Starbucks Puts Its High-End Strategy to the Test

This post was originally published on this site

Starbucks (NASDAQ:SBUX) wants to change the coffee scene in the United States once again.

The chain, which introduced European-style coffee houses to the U.S., now has plans to create a whole new experience with its Roastery and Reserve brands. Roasteries are essentially coffee palaces. They are part cafe, part production facility, and a little bit Willy Wonka’s Chocolate Factory for coffee, while Reserve stores are a cafe-only version of that experience.

Roasteries are essentially coffee palaces. They are part cafe, part production facility, and a little bit Willy Wonka’s Chocolate Factory for coffee, while Reserve stores are a cafe-only version of that experience.

The original Roastery location in Seattle has served as a test lab for the company and a number of its products have been introduced into regular Starbucks locations. Now the company has brought a higher-end coffee experience to select locations. It’s not calling it a test, but it will serve to show if demand exists for pricier coffee.

Starbucks' Whisky Barrel-aged coffee is show with a side of sparkling water.

Starbucks hopes to create a new brand selling higher end coffee experiences. Image source: Getty Images.

What is Starbucks doing?

In March the Seattle Roastery offered Starbucks Reserve Whiskey Barrel Aged Sulawesi served both cold and hot for $10 for an eight-ounce serving. That initial test sold out quickly and now the company will offer a variation of the drink in a handful of Reserve stores.

About ten Starbucks locations with Reserve bars will be offering Whiskey Barrel-Aged Cold Brew, Served Straight Up. The drink will be made with “Starbucks Reserve Whiskey Barrel-Aged Sulawesi cold-brewed coffee combined with a whiskey barrel-aged vanilla syrup, shaken with ice, strained and served chilled alongside a glass of sparkling water,” according to a press release.

The drink is not alcoholic, but it does retain some whiskey taste and smell. It’s being sold for $6.50 per six ounce serving. That’s slightly cheaper per ounce than the Whisky Barrel-Aged coffee was sold for earlier in the year at the Seattle Roastery, but it’s about twice the price of a regular cup of cold brew.

What is Starbucks planning?

Starbucks has plans to eventually open 20-30 Roastery locations around the world. It has New York on track for 2018 and Chicago following in 2019. It also plans to open 1,000 or more Reserve stores while adding Reserve bars to up to 20% of its global locations by 2021.

Basically, the chain wants to create a new kind of coffee experience. The coffee bar at the Roastery — which is essentially what the Reserve stores/bars are — offers a barista-driven, wine-bar-like experience. It’s more coffee as an experience than simply coffee as a beverage.

Why is Starbucks doing this?

Obviously, there’s a benefit in selling higher-end, pricier products, but that’s only part of how the Roastery/Reserve concept will drive sales. They will also extend the day for the chain becoming more of an event or date location that draws afternoon and evening traffic.

These locations will still sell much of the regular menu, serving the chain’s traditional audience. And while there’s only one Roastery location in Seattle, early numbers have been encouraging.

Sales at the original Roastery grew by 24% in 2016 over the previous year and another 18% in Q1 of 2017. Starbucks Chairman Howard Schultz attributed that to an average ticket that comes in at four times what a typical customer spends in a regular store during the chain’s Q4 earnings call. 

Currently, there are only about 20 Reserve stores in the U.S. and only about half of them will get the Whiskey Barrel-aged coffee. Still, that’s a bigger sample than one destination store in Seattle and it should serve as proof of concept (or proof that it won’t work) for the idea of creating pricier coffee experiences.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.

Most Popular Posts: