Shop Talk
Retailers, consumers and prices
Starbucks, coffee shops see collateral benefit from Black Friday
Black Friday bargain hunting is a marathon, requiring a shopper to be alert and aggressive to outmaneuver rivals for that last $200 LCD TV at Target. But with so many retailers opening their doors at midnight, why bother going to sleep? Even if you shopped at Kohl’s, which opened at 3 am or J.C. Penney, at 4 am, you were in for very short night for most.
So bleary-eyed shoppers turned out in drove at U.S. malls on Friday, with lines at coffee shops among the longest.
Mall operator Macerich said on Friday that the Starbucks at its Tysons Corner Center in suburban Washington had lines 30 people deep at 11 a.m. At the Newport Center mall in Jersey City, exhausted shoppers could be seen forming a line of 20 to get much needed java.
After all, no one wants to be caught unawares when cashmere sweaters for 50 percent off are at stake.
(Reuters photo)
Coffee’s third wave
Intelligentsia Coffee & Tea founder Doug Zell is part of an independent third wave of upscale coffee houses taking advantage of America’s growing thirst for the premium coffees that Starbucks helped introduced to the masses. ( Click here to see today’s special report on Starbucks on Reuters.com, or read the report in PDF format.)
“It’s moving from a commodity to a culinary ingredient,” said Zell, whose buyers scour the globe for the best beans and increasingly are focused on treating coffee like a seasonal item — meaning the time from harvest to cup is no more than six months.
Coffee has come a long way in the last few decades. While our parents’ generation grew up on grocery store brands like Folgers or Sanka instant coffee, today’s kids are coming of age at a time when higher-quality espresso drinks like lattes are the norm.
“The consumer is becoming more sophisticated. I still think there is a long way to go,” said Zell, who recently opened Intelligentsia’s ninth location in Venice, California’s offbeat Abbot Kinney section. A tenth spot, which will be a cafe and roasting plant, is in the works in San Francisco.
While Zell wants Intelligentsia to expand, he said maintaining quality is his top priority.
“We want to grow, but we need to do it very carefully,” said Zell, who cut his teeth at Peet’s Coffee & Tea and the now-defunct Spinelli Coffee and still favors a well-brewed cup of black coffee over all other java drinks.
“The specialty coffee industry owes a great debt to Starbucks,” said “Retail Doctor” Bob Phibbs, a consultant who was chief marketing officer at the It’s A Grind coffee chain for nearly a decade.
That is an interesting phenomena and I wonder if such a thing will happen in the tea industry. But of course, to some people, tea is not just about the leaves used but also the antique silver tea set (http://www.acsilver.co.uk/shop/pc/Four- Piece-Tea-Coffee-Sets-Services-c97.htm) they have in their homes to boil and serve the tea in, so it might be a little difficult to emulate what has happened in the coffee industry.
Starbucks adds spice to Via
Starbucks is expanding its Via instant coffee line this autumn with cinnamon spice, vanilla, mocha and caramel flavors.
The move comes on the heels of the Seattle company’s rollout of Natural Fusions, a line of flavored ground coffees, at U.S. grocery stores this summer.
Starbucks for years avoided selling flavored brews, leaving the niche to its more mainstream Seattle’s Best Coffee brand. But it changed that high-brow stance when the U.S. economy hit the skids and consumers started saving money by drinking more home-brewed java.
The world’s biggest coffee chain is focused on growth following a restructuring that slashed costs and shuttered hundreds of mostly new, but poorly performing stores. It hopes to boost profits by introducing products — like flavored coffee — that appeal to a broader range of consumers and expanding its reach beyond its cafe walls by selling more products at grocery stores and other retail outlets.
Flavored Via and Natural Fusions are key to making those strategies work.
“We know 60 percent of our customers drink coffee with flavor, and now they will have access to high-quality arabica coffees with natural flavors as only Starbucks can deliver,” Annie Young-Scrivner, Starbucks chief marketing officer said in a statement.
What do you think of Starbucks move into flavored coffee?
Why Carl’s Jr is happier in L.A.
Here’s another reason to love L.A.
The city’s downtown business district is home to the only Carl’s Jr restaurants that serve beer.
“We market to the young, hungry male. He’s also thirsty,” said Julie McLean, a spokeswoman for the chain, which has used controversial celebrities like Paris Hilton to push its generously-portioned, indulgent hamburgers.
Jennifer McGrath, the marketing manager whose region includes the three beer-serving L.A. restaurants, said happy hour specials have boosted business at those restaurants.
The company said the restaurants inherited their liquor licenses from previous tenants and that the chain has no plans to add beer at its other outlets.
“We don’t plan on adding alcohol sales to any locations at this time,” McGrath said.
Full-service hamburger chains like Red Robin and regional operators like Counter and Smashburger offer beer and wine, but big boys like McDonald’s, Burger King, Wendy’s, In-N-Out and Five Guys do not.
Starbucks drive thru menu getting makeover
Starbucks’ drive thru menus are getting a facelift — as the cafe chain takes a page from the fast-food industry’s playbook.
At the end of August, the menu boards at Starbucks’ 2,600-plus drive thrus in the United States and Canada will have more pictures and fewer words. Fast-food chains like McDonald’s, which has been going after the Seattle coffee company’s core business with espresso drinks, frappes and smoothies, commonly use simple, photo-based menus to tempt diners.
“People eat with their eyes,” said Clarice Turner, Starbucks’ senior vice president in charge of the menu makeover.
To make room for the additional photos and larger print, the number of items featured on the new menus will be cut from about 75 to around 25. Despite that, everything available inside the cafe will still be available in the drive thru lane, Turner said.
Starbucks has turned the spotlight on quality and its premium market position since the U.S. economy went south and McDonald’s and other chains jumped into coffee and beverage business with me-too products.
To that end, it is planning an autumn launch for Starbucks Reserve – a line of “ultra-premium”, single-orgin coffees that will be sold in its top U.S. coffee markets.
While coffee costs have been soaring, Starbucks told Reuters that price hikes currently are not on the menu. Picture that.
Starbucks testing green coffee drinks
Starbucks will begin testing summer drinks with a base of green, unroasted coffee in San Diego today as it works on new products to drive sales and put more distance between itself and rivals like McDonald’s — which is rolling out the kinds of drinks that Starbucks built its business on.
The drinks, called “Refreshers,” will be offered in cool lime and very berry hibiscus flavors. They are made with fruit and are low in calories and caffeine, said Julie Felss Masino, Starbucks’ vice president of global beverage.
Ingredients include a “flavor neutral” powdered extract made from unroasted green coffee and formulated to have less of a caffeine kick than regular coffee, Felss Masino said.
“It’s coffee that doesn’t taste like coffee,” she said, noting that the test is a response to customer requests for more “overtly” thirst-quenching drinks.
Starbucks has been focused on introducing new drinks like Via instant coffee and create-your-own Frappuccino after a massive restructuring that resulted in the closure of roughly 900 cafes around the globe. Both new drinks efforts have helped to boost sales amid a still weak U.S. economy.
Meanwhile, McDonald’s has built a profitable new beverage business based on Starbucks’ core products, including espresso-based drinks, fruit smoothies and frappes.
The green coffee-based drinks are a first for Starbucks. While some companies are marketing green coffee on the Internet as a weight-loss aid, the world’s biggest coffee chain does not promote Refreshers to shed pounds, representatives said.
Diners say Olive Garden, Papa John’s are tops
Papa John’s and Olive Garden got top marks in their respective restaurant categories in the University of Michigan’s 2010 American Customer Satisfaction Index, while McDonald’s and Chili’s Grill & Bar were laggards.
Papa John’s took the lead in the limited-service category from Domino’s Pizza. Notably, this year’s win for Papa John’s came as Domino’s was getting a sales bump from its reformulated pizza recipe and crowing about how its new pies were beating rivals in taste tests.
Papa John’s earned an ACSI score of 80 (out of 100), up from 75 last year. Little Caesar, Pizza Hut and Starbucks each made gains versus 2009 and were close behind with scores of 78. Domino’s score of 77 was flat from a year ago.
McDonald’s, which has outperformed most other quick-service restaurants, was the only major fast-food company to post a decline. Its score fell to 67 from 70 last year.
“Price was behind much of the improvement, but new products also contributed,” said Claes Fornell, a professor at the University of Michigan’s Stephen M. Ross School of Business.
Pizza Hut offered any pizza for $10, while Papa John’s combined similar pricing promotions with what customers perceive as high quality products.
“As increasingly frugal consumers have made price more salient, McDonald’s has acquired more customers. These newcomers seem less satisfied, and were it not for the economy some of them would rather eat somewhere else,” Fornell said.
Check Out Line: Taking on Starbucks paying off for McDonald’s
Check out how the McCafe keeps perking up McDonald’s sales.
Last month, Ronald McDonald and company reported a strong first-quarter profit, showing that their bet on taking on Starbucks on its home turf has paid off. And judging from McDonald’s April sales, that McCafe business — with its expanded lower-priced roster of coffees and new frappes — continues to caffeinate its results.
In April, sales at restaurants open at least 13 months (same-store sales, in the industry’s shorthand) were up 3.8 percent stateside, and did even better overseas, for a global average of 4.9 percent.
It wasn’t just Frappes that gave Mickey D its boost- old stalwart products such as its Chicken McNuggets did very well in April. French fries with that, anyone?
Also in the basket:
Check Out Line: Bring a mug, get free Starbucks java, save the world
Check out how Starbucks is working to persuade you to help save the planet by using fewer of its iconic paper cups.
On Thursday the company, which hands out about 4.75 million cups a day, is giving away free coffee to everyone who brings in a reusable mug or travel tumbler.
This latest promotion from the world’s biggest coffee chain comes as it works to hit its goal of serving one-fourth of its beverages in reusable cups by 2015.
The ubiquity of Starbucks coffee cups make them a powerful advertising vehicle. But the company’s popularity also has a dark side — discarded Starbucks cups contribute to pollution by creating tons of trash.
“Changing a habit is hard,” Cliff Burrows, president of Starbucks’ U.S. business, told Reuters at the Fortune Brainstorm Green conference in Southern California this week. “We can’t incentivize it more than free.”
Ben Packard, Starbucks’ vice president of global responsibility, said the company is taking a page from the grocery industry’s sustainability playbook.
“We want to do for the coffee cup what happened with the grocery bag,” Packard said, referring to the supermarkets industry success convincing many consumers to bring in their own shopping bags, rather than taking a new plastic bag with each visit.
So much Starbucks coffee to taste (250,000 cups), so little time
Think you drink a lot of java? Think again. Starbucks’ stable of 20 coffee tasters collectively sample 250,000 cups of coffee every year, Scott McMartin, Starbucks’ director of global coffee advocacy told Reuters during a recent visit to the cafe chain’s Seattle headquarters. Those tasters — who sample the brews sold at Starbucks and the company’s Seattle’s Best Coffee brand — are based in Seattle, Switzerland and in farmer support centers in Costa Rica and Rwanda. McMartin, who spoke as he slurped a variety of coffees, says great tasters have a mix of natural skill and commitment to craft. (Tasters make a slurping sound as they practically inhale the hot brew — a process that mixes the liquid with air to help the tongue detect different flavors. Then they swish and spit.) Top tasters, like athletes and artists, know that practice makes perfect, said McMartin, who is also a sommelier. “It’s a repetitive thing. Your tongue is a muscle,” he said Starbucks tasters make copious notes and occasionally check that they are in sync with regard to what they’re tasting in the cup. The latter process helps Starbucks make sure there are no “rogue tasters” in the mix, McMartin said.
(Reuters photos)
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