June 5, 2012

Starbucks Buys Baker - Seeking to Own Coffee Occasions


Starbucks is buying a San Francisco baker, La Boulange, as the coffee purveyor is looking to own all things coffee. They have carved out a nice segment of the market and realize that they want to and can control significant portions of revenue for users who come into the stores.... and after they leave too.

McDonald's Theory

So, other than a few brands that grace the inside of the McDonalds, namely Coke, Newman's Own coffee and a few others occasionally, you walk in and you get McDonalds stuff, period. Starbucks clearly realized that they don't need to settle for a small mark-up, but instead have the right to own the entire offering in their stores, while also controlling much of the experience. Pastry not delivering the right taste and brand experience? Buy the baker yourself.

Coffee All the Time

Starbucks has shown that they aspire to be all things coffee, not only in the store, but away from the store. Remember when Starbucks offered bulk coffee for grinding? I mean real bulk coffee? That format is fading fast in favor of K-Cups, Via Instant, and soon, the Verismo system. With these offerings, they have 1) The largest installed base of single serve coffee machines on the market addressed, 2) A better away from home beverage, and 3) a new way to drive growth int eh high end of the market, respectively.

Don't like the char-bucks flavor of coffee that they once touted as the signature flavor, with the notion that without it, you weren't drinking real coffee? Well, that's remedied, with the introduction of ever lighter coffees that can finally show off some subtle notes apparent only when more lightly roasted. Far from stupid, this opens the their market up even more.

Single Serve Wars; Verismo vs. Nespresso vs. Keurig Vue

Green Mountain/Keurig is betting on their own Keurig Vue maker to deliver high end users, while Nespresso, the massive player everywhere but the US, has started TV advertising in the US ahead of the Verismo launch later this year. Clearly, Starbucks realized the power of their brand about two decades ago, but have recently extended their reach with more offerings, a broadening of the market they address, and specialization with talent to bring them to the grocery channel in a big way. Don't expect them to be content with a few facings of Starbucks Via, or Starbucks Ground Coffee in 12 ounce bags or K-Cups. I expect that they will continue to make the coffee aisle their home.

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Posted by Scott Martin at June 5, 2012 8:00 AM
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