To Grow Business, Starbucks Thinks Outside The Cup
Barista Nicole Adams serves up a drink in March at a Starbucks in downtown Seattle. The company is expanding its coffee options to include a light roast and plans to create a new health and wellness brand.
STEVE INSKEEP, HOST: Starbucks is getting ready to announce its latest earnings report today. The coffee chain is well past its corporate crisis and is back in growth mode.
RENEE MONTAGNE, HOST: NPR's Wendy Kaufman reports on what the company is doing to keep the java and its mojo flowing.
WENDY KAUFMAN, BYLINE: It was just four years ago that Starbucks seemed to be losing its mojo and Howard Schultz, the man who made Starbucks a household name, returned to the company as CEO. He closed hundreds of stores, streamlined operations and set the company on a path to record revenues and strong profits.
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KAUFMAN: Every morning, the coffee tasters here at Starbucks headquarters in Seattle sample about 800 cups of java for quality and consistency. It's a bit like tasting wine and it's pretty intense, as I learned from Dub Hay, the company's senior vice president of coffee.
DUB HAY: Because we taste so many cups we do spit it out, so we're going to do everything your mother told you not to do - sip, slurp, spit.
KAUFMAN: Swish it around?
HAY: Swish it around in your mouth. We take a little bit into a spoon.
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KAUFMAN: And with that giant slurp, Hay lets the coffee coat his palate.
HAY: Little cedar notes, some spicy notes.
KAUFMAN: The coffee is a dark roast - the kind Starbucks is known for. But some people think it's too dark; describing it as burnt or over-roasted. Starbucks disputes those characterizations, but after 40 years of producing only dark coffee, Starbucks has just introduced a lighter roast - a coffee it calls Blonde.
Starbucks says more than 50 million coffee drinkers were looking for something that until now the company didn't offer.
HAY: That's who we are after, and I think once they taste this, versus other light-roasted coffees, we're going to convert quite of bit of those to Starbucks.
KAUFMAN: And the company hopes they will drink the coffee not just in a Starbucks store, but also at home.
The company's stores have impressive profit margins, but Bob Goldin of Technomic, a food industry research and consulting firm, says the profit margin on consumer products is substantially higher.
BOB GOLDIN: They are having a lot of success in the retail channel, with supermarkets and mass merchandisers with products like Via, Tazo Tea and now K-cups, the little Pods.
KAUFMAN: And Starbucks sees a huge new market for its grocery store offerings with the addition of Blonde.
Financially, Starbucks has never been stronger. In the Past year alone, the stock has climbed 40 percent. Portfolio manager Bob Bacarella of Monetta Mutual Fund holds a miniscule number of the company's shares.
BOB BACARELLA: You would think in this slowing economic environment that we've experienced that people would cut back on their coffee? Nah, doesn't happen. It's addictive, and Starbucks has played it up right.
KAUFMAN: But Starbucks continues to look for growth, and it's looking beyond coffee.
DAVID REIBSTEIN: One of the favorite things I like talking about is why it is that they feel this compulsion to grow.
KAUFMAN: David Reibstein is a marketing professor at the Wharton School.
REIBSTEIN: You got shareholder pressure and if you're not growing, then investors are going to go and invest somewhere else where there is growth.
KAUFMAN: But Reibstein says for Starbucks, expanding beyond coffee carries the risk of diluting the company's coveted brand. He's often thought what the company should do is find a new venture where it could leverage its ability to source products, find real estate and manage complexity. And that's just what Starbucks is trying to do now. Late last year it bought a premium juice company called Evolution Fresh and plans to use it as a springboard to create a new health and wellness brand. The first store will open later this year.
Wendy Kaufman, NPR News, Seattle.