Coffee Wars: Starbucks Moves into Alcohol

Starbuck’s (NASDAQ:SBUX) is testing serving alcohol at a couple of locations, to try out the idea as a way for increasing the later daypart business. Curiously, they are changing the name of the first outlet to “15th Ave. Coffee & Tea, inspired by Starbucks.” I guess the question remains what has been posed before; how badly do you need to beat a brand to destroy it from the inside?

Are Instant Coffee and Alcohol Brand Builders?

While the expansion of business in a weaker time period is always a bonus, there seems to be less respect for the core brand within Starbuck’s than there is from the outside. First, the instant coffee brand -VIA™ rollout, and now trying to be a limited-option bar in the evening.

Not Addressing Menu Overhaul

Actually the alcohol idea isn’t a bad one, but it would make more sense to include it as an overall remaking of the Starbuck’s menu. They seem to be running from the challenge being put forth by the QSR’s, McDonalds (NYSE:MCD) and Dunkin Donuts (Private), in particular, but all the big chains are jumping on the coffee bandwagon.

The way to get solid revenue increases driving at Starbucks is to commit to providing a viable light meal option to complement the beverage business, and this is something they seem reluctant to do. If Starbucks can’t drive revenue by coming up with a way make going there about more than just a side pastry or cookie, they lose the revenue war to the QSR’s challenge in the long run.

Fast Food Chains Challenging on Coffee

While Starbucks doesn’t need a “Dollar Menu” or to put french fryers in, a feature deli-style sandwich that goes with either a cold coffee drink or the newly-introduced beer or wine would seem to be a smart positioning move, and give them a chance at increasing per-ticket rings and putting more revenue into the later dayparts they are trying to improve.

Starbuck’s is running from what made it a premier brand ands a ubiquitous presence in all but the smallest of markets.

When you have a big ship to steer, you can’t do it with a gentle push, you need to give it a good shove. The QSR’s have issued a challenge to Starbucks, if they don’t make a solid move in response to come up with a light meal alternative, they will lose the revenue war down the road.

Office Depot – NOT Takin’ Care of Business

Office Depot (NYSE:ODP) announced quarterly results yesterday, and losses exceeded estimates by a considerable amount. The other major players in the sector, Staples (NASDAQ:SPLS), and OfficeMax (NYSE:OMX), while being hurt by the current low consumer confidence and recessionary spending patterns, aren’t imploding like Office Depot. Stock prices are down, but the core businesses at the two major competitors seem more stable.

To paraphrase the slogan they used for so long, the management at Office Depot is definitely NOT “Takin’ Care of Business”, at least not theirs. It’s hard to remember when ODP was a savvy, best in the category retailer, because they used to be. They aren’t acting or getting the results like one now.

The latest management trick of getting a capital injection by selling 20% of the company to a UK based firm, after closing 9% of their stores as “underperformers”, show that this is a sad story heading down the same road as Circuit City. Surrendering markets by closing stores, and then having an accelerating sales decline, shows Office Depot is still heading for the same sad end result as Circuit City.

This isn’t an inevitable result, but they HAVE do what they need to do: get back to concentrating on retailing, taking care of the customer they service, and improving in-store experience so that same-store sales aren’t in double-digit declines. Home Depot’s (NYSE:HD) re-emphasis on the customer and store-level service delivery might be a good blueprint for Office Depot to look at. The Microsoft (NASDAQ:MSFT) Windows 7 launch may give them a bump when it occurs, but computers are about to enter a brutal discounting phase as Wal-Mart (NYSE:WMT) ramps up its laptop sales effort.

Retailing is all about customer perception and how they feel when they walk both into, and more importantly, out of your store. Pricing, selection, cleanliness and knowledge are the pillars to increasing sales, or on Office Depot’s case, stopping the declines. Unless management launches a store-level initiative to make the sales experience better, Office Depot will have a tough time surviving the balance of the economic downturn.

Fast Food is a Recession Beater for Families

Source Article: Fast Food Fading? (Forbes) Click Here For Article

Ramifications

1) Fast Feeders branching into less "Traditional QSR" Fare

2) Chains looking to upscale ticket

3) Can entertain a family inexpensively

Analysis:

Fast Food Restaurant Chains are moving through the recession in fine fashion. McDonalds (NYSE:MCD) is in fine shape regardless of what the stock price reacted against.

McDonalds has made a well-publicized foray into Gourmet coffees, stepping on Starbuck's (NASDAQ:SBUX) toes, and had added a $3.99 burger, a premium Angus Beef burger, to the menu. Wendy's (NYSE:WEN) has added "Chicken Bowls" and other chains are trying less traditional QSR items at a higher per unit price point.

The casual dining chains, Friday's and Applebee’s in particular, have aggressively promoted price competition to keep consumers coming through the door, but the QSR's are coming "Up" to meet them. It's going to be hard to break the consumer of the "2 for $20" (Applebee’s) or the $5 Dollar Entrees (Fridays) that were running in heavy rotation through the early summer.

The QSR's recognize that consumers are "Trading down" on entertainment dollars, which is why they are adding "Quality" items at a slightly higher price. They are reaching towards the casual dining houses in menu quality perception, and catering to the spenders in the family, Mom and Dad.

While the value menu is what McDonalds is famous for right now, the advertising is going to the McCafe line of coffees, and they are going beverage promotion with the $1 Fountain drink promo. It's a smart and two tiered approach, and whether the benefits show up right now or a bit later, the entire QSR segment has acquitted themselves well in the recessionary consumer environment.

As long as the economic future remains uncertain, the fast feeders will be the choice for families "Feeling the squeeze" but still wanting to go out,