Sun, Jun 20, 2004 page12

• 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
  • • 
    • 
    • 

  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.

  

  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

  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.

  With the hot spots, its partner is wireless company T-Mobile USA Inc, which provides all the equipment and infrastructure. With Hear Music and upcoming CD-burning services, Starbucks is working with Hewlett-Packard Inc, which conveniently enough also is rolling out a new portable MP3 player that can be used at the Starbucks stores.

  Starbucks officials wouldn't give details on its business arrangements. But in general, "there are lots of ways for us to make this very inexpensive for us to do this," Smith said.

  The Internet and music services are just a start.

  Smith declined to give details of other potential "concierge services," but said they may also include movie sales or downloads. Other examples of traditional concierge services include everything from restaurant tie-ins to ticket sales.

  As with music and Internet service, Starbucks plans to rely on partners to make the major investments. What it brings to the table is its vast chain of coffee shops, its affluent customer base and its well-known name.

  "There isn't a day that passes that I don't have people in the office wanting to do something or another with us," Smith said.

  It was Starbucks' ubiquity and well-known brand that made T-Mobile want to partner with it, said Pete Thompson, director of marketing for T-Mobile's hot spots division.

  "For us, we wanted to give the impression that whenever you need an Internet connection, it's as easy to find as a cup of Starbucks coffee," Thompson said.

  But will shilling more than just coffee at its ubiquitous stores be enough to keep Starbucks' profits percolating in the future?

  Atlanta marketing consultant Al Ries, who has authored or co-authored 11 books about brands and brand identity, thinks not.

  "There's nothing wrong with it, and sure, it might result in some incremental revenue," he said. "But it's basically dink compared to what they could've done."

  Starbucks executives, he said, may be headed for the same trap that ensnares executives at many big brands: They fall in love with what they've got and plan their future around what they've done. Along the way, he said, they fail to innovate.

  Rather than simply adding "line extensions," Ries said, Starbucks would be better off using its resources and connections to start an entirely new brand and business, such as a restaurant chain.

  But Starbucks has tried that before -- and failed. A few years ago, the company launched a trendy restaurant concept called Circadia in Seattle and California's San Francisco Bay area. The restaurants had a coffeehouse feel with a full-service restaurant menu, but they didn't catch on.

  Meanwhile, Starbucks shareholders have few reasons to complain about the company's strategy and performance.

  In April, the company reported that its second-quarter earnings soared 53 percent on a 30 percent rise in revenues. Its stock is currently trading at about US$43 a share, flirting with its 52-week highs.

  As a result, other than Hear Music, which is fronted by a Starbucks coffee shop, it's not likely Starbucks will risk doing much else that doesn't involve its traditional stores -- and it's well-known name -- anytime soon.

  "What we're really saying is that this could be one of the world's really great brands," Smith said. "And we've decided whenever we get the opportunity ... we're going to [capitalize] on it."
• Most Popular

  • 1

    Police identify man who engaged in indecency at park

  • 2

    TSMC expects global chip revenue to hit US$1.5tn

  • 3

    Trump weighs Taiwan arms package

  • 4

    No surprises at Xi-Trump talks: MAC

  • 5

    Wildlife cam sex scene drawing copycats, visitors