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Sun, Jun 20, 2004 - Page 12 News List

Starbucks looks past coffee for growth

With expansion in the number of coffee stores limited by geography, the company is counting on music and Internet services for growth

By Bob Keefe  /  NY TIMES NEWS SERVICE , SEATTLE

Workers prepare coffee behind a tray of cups at a Starbucks shop in Beijing in early February. The Seattle-based company is counting on new products and services to maintain its rapid growth.

PHOTO: AFP

About eight years ago, top executives of Starbucks Corp gathered in the company's massive headquarters here and set what seemed an unreachable goal: to become as well-known as Coca-Cola -- the best-known consumer brand of them all -- within a few decades.

While Starbucks still ranks only No. 93 on Business Week/Interbrand's Global Brands Scorecard, far behind leader Coke, it was the sixth fastest-growing brand in the top 100. The coffee purveyor has more than 7,500 stores around the globe, even venturing into the capital of cafe culture, Paris, this year.

"This has really happened far more rapidly than I ever imagined," Orin Smith, Starbucks' president and chief executive, said in a recent interview. "We're not even 10 years into that 25- or 30-year plan ... and yet we're on the playing field" when it comes to brand awareness.

Now, with some saying the advantages of expansion are almost played out, the coffee giant has a new plan: to leverage its hip image by offering its upscale clients other products and services they have made part of their lives.

"It's foolish to think a firm like Starbucks can continue to grow 25 percent per year forever," Greg Forsythe, senior vice president of Charles Schwab & Co Inc, wrote in a recent report to clients. "Most successful companies eventually satisfy the demand for their products, which limits future growth potential."

Starbucks officials say they're not there yet, and aren't nearly done expanding. This year alone, they plan to open 1,300 stores -- more than three a day -- many in international locations.

But they also realize they need to start capitalizing on that brand awareness they've built so quickly.

"Starbucks is a lifestyle brand -- it [conveys] a certain image about the way you live," Smith said.

He said he wants Starbucks to become a "cultural concierge" for customers in the future -- offering them not just a good cup of joe but all sorts of services and products befitting someone willing to shell out US$2 or more for a cup of flavored caffeine.

At the top of Smith's list of "concierge services," as he calls them, is music.

In March, Starbucks opened a first-of-its kind outlet in Santa Monica, California, called Hear Music, which is a music store with a small Starbucks attached to it. Hear Music customers can browse and listen to a catalog of hundreds of thousands of songs, select the ones they like and make customized CDs on the spot. A CD with five songs costs US$6.99; additional songs cost US$1 each.

Starbucks plans to open 10 more of the Hear Music stores in the Seattle area this fall, and if they're successful to add more nationwide.

It also plans to add similar CD-burning capabilities in thousands of its regular coffee shops. The company hasn't said where or when it will start adding the CD-burning systems, but it will probably be by the end of this year.

Another obvious way Starbucks is "leveraging its brand," as Smith puts it, is with its "hot spot" wireless Internet access service.

When it began adding the hot spots two years ago, Starbucks almost overnight became known as a connection point to the Web. Customers pay about US$10 a day for the service -- and undoubtedly buy plenty of coffee while they're surfing the Web or working.

With both the music and Internet services, Starbucks worked with partners to keep costs at a minimum.

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