Starbucks Rolling Out it’s Instant Coffee Nationwide Today

Eight months after Starbucks Corp. began selling its “Via” brand instant coffee, testing it in Seattle and Chicago, today Starbucks will begin a nationwide rollout, offering the instant coffee drink to the rest of the country and in its Canadian stores.

Starbuck’s is running company's first-ever television ads, and also distributing to roughly 1,500 sites outside its stores; this effort for the Via launch shows just how much Starbucks wants to own a stake in the $21 billion worldwide instant coffee market.

"Based on the success we've had, we feel strongly that we're sitting on a very big opportunity," said Starbucks CEO Howard Schultz said during a conference call with journalists. "What's going to sell Via at the end of the day is that (it) delivers in the cup. Most people will not be able to tell the difference."

Instant coffee is popular in Europe, and through the rest of the world — instant brands account for as much as 80 percent of coffee sales in the U.K., here in the US, instant coffee has not won over coffee drinking Americans. Instant is generally viewed as an inferior product here in the US, a knock-off of drip-brewed beverages.

Starbucks executives want that image to change. They are hoping, and betting on, with this high visibility rollout, that the skinny cylindrical 3-packs and 12-packs of coffee that dissolve in water will eventually be as popular with consumers as its packaged coffee is now. The coffee is available in two flavors now, and Starbucks expects to introduce more varieties in the future.

Starbucks is getting together diverse vendors like outdoors store chain REI and office supply chain Office Depot Inc., hoping it will help the company get the product in hands of new customers. Via also will be sold inside general retailers like Costco and Target. The effort to find new customers is also taking to the air, where passengers onboard certain United flights on Tuesday will be able to sample the drinks. United will sell Via packages onboard later in the year.

Next year, Via will appear on grocery store shelves, already a strong market for Starbucks pre-packaged conventional coffees. Introducing Via in such a high-profile way comes at a particularly tough time for Starbucks. Due to the recession and consumer spending cutbacks, Starbuck’s has seen its revenue slide for the last three consecutive quarters, and profits have fallen in five out of the past six quarters. It could use a big new hit product, maybe Via could provide that “Buzz” to get the chain rolling again.

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.

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,

Starbucks asking for Rent Reductions Good First Move

Source Article: Starbucks Pushing Landlords for 25% Cut in Cafe Rents | www.bloomberg.com (view article)

Implications:
1) Cost reductions pay off every month over term of lease

2) Opportunistic move or readying for Market Share battle?

3) Cost Reduction good Defence, what about adjusting to competition.

Analyis:

As reported, numerous landlords have received letters from Starbucks asking for rent reductions of between 20 and 25%. This is a good tactic, and the resulting reduced costs are good for operating results every month.

My question is, is this an opportunistic way to reduce overhead, and admission that they were paying too much for sites when times were better, or are they getting ready to defend market share, as the QSR's lead by McDonald's and Dunkin Donuts, takes a bead on the market Starbucks has dominated for so long? Maybe a combination of the three.

The rent reduction initiative is a good defensive move, but is just another admission that the "Fat times" are over for Starbuck's unless this move is followed up with some "offense."

In other words, pushing back in a big way against the Fast feeders coffee push. Otherwise, at some point, Starbucks will hit the point where a reduced market share cannot be covered by cutting costs.

Innovative advertising, a new food product or two, sharper pricing and promotions, and a real competitive challenge to the upgraded competitors are the real key to long term survivability for Starbucks.

Coffee Wars: Is Starbuck’s in McTroublé?

This article was written for the Examiner.com

Can Starbuck’s maintain in the face of competition from McDonald’s, Dunkin Donuts?

Summer is a great time for a cold coffee drink. This year, consumers have more choices than ever before. McDonald’s (NYSE: MCD) and Dunkin Donuts (Dunkin Brands - Franchisor - Privately Held) pushing coffee products means it could be a long, hot summer for Starbuck’s (NASDAQ: SBUX).

The McDonalds marketing push for the McCafé line of cold coffee drinks, and their upgraded premium coffee program could really cause a shift in served coffee consumption patterns in McDonalds favor. Even more outlets than Starbuck’s and a lower price point could put a real dent in Starbucks revenue.

Starbucks rollout of an instant coffee product this spring is a puzzler to most watchers, and they are really pushing it in stores. This isn’t a competitive response to a larger and deeper pocketed competitor crowding your market. The sputtering food choice upgrade program hasn’t helped Starbucks to craft a response to QSR encroachment into their space.

Dunkin Donuts has been running a campaign featuring cold coffee drinks and also a renewed emphasis on doughnuts. They are a large store count (6,300+) competitor that Starbucks needs be aware of also.

So as the summer coffee war heats up, the question is: Is Starbucks in McTroublé? The consumers will vote with their wallets this summer, and then we will see.

Starbucks Instant Coffee Move a Curious One

Source Article: Starbucks has high hopes for its instant coffee | www.marketwatch.com (article)

Implications:
1) Is Move to Instant a "Value" Play
2) Detracts from Barista-prepared "Core" premium offering
3) May Cut In-Store Visits if Successful - Reduce retail profitability
4) Is this the beginning of migrating the Starbucks(NAS:SBUX) business model to become a CPG firm?

Analysis:

Starbucks(NAS:SBUX) introduction of it's "Via" instant coffee product is a curious one for a company struggling to improve performance at it's retail stores.

Is bringing "Via" to Costco(NAS:COST) and Target(NYSE:TGT), and eventually Wal-Mart(NYSE:WMT), a shrewd way to increase overall corporate revenues, or a way to begin to migrate the company model from a retail coffeehouse-based chain to a CPG company?

Starbucks(NAS:SBUX) retail locations have been the driving force behind the firm from it's inception. To make a move to deemphasize any focus on retail is a bit of a head scratcher.

If Via is Starbucks(NAS:SBUX) move to a "Value" product in response to the current tough consumer spending environment, then introducing an expensive alternative for a category (Instant Coffee) considered to be an inferior substitute in their primary North American markets is a tough sell to make.

Is this a more strategic and long-term plan to deemphasize retail and become a premium coffee purveyor through traditional retailing channels? That makes more sense, and putting a premium instant in as the transition begins would be a way to expand those channels and get customers looking at Starbucks(NAS:SBUX) products that would have never considered the brand before.

There's no way to know yet if this is the eventual direction of the business, but the new Starbucks(NAS:SBUX) initiatives to bolster the retail side have been underwhelming, up to this point in time.

The Starbucks(NAS:SBUX) experience was and is about good quality brewed coffee or coffee/espresso-based drinks, excellent customer service and ambiance at the sites. With the margin that coffee delivers, it's hard to imagine that they cannot retool margins and still deliver a retail experience that addresses the current consumer sentiment.

Is Via a misstep, or the beginning of Starbucks(NAS:SBUX) migrating to a new business model? Only time will tell.

Starbucks: Soluble or Instant - This New Coffee is a Revenue, Not Brand, Driver

Source Article: Starbucks Takes Plunge Into Instant Coffee | online.wsj.com
(View Article)

Implications:
1) Instant Coffee has downscale Connotation in US
2) Does it "Cheapen" experience of Barista-Brewed beverages
3) Is the "Starbucks(NAS:SBUX)" Coin-op machine next?

Analysis:
The news that Starbuck's is introducing "Soluble" coffee seems to come from left field for a firm as tied to it's Brand Image as Starbucks.

It's as though they are saying "we can't fix the retail experience for our customers any further, so brand extension is the next step."

The news that Starbucks was adding breakfast sandwiches to the store lineup makes sense, It's a competition driver and complements the core premium site-prepared coffee product.

This one doesn't make much sense at all. No matter how good it is, it's still instant coffee. AND, it isn't price competitive at all with current instant coffee products. Perhaps they've researched and found an underserved "Premium Instant Coffee Drinker" niche no one else is aware of.

Instead of brand extension, improving quality of product and retail experience, along with providing some sort of value offering in a "Combo" promotion with brewed coffee and one of the new sandwiches will do more for the business in the long run.

If "Via" is to become the "Value" coffee offering for Starbucks, which is what they seem to be positioning it to be, then they don't truly grasp the competitive challenges that lay ahead for premium consumer brands right now.

If getting Starbuck's coffee for under "A buck a cup" means eliminating the water, then that seems like a strategy gone backwards.

How Much Should a Good Cup of Coffee Cost?

Source Article: Starbucks cuts jobs and stores
www.theappointment.co.uk (view article)

Implications:

1) Starbucks overexpanded store count

2) Product quality became spotty as chain grew; service level stayed high

3) Other players "Upped Their Game" in the coffee sector

Commentary:

Starbucks retrenchment is no surprise given the slowdown in consumer spending, but the seeds were sown for a turn in their fortunes, regardless.

Starbucks started as a "boutique" coffee store, nicely appointed with good quality product and well-trained, polite employees.

As the store count grew, the employees stayed remarkably friendly and customer oriented, but the barista's skill level dropped. Sometimes, you didn't get a perfect cup of coffee. That was a break with the "Brand Cache" they have with their base consumer.

Starbucks has that core following that will always give them "X" amount of business out a certain area, but as stores began to be placed more closely together, they needed to reach out to the "casual" coffee drinker, one with whom price and convenience were keys to repeat business, in order to maintain revenue as stores got more tightly packed.

They never really addressed that market successfully.

The rise of the premium coffee programs at McDonalds and Dunkin Donuts addressed the mainstream coffee drinker in a faster turnover model, and the Convenience retailing sector has made an effort to deliver a very good coffee product as time has gone by. ExxonMobil and BP put lots of time and effort into the coffee offerings in their retail operations, and large convenience store operators like WaWa and Sheetz run great coffee programs.

Everyone "Upped their game" to work at getting some of Starbucks revenue. They worked at being more convenient, faster, and more price friendly, even if the product isn't quite to Starbucks level, although many times, it is.

The current slowdown in consumer spending sped up Starbucks store cutback, but it would have happened sooner or later anyhow.