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Thursday 19 February 2009
Starbucks focuses on value with new instant coffee
Starbucks Corp spent years convincing consumers to spend more on its espresso-based drinks. Now it’s trying to show cash-strapped coffee drinkers they can find deals as well.
Starbucks focuses on value with new instant coffee
(NEW YORK) Starbucks Corp spent years convincing consumers to spend more on its espresso-based drinks. Now it’s trying to show cash-strapped coffee drinkers they can find deals as well.
Chief executive Howard Schultz unveiled a line of instant coffee at a meeting with investors and analysts in New York on Tuesday. Last week, he introduced US$3.95 breakfast meals and he is trying to remind consumers that the average cost of a Starbucks coffee last year was less than US$3.
The focus on value is a departure from comments Mr. Schultz made last July about maintaining a premium brand.
Since then, the deepening recession has forced consumers to cut back on lattes and cappuccinos. The company is also facing mounting competition as McDonald’s Corp and Dunkin’ Donuts Inc expand their coffee drinks.
‘The perception is that it’s much more expensive,’ said Larry Miller, an analyst with RBC Capital in Atlanta. ‘Do you stick to your long-term brand position or do you give an inch? You’re damned if you do, damned if you don’t.’
Via, the line of instant coffee Starbucks introduced on Tuesday, will be available from March 3 in the Seattle area and Illinois, in cafes and at Target Corp and Costco Wholesale Corp stores. A roll-out across the US is scheduled for late autumn.
Starbucks said it will sell a packet of three individual servings for US$2.95 or a box of 12 for US$9.95.
‘The size of the prize is very large,’ Mr. Schultz said in an interview. ‘This is an incremental new category for Starbucks; we wouldn’t do this if we didn’t feel it had long-term opportunity.’
The US$17 billion global instant-coffee market accounts for 40 per cent of all cups, Mr. Schultz said.
In the UK and Russia, instant represents more than 80 per cent of all coffee made. Starbucks plans to introduce Via in London on March 25. Via is available in a medium and bold blend, and may be expanded to include more of Starbucks’ 30 varieties of beans, Mr. Schultz said. It can also be used with ice water to create a cold beverage, he said.
‘There will be a lot of curiosity around this,’ said Greg Schroeder, an analyst with Wisco Research LLC, an independent firm in Madison, Wisconsin. ‘The coffee is good and it’s very convenient.’
The Starbucks brand was worth US$3.88 billion last year, ranking the coffee company No 85 among the top 100 global brands in 2008, according to consultant Interbrand Corp.
The company had previously shunned discounts and value offers, saying its coffee and products warranted a premium price.
‘Starbucks was doing exactly what an intelligent and rational company would do’ to grow, said Dennis Lombardi, executive vice-president of food service strategies at WD Partners. ‘All the rules changed on them and they need to adapt.’
The company introduced its US$3.95 meal deals last week, featuring a tall coffee and a choice of four breakfast sandwiches, or a tall latte and coffee cake or oatmeal.
That was after Mr. Schultz said during an earnings conference call in July that he wanted to avoid bringing Starbucks ‘down the fast-food lane’.
‘This move is the right thing to do for our customers,’ Mr. Schultz wrote in a Feb 9 memo to employees.
‘During these tough times, customers need to know they’re making a smart choice when they come to Starbucks.’
The breakfast combinations shave as much as 20 per cent off the regular price of the items, according to RBC’s Mr. Miller. The company makes 37 per cent of its sales from 6am to 10am.
The new offerings come as Starbucks begins job cuts to eliminate 700 corporate and 6,000 cafe positions.
The company is closing 300 stores this year after first-quarter profit fell 69 per cent and sales at locations open more than a year dropped 10 per cent.
Last year, Starbucks teamed with Costco Wholesale Corp to sell US$100 coffee gift cards for US$80.
Starbucks declined 48 cents, or 4.7 per cent, to US$9.65. The shares have tumbled 47 per cent in the past 12 months\. \-- Bloomberg
1 comment:
Starbucks focuses on value with new instant coffee
(NEW YORK) Starbucks Corp spent years convincing consumers to spend more on its espresso-based drinks. Now it’s trying to show cash-strapped coffee drinkers they can find deals as well.
Chief executive Howard Schultz unveiled a line of instant coffee at a meeting with investors and analysts in New York on Tuesday. Last week, he introduced US$3.95 breakfast meals and he is trying to remind consumers that the average cost of a Starbucks coffee last year was less than US$3.
The focus on value is a departure from comments Mr. Schultz made last July about maintaining a premium brand.
Since then, the deepening recession has forced consumers to cut back on lattes and cappuccinos. The company is also facing mounting competition as McDonald’s Corp and Dunkin’ Donuts Inc expand their coffee drinks.
‘The perception is that it’s much more expensive,’ said Larry Miller, an analyst with RBC Capital in Atlanta. ‘Do you stick to your long-term brand position or do you give an inch? You’re damned if you do, damned if you don’t.’
Via, the line of instant coffee Starbucks introduced on Tuesday, will be available from March 3 in the Seattle area and Illinois, in cafes and at Target Corp and Costco Wholesale Corp stores. A roll-out across the US is scheduled for late autumn.
Starbucks said it will sell a packet of three individual servings for US$2.95 or a box of 12 for US$9.95.
‘The size of the prize is very large,’ Mr. Schultz said in an interview. ‘This is an incremental new category for Starbucks; we wouldn’t do this if we didn’t feel it had long-term opportunity.’
The US$17 billion global instant-coffee market accounts for 40 per cent of all cups, Mr. Schultz said.
In the UK and Russia, instant represents more than 80 per cent of all coffee made. Starbucks plans to introduce Via in London on March 25. Via is available in a medium and bold blend, and may be expanded to include more of Starbucks’ 30 varieties of beans, Mr. Schultz said. It can also be used with ice water to create a cold beverage, he said.
‘There will be a lot of curiosity around this,’ said Greg Schroeder, an analyst with Wisco Research LLC, an independent firm in Madison, Wisconsin. ‘The coffee is good and it’s very convenient.’
The Starbucks brand was worth US$3.88 billion last year, ranking the coffee company No 85 among the top 100 global brands in 2008, according to consultant Interbrand Corp.
The company had previously shunned discounts and value offers, saying its coffee and products warranted a premium price.
‘Starbucks was doing exactly what an intelligent and rational company would do’ to grow, said Dennis Lombardi, executive vice-president of food service strategies at WD Partners. ‘All the rules changed on them and they need to adapt.’
The company introduced its US$3.95 meal deals last week, featuring a tall coffee and a choice of four breakfast sandwiches, or a tall latte and coffee cake or oatmeal.
That was after Mr. Schultz said during an earnings conference call in July that he wanted to avoid bringing Starbucks ‘down the fast-food lane’.
‘This move is the right thing to do for our customers,’ Mr. Schultz wrote in a Feb 9 memo to employees.
‘During these tough times, customers need to know they’re making a smart choice when they come to Starbucks.’
The breakfast combinations shave as much as 20 per cent off the regular price of the items, according to RBC’s Mr. Miller. The company makes 37 per cent of its sales from 6am to 10am.
The new offerings come as Starbucks begins job cuts to eliminate 700 corporate and 6,000 cafe positions.
The company is closing 300 stores this year after first-quarter profit fell 69 per cent and sales at locations open more than a year dropped 10 per cent.
Last year, Starbucks teamed with Costco Wholesale Corp to sell US$100 coffee gift cards for US$80.
Starbucks declined 48 cents, or 4.7 per cent, to US$9.65. The shares have tumbled 47 per cent in the past 12 months\. \-- Bloomberg
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