Starbucks (SBUX) to Sell Booze?

by InvestorPlace Staff | October 20, 2010 3:24 pm

Forget the local bar.  The new place to get a drink after work may be your local Starbucks (NASDAQ: SBUX[1]). 

The coffee chain said this week that it plans to offer regional beer and wine selections on Starbucks menus in test markets.  An assortment of local cheeses will also be added to the menu to accompany the alcoholic beverages.

When it comes to ordering shots, customers will have to stick to espresso, as beer and wine are the only alcoholic beverages making the Starbucks menu.

The aim is to transform Starbucks into an all-day café, rather than just a quick morning stop before work.  About  70% of business is done before 2 p.m., Starbucks says. With the addition of wine and beer, it hopes customers will stop back later in the afternoon or evening.

Starbucks design for the new cafés includes a bar that allows customers to sit and watch baristas make drinks. Even the Starbucks logo has been removed from the external signs.  The bars/cafés are named after the street they are located on as the words “Inspired by Starbucks” greet customers on the front doors.  The new shops will be approved by the “green building certification system,” ensuring the cafés are environmentally friendly.

Only two Starbucks locations have been redesigned to fit the new format, including one in the coffee chain’s hometown Seattle.  Of course, if the venture proves successful, more redesigned cafés will pop up.

Starbucks shares have fared well, gaining 19.3% year-to-date, compared to gains of 6.4% and 8.3% for the Dow Jones and Nasdaq, respectively.  SBUX stock has been even more impressive over the past 12 months, climbing 34%. 

Starbucks has also impressed on the earnings front, having met or exceeded earnings estimates for four consecutive quarters.  This has prompted analysts to hike this quarter’s earnings estimate to 32 cents a share. Last month, InvestorPlace reported[2] that Starbucks would be raising prices, due to the increasing price of coffee beans.  Clearly, the price hike had no impact on performance as the coffee stock is up nearly 4.7% in the last month.  If Starbucks can thrive after burdening customers with higher prices, it’s reasonable to think that an expanding product line should only push SBUX stock higher.

If consumers are receptive to chain’s new cafes and beverages and the line is a success, Starbucks may become a popular happy hour destination.

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