Drunk On Starbucks?

| About: Starbucks Corporation (SBUX)

Summary

Few moves take retailers into adjacent spaces with their existing brands; Starbucks Evenings may be one of them.

This is pure upsell for the company, with no staffing changes required.

McDonald's' service model can't support competition; introducing alcohol there just feels wrong.

Last Friday I had the occasion to stop by Starbucks (NASDAQ:SBUX) during their Starbucks Evenings time, which the company has started rolling out to 70+ locations across Orlando, Denver, Miami, northern California, and New York City. There are very few moves that retailers can legitimately make that take them into adjacent spaces with their existing brands, but I have to say, this seems to be one of them. Here's what I saw.

First, I was at a Starbucks in Highlands Ranch, a sleepy suburb about 15 miles south of Denver. There is very little opportunity for happy hour traffic at this location, unless by happy hour you mean suburban housewives who gather after picking up their kids after school - and all of them already go to McDonald's across the street, where their children can run wild on the play scape. We'll talk more about McDonald's in a minute.

Second, I was there from 7-8pm. In many other locations, that might be considered prime dinner time, and so a lull time for a company positioning itself as drinks, small plates, and desserts. But probably not the case for Highlands Ranch. Dinner hour in my town is closer to 6pm, though there is a movie theater not too far away, and I'd be interested to see if Starbucks picks up any after-movie traffic, say in the 9pm hour.

The prices were extremely reasonable, for both the drinks and the food. I was there with my husband and we ordered two glasses of wine and a flatbread, and it cost about $25. I'm not a food critic, but I do visit Starbucks more than just regularly. As a consumer, I have not been a fan of the move to La Boulange, and I still bitterly mourn the loss of some of the scones. I feel like everything coming out of La Boulange feels even more processed and pre-packaged than anything they had before, and that's probably saying a lot. The flatbread fell right in line with my experience - not horrible, but not great, either. And soggy in the middle.

The wine selection was… okay. The beer selection was very localized. Very - within the confines of beers that you could buy in mass quantities. There's a very vibrant local craft brewery scene in Denver these days, and it's not like Starbucks was tapping into that - I'm not sure some of those craft places could handle that. But Avery and Great Divide Brewing Company and a handful of others were well represented. And I'd be really interested to see how that selection changes from city to city.

The barista behind the counter was enthusiastic and knowledgeable. Not so much about the wine, but definitely about the beer, including how the rotation of choices will change and what's coming next month. And he was actively pitching the Starbucks Evening choices to everyone who walked in the door. More on that in a minute too.

Finally, the people there were… interesting. There were three people with laptops, notebooks, or textbooks. These are people who are using Starbucks as their desk away from the desk, whether that is a school or office desk. None of these people had alcohol sitting in front of them, and one of them only had a water. She was already there when I showed up, so I don't know if she'd ordered anything earlier, but I think the odds were good that she came in, got her water, and sat and worked on her laptop until she left - driving zero revenue for Starbucks.

There was also a group of three women and three small children. The women all had glasses of wine in front of them, and the kids all had short crème Frappuccino's. No food, but definitely a revenue bump on the drinks, since the women all had $8-10 drinks instead of $5 ones.

While we there, two couples and a man by himself came in. The couples were older, maybe in the empty nest or nearly empty nest stage of life. One couple ordered wine and sat out on the patio. The other couple ordered coffee drinks. The man was startled by the Evenings pitch, gave the barista a confused, irritated look, and said all he wanted was his coffee. He definitely seemed annoyed to have to contemplate that he might have alcohol choices at Starbucks.

Also while we were there, there were 3 baristas on staff, and two of them came around to the tables and asked if we wanted to order anything else, which was a fascinating development. It was totally fine for the two tables that had wine - mine and the women. And something Starbucks is wise to do, in order to drive that "one more glass" or "one more plate" revenue. But the two baristas were thorough, and stopped by every table. As someone who has in the past utilized Starbucks for writing time, that helpful stop would've counted as an annoying interruption - and it was exactly that for the 3 desk people.

For all that, I think Starbucks Evenings will work. It's certainly easy money for Starbucks:

At least in a Denver suburb, it is a low-key place to hang out. There are plenty of bars or restaurants with bar scenes around, even in my little piece of suburbia, but they are mostly divorced-people meat markets. Unless Evenings catches on in a big way, Starbucks could very well be a great "We have the babysitter until 10pm, where should we go?" kind of place.

You wouldn't feel guilty bringing your kids there. Sure, you can get sodas at bars, but people go to bars to drink. It feels wrong taking kids to places like that. But Starbucks? That's a different matter entirely. Free wifi, permission from Starbucks to just hang out, a kid-friendly menu - that all leads to a greater comfort level in bringing the kids along. Which is why the group of three women with their kids was an interesting group to see on my visit. They'd already caught on to this notion.

A super-easy way to bump revenue. Once you get past the liquor licensing requirements, this is pure upsell. If someone coming in to drink their dessert in an 800-calorie Frappuccino can be convinced to switch to a glass of wine and a brownie instead, that would more than double the price of the ticket, with little if any increase in cost. Other than the fact that it took the poor barista about 10 minutes to get the bottle of wine open using a crappy $10 bottle opener, this is far less labor involved than making a Frappuccino, and the ingredients can't cost that much more, either.

No (or few) staffing changes required. Starbucks tends to hire older employees. Three workers seemed a little heavy for a Friday night, but I have to guess that Starbucks needs to make few if any staffing changes to make Evenings happen - they don't have to watch out too hard to make sure 16-year-olds aren't the only ones behind a counter after 6pm. And, unless traffic demands it, they don't have to staff up either. Though I will say, the company should do their employees a favor and roll out better wine bottle openers.

Training-wise, the fact that the baristas came out from behind the counter was a pleasant surprise. It will help keep those tickets higher - though, I'm not sure how that transaction would work. Do I have to get back up and go up to the counter? I'll have to test that on my next visit!

Current evening patrons aren't a big loss. I can say this because I have been a Starbucks freeloader on more than one occasion. Most of the people who come and hang out in the evenings to use Starbucks for desk space are not really worth it as customers. They buy one drink on a good night, and then hog a chair or table for hours. It creates good will - I have bought guilt mochas from time to time - but it doesn't drive revenue. These freeloaders may be annoyed or driven out by the alcohol crowd, but I don't think it will be any great loss to Starbucks in the long run, and certainly a net-gain in sales.

McDonald's can't compete against this. There came a time when McDonald's realized that Starbucks was a competitive threat. In response to this threat, the company upped its coffee game, installed free wifi, and even remodeled some stores to have comfy seating and fireplaces and things like that. I'm not a big coffee drinker (I know, I know - and yet I end up at Starbucks quite often), but my big coffee drinker husband assures me that McDonald's coffee is at least as good as Starbucks. It's certainly not any worse.

But, especially in the US, can McDonald's legitimately add alcohol to its menu? I don't think they can - not easily. They would have to watch out about staffing. And their service model is not at all able to support something that requires more table service than sending someone out to wipe down tables after a rush.

And while alcohol seems like a natural fit for a company like Starbucks - something that makes sense without making you feel like a bad parent for taking your kids there - McDonald's has a different problem. It is already a kid-safe and friendly place. Introducing alcohol there just feels wrong - an intrusion, rather than an addition, like opening a bar in the middle of a playground. Sure, you might sell some drinks to some moms in the short term, but in the long term, you just might find that moms stop coming there with their kids altogether.

The local angle should help bring repeat visits. I have a friend who hates coffee, but has a collection of the Starbucks City mugs. For a while, I had a list of cities he was looking for, and if I went to one of those cities and didn't come back with a mug, woe be to me. That's the long way of saying that Starbucks actually doesn't do too badly in creating a local angle in their stores. It's not always right out in front, but it is there. For me, they scored points by demonstrating that they knew the right local beers to have in a Denver-area store. And curiosity will drive me to other cities, just to see what they feature. Plus, they are planning on rotations for both beer and wine, which will also help keep repeat interest high.

In The End…

There are few companies that have an opportunity to make a pivot under their own brand into an adjacent space, and have customers greet it with open arms. The last brilliant move I saw was when FedEx bought Kinko's (we can argue execution of that move another time). It's too new to say that Starbucks customers will greet Evenings with open arms, but it's not too soon to say that as a concept, I could see how this might work out really well.

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