Starbucks Dives Into Grocery Stores

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    These days Starbucks is showing up everywhere.  Whether it is on board the USS Boxer assault ship, a Royal Caribbean cruise ship, the ski in/ski out Starbucks in Squaw Valley, California or just down the street, consumers have a multitude of locations to choose from all over the world.

    In spite of the success of all the café locations, Starbucks is making its mark in other areas and is committed to expansion.  Some of these include new and changing food and drink offerings, single-serve refills for Keurig or Verismo machines and expanding products into grocery stores.

    Starbucks Cafes are saturated across Canada and customers have quick access to purchase their favorite drinks at nearby cafés.  But now, the company is switching gears and is looking toward grocery stores to expand its product line in a new direction and in a big way.

    Packaging its product for store purchases is not new for the company.  It produced coffee for consumption under the Costco Kirkland brand and in 1998 it began selling packaged coffee to stores in partnership with Kraft.  However, after a disagreement, the partnership was dissolved and Starbucks ordered to pay $2.7 billion to Kraft for breaking the contract.  However, it freed Starbucks to approach the grocery industry on its own.

    For a company that has US$14,892 million in revenue, approximately 10,000 stores and 182,000 employees for the fiscal year ended 2013, it is in a position to continue to capitalize on coffee.

    Canadians drink more than their fair share of coffee and this translates into valuable dollars that can be earned at cafes and grocery stores.  Most coffee consumption is at home and this means that the usual coffee brands sold at grocery stores are in fierce competition with each other.  Starbucks sees this market as a huge opportunity.

    According to NPD Group’s CREST foodservice market research, Canadians consumed more than 1.3 billion servings of brewed coffee or the equivalent of 12 cups of coffee per week for the year ended May 2013.

    Over the last few years, Starbucks bought juice company Evolution Fresh, bakery LaBoulange and partnered with Danone to provide yogurt to customers.  These purchases place Starbucks in a position to expand its drink offerings to include food.

    Another key market area for the company is refills for single-serve machines and these can be found in most grocery stores.  Loblaw, usually has a big section devoted to single-serve refills in its stores.  Starbucks along with many others provide single-serve refills for grocery stores.

    Starbucks has entered agreements to place coffee kiosks in Signature Aisles and have its products placed in coveted end-cap displays at numerous grocery stores.  The displays contain features synonymous with the Starbucks experience such as nice lighting and a look and feel similar to that of Starbucks Cafés.

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    The end cap displays promote the Starbucks brand and provide grocery retailers with enticements for customers to make the trip down the aisle instead of remaining on the perimeter of the store.

    Starbucks CEO Howard Schulz thinks sales from products sold outside Starbucks’ stores could someday rival the size of today’s core U.S. café business, a $10-billion-a-year enterprise — but with better margins.

    The company is in a position to utilize its brand and reputation from cafes in order to help capitalize on selling new and different products in stores.

    For a company that made its success on its trendy café style coffee shops, this foray into grocery stores is a lofty exercise that takes it in a markedly different strategic direction.

    Will the uniqueness and trendiness of the Starbucks brand be upheld when it is easily available in grocery store aisles?  Will the cafes continue to have as strong of an appeal as they do now? Will the company be able to tap into the grocery store market in a significant way?  These are just a few of the things the North American public will determine.

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