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Thu, Nov 04, 2004 - Page 12 News List

Starbucks pushes music with mocha

MARKETING SCHEME The coffee giant's recent joint venture on a Ray Charles CD is one example of how the company is expanding beyond its core business


Starbucks is growing increasingly aggressive about marketing music alongside its macchiatos and madeleines.

Genius Loves Company, an album of Ray Charles duets that Starbucks' Hear Music division released in late summer as a joint venture with the independent label Concord Records, remained in the Billboard Top 10 for more than a month and recently went platinum.

More than a quarter of the CDs sales were made in Starbucks coffee shops.

Hear, a retailer and label that Starbucks bought five years ago, introduced a satellite radio channel last month that focuses on the kind of adult-oriented pop that Starbucks features.

And last month Starbucks announced a plan to install a computer system in some of its US locations that would let customers make a customized CD that could be assembled, packaged and purchased while they wait for drinks.

Like all that chain's music ventures, the Genius Loves Company album and the decision to sell customized CDs grew out of the belief that Starbucks regulars -- mostly 25-to-49-year-olds with the kind of disposable income that allows them to spend up to several dollars for coffee or tea a few times a week -- are poorly served by radio stations and record stores attuned to teenage tastes.

At a time when Starbucks contends that its customers don't have convenient ways to find out about undiscovered artists, "we feel we have the opportunity to present the individual with a new option," Ken Lombard, president of Starbucks Entertainment, said.

In presenting those options, Starbucks is catering to its core customers. "We do not want to be in the Britney Spears business," Starbucks' chairman, Howard Schultz, said.

Unlike most record stores, Starbucks has a merchandising strategy to sell an experience along with a product.

And as in its coffee business, it is so far enjoying the margins that go with that: most albums at Starbucks sell for more than US$15 each, while many traditional music outlets are under pressure to cut CD prices.

Schultz said he believed that the chain's music ventures would become profitable, but it might be more difficult for Starbucks to establish itself in the digital music business than to spotlight a few individual CDs. So far, its efforts to sell items other than coffee have had mixed results.

In 2000 Starbucks took a US$20.6 million charge from its investment in living.com, a lifestyle portal, and it no longer offers as many lifestyle items in stores as it did around that time.

Major labels are sufficiently intrigued with Starbucks' custom CD venture to allow it to sell some of the music from their catalogs on a song-by-song basis, much as iTunes does.

"I would think it's going to give us an opportunity with adult buyers," said Phil Quartararo, president of EMI Music Marketing.

At least partly because many adults have not embraced downloading en masse, they represent a group that record companies have become more interested in, as well as one that some industry executives believe is not enamored with many CD stores.

Rather than lure customers from standard record shops, Quartararo said he hoped Starbucks -- and perhaps in the future, other such lifestyle retailers -- would generate more sales among casual music fans disinclined to enter record stores, which they perceive as overwhelming.

By giving space near the register to a few CDs, Starbucks essentially makes recommendations to a specific audience.

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