Starbucks (SBUX) has been on the resurgence in 2010, with its stock up +16% year-to-date and the successful launch of several new products including its Via instant coffee and a rebranding of Seattle’s Best as a low-priced coffee alternative. Now, Starbucks is looking to keep up its growth with a trendy Seattle location that is being billed as a “coffee theater” that brings customers closer to the staff, offers plush seatting and even offers a wine and beer menu.
Starbucks is hoping this brave new push into a new atmosphere and a new beverage menu will allow the company to tap into bigger sales and reconnect with customers. But will it work, or is it just an ill-advised gimmick?
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The test shop in Seattle is a far cry from many spare, urban locations that Starbucks currently operates. It features more style, with an indoor-outdoor fireplace and plush earthtone chair. And of course there’s the alcohol, featuring local artisan breweries as well as choice wines from “local” vinyards in the Pacific Northwest. There are also design elements meant to bring customers and staff closer, including minimal counter space and single-serve machines meant to personalize the coffee brewing experience.
If you’re skeptical of this touchy-feely approach, your not alone. On the heels of offering free WiFi at Starbucks and completely overhauling the Seattle’s Best line, some investors and coffee drinkers alike are worried Starbucks is simply changing too much too quickly in an effort to reclaim its once dominant perch in the specialty beverage business.
As the recession kicked into gear, the closure of 900 separate Starbucks stores and the cutting of nearly 10,000 positions gave SBUX stock a black eye. Sales have picked back up and shares racing up +220% since the March 2009 lows – better than four times the performance of the broader market.
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But is the move towards selling wine and offering a cozy customer experience a way to build on this success or has SBUX peaked?
It’s too soon to tell, since the Seattle shop selling alcohol and offering ambiance is only a pilot program. But the bottom line is that Starbucks know is has to connect more with customers throughout the day instead of just doing the bulk of its business before 11 a.m. It’s also worth noting that the coffee business has become increasingly competitive as McDonald’s (MCD) gains momentum with its McCafe offerings and other rivals like privately held Dunkin Donuts are staying on top of their game.
The good news for SBUX shareholders is that the company know it needs to keep innovating. Whether selling booze and redesigned locations will work remains to be seen.