Following the lead of other popular, nationwide restaurant brands such as California Pizza Kitchen and P.F. Chang’s China Bistro, Starbucks is looking to packaged food products distributed through grocery stores to expand the reach of its brand.
The company known mainly for beverages sold in cafes already offers some related products in grocery aisles, including coffee beans and ice cream, as well as bottles of its Frappuccino drinks. These items currently constitute 10 percent of Starbucks sales and 25 percent of its profit. Despite the few items available, these products earn high margins, because grocery stores support the infrastructure cost.
Yet in the grocery environment, there are no baristas or even salespeople available to answer questions or promote the products. Starbucks instead is hoping that widely distributed coupons and samples and in-store displays will make people aware of the products.
To promote its most recent product VIA, the company is also developing a massive print and television advertising campaign. Its introduction in Starbucks cafes already has helped revive the U.S. instant coffee market, which makes Nestlé, its biggest competitor incredibly happy, strangely enough. Now that there is another player—an international powerhouse at that—in the category, customers might change their routines and begin drinking instant coffee more often. Already the market has grown 6 percent, likely as a direct result of the considerable marketing effort exerted for VIA.
This foray into new products and new distribution channels extends the Starbucks brand to other customers, as well as to existing customers who now can enjoy the products in various types of buying situations. For example, a single consumer might stop by a café to pick up a latte on her way to the grocery store to grab coffee beans for the week, instant coffee packets for a business trip, and ice cream for the kids.
1. Which growth strategies is Starbucks pursuing through the grocery channel?
2. What are the advantages and the disadvantages to selling its products in a grocery store?
Kevin Helliker, “Starbucks Mounts Major Grocery Push,” The Wall Street Journal, April 29, 2010.