Here’s a thought on getting the public to pay $12 for a cup
of coffee: Have the barista wear suspenders and add a bourbon-flavored swizzle
stick.
I allude here to plans by Starbucks CEO Howard Schultz to
launch a chain of luxury coffee bars, and how well the concept compares with
another long-standing social endeavor — the corner bar. When thinking of
super-premium comparisons to the high-end Starbucks Reserve Roastery brand, my
mind keeps returning to the craft cocktail lounge and its respected mixologists.
I think for good reason. Americans are drinking less
alcohol, yet spending more on it, because we are choosing pricier beer, wine
and cocktails, according to Bloomberg. Nearly half of all wine sold (48%) now
costs more than $10 a glass, and cocktail prices easily ratchet north of that.
Similarly, coffee is undergoing an innovation evolution of
its own. In addition to lattes and macchiatos infused with vanilla, salted
caramel or pumpkin, talented baristas give us a choice of flat whites, cold
brews or nitrogen-infused coffee. And with each new idea, the price climbs. But
to succeed, the in-store coffee experience should live up to the hype — and the
price.
With that in mind, let’s look at Schultz’s latest coffee
fancy through craft-cocktail goggles.
From Plain Joe To Gingerbread Latte
Coffee, just like beer and vodka, is at its core a commodity
product. Twenty years ago, you might have been considered a fool for paying $5
for a cup of joe.
Yet Schultz, in his decades at Starbucks, has transformed
the way people drink coffee and, as The Wall Street Journal observed, even
socialize: “Starbucks showed Americans that coffee could be more ambitious than
home-brewed.
I allude here to plans by Starbucks CEO Howard Schultz to
launch a chain of luxury coffee bars, and how well the concept compares with
another long-standing social endeavor — the corner bar. When thinking of
super-premium comparisons to the high-end Starbucks Reserve Roastery brand, my
mind keeps returning to the craft cocktail lounge and its respected
mixologists.
I think for good reason. Americans are drinking less
alcohol, yet spending more on it, because we are choosing pricier beer, wine
and cocktails, according to Bloomberg. Nearly half of all wine sold (48%) now
costs more than $10 a glass, and cocktail prices easily ratchet north of that.
Similarly, coffee is undergoing an innovation evolution of
its own. In addition to lattes and macchiatos infused with vanilla, salted
caramel or pumpkin, talented baristas give us a choice of flat whites, cold
brews or nitrogen-infused coffee. And with each new idea, the price climbs. But
to succeed, the in-store coffee experience should live up to the hype — and the
price.
With that in mind, let’s look at Schultz’s latest coffee
fancy through craft-cocktail goggles.
From Plain Joe To Gingerbread Latte
Coffee, just like beer and vodka, is at its core a commodity
product. Twenty years ago, you might have been considered a fool for paying $5
for a cup of joe.
Yet Schultz, in his decades at Starbucks, has transformed
the way people drink coffee and, as The Wall Street Journal observed, even
socialize: “Starbucks showed Americans that coffee could be more ambitious than
home-brewed Folgers.
ts Roman...
With his plans to pursue the Roastery concept, which began
with a location in Seattle two years ago, Schultz will retire as Starbucks’
storied CEO. At the Roastery in Seattle, which refers to itself as a shrine,
the coffee is roasted onsite and then brewed by Starbucks baristas carefully
selected from across the country. A 12-ounce cup of coffee that involves a
siphoning process costs $12.
Starbucks plans to open 20 to 30 such locations, plus as
many as 1,000 similar locations, to be called Starbucks Reserve, that will not
include on-site roasting.
Brewing A $100 Million Idea
The cost to build these locations will reflect the $12 price
for siphoned coffee. Some analysts estimate Starbucks will invest about $100
million a year building the stores. Selling enough coffee to cover that cost
will be a challenge, unless Starbucks intends for its traditional stores to
help cover the bill.
A yet bigger challenge may be distinguishing the fare at the
two chains. Regular Starbucks already has a pretty sophisticated and complex
menu. As Credit Suisse analyst Jason West put it to The Wall Street Journal:
“If you’re going to throw on top of that another level of premiumization and
innovation and add an espresso bar, this could make things more challenging.”
Schultz has said the in-store experience at the Roastery
will entice computer-bound consumers, who spend a lot of time shopping online,
to leave their homes. To this point I can’t help but ask: Have you been to a
Starbucks lately? I’d estimate 90% of the people there are staring into glowing
screens.
Perhaps Schultz is also trying to graduate regular Starbucks
visitors to a more sophisticated coffee experience. That experience includes a
view of the entire roasting operation, a well-stocked coffee library and access
to brews derived from the best beans Starbucks can muster (less than 1% of its
beans qualify).
Justification? Maturing Coffee Market
The market is certainly maturing into the Schultz vision.
Younger consumers are more open to experimenting with new coffee beverages or
preparation methods, according to the National Coffee Blog. Roughly half of all
consumers ages 18 to 39, when asked where they drank coffee the day before,
said it was away from home.
It’s little wonder specialty coffee sales are increasing by
20% a year.
Still, the gap between a $5 cup and a $12 cup is wide. To
maintain its target customer base, the Roastery will have to transport them to
a new café plane — an opulent environment that can be justified as a personal indulgence.
That justification is achieved by stimulating the senses in purely emotional
ways. To refer to the craft cocktail comparison, it’s the equivalent of taking
a well-deserved break in a soothing environment, or celebrating an occasion
with friends.
And let’s face it: There’s a snob aspect to it as well.
Anyone who pays $12 for a cup of coffee ostensibly appreciates the difference,
and therefore can enjoy being different.
Considering the number of people willing to wait seven
minutes in line for a $5 blended coffee drink, and not even stay, getting them
to pay twice as much may not be so hard to achieve, if the customers are made
to feel special. For this reason, the weight of the Roastery’s success rests
largely on the entire experience.
The location’s atmosphere — the way it makes its visitors
feel — must justify the higher price tag. Just like Starbucks reinvented coffee
from the traditional doughnut chain to a living room break, the transition from
current Starbucks to the Roastery concept must come with an equally enticing
change to the experience. This is crucial to reconditioning consumers to accept
$10 latte breaks. Coffee, like craft spirits, could become mysterious and
magical.
If Schultz can achieve this, and get the experience just
right, a $12 cup of java might not sound so nutty in five or so years.
