he said. “I don’t think they would distract themselves with something that would be so insignificant to their bottom line.”

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Posted by: Budaiya Calling

I believe that this maybe the wrong move for starbucks for the following 2 reasons: 1) The current sitting area set up at most starbucks I have seen (and I have been to them on 2 continents) is casual and relaxed, much like a cross over between your home sofa and local coffee shop. The serving of alcohol and wine requires a different set up all together which allows for more open socializing space etc. I for one will be put off from visiting any starbucks anywhere which serves alcohol. 2) By serving alcohol I believe that starbucks has just alienated large swathes of the world?s investors and debt holders. I am not only talking about muslims and their prohibition on alcohol but there are many other groups who do not invest in companies which conduct business or gain revenues from alcohol. People may agree that when compared to the world wide investors + debt holders they may not be a big bunch however any company which ignores the rise of the tigers of the east and their money will be

Posted by: Lily

This is a message to all Arabs.Why don't we use our local Arab Cafes?? Do we lack of knowledge? money?human resourses? or just like to give our earnings to 'Other' smart countries and have us slaved to their products!!!

Posted by: You are giving nothing away if the franchisee is local...

Lily, Starbucks UAE is a franchised outlet, this means someone local is involved in the company to open outlets here and therefore money spent in the outlets is going back to is almost every shop and store in the UAE, or am I wrong in thinking that in order for most of these places to open they have to have a local sponsor.....I believe Alshaya are the franchisee for Starbucks..

Posted by: MrChris

I don't buy my coffee from Starbucks because the cheapskates use UHT milk. Well, they do in Qatar anyway....

Posted by: kshitiz saxena

Introducing Wine & Beer is not at all a good idea. Core Business for Starbucks was Coffee + leisure/meeting place. Alcohol is not a right extension to current profile & assortment, moreover this will adversely effect its demographics. If Starbucks was facing a downtime in terms of sales then they should have looked into the Kids Business, Mc Donald's primarily caters to kids. Starbucks could have brought kids elements like kids menu, party halls, kids leisure activities and tried to engage whole family etc.

Posted by: AR M

agree with RAH.. though I like my coffee so much (maybe too much) that I dont like SB coffee that much (its ok)

however, I love spending time there, as you say, working or reading or socialising. Kids is not the way to go, even though it is a good money maker, it may end up with a gain in kids a loss in adults.

dont forget, they take a $0.50 coffee and turn it to $2-4 latte by adding hot milk. milk does not cost that much, so coffee is also a great money maker.

Posted by: RAH

I don't agree with your kids rationale.
The day Starbucks caters to kids and their shouting and screams, will be the day i'll stop going to their stores.

SB is famous for coffee, the ability to drink coffee and read your morning paper, or to socialize with friends, or to get some work done or catch up with your studying. Bring those kids and and I'm sure SB will loose many of their current patrons.

Keeps kids at Mc Donalds' play areas and SB for us adults.

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