Try before you buy is usually an offer reserved for big-ticket items, like cars or refrigerators, not for your daily coffee fix. But Starbucks is looking to build its consumer products business by allowing customers to do just that. To exploit its remarkable geographic foothold through its store locations nationwide and all over the world, Starbucks plans to test products in its stores, then move on to selling them in grocery stores. At the point they see them on grocers’ shelves, customers already will be familiar with the product, because they’ve tried it at their local Starbucks.
Its attempt with the instant coffee option VIA has been very successful. Sales have exceeded $100 million in the United States, where VIA is sold at supermarkets, Target, Safeway, and Walmart. The grocery retailers enjoy a low-risk proposition, because the new products already have been proven as successes in Starbucks stores. They also might be able to attract Starbucks loyalists looking for another source for their VIA.
Some other restaurants have introduced branded products to grocery stores as well, such as PFChang’s frozen soup and California Pizza Kitchen’s at-home pizza options. Although these items might not taste as good as the offerings in the restaurants, they are much more convenient for customers and thus have enjoyed strong success.
The difference between Starbucks’ and these restaurant products is that the customer buys the exact same product, whether in the grocery store or at a Starbucks. In addition, Starbucks’ consumer products earn high profit margins for the company, because it does not need to account for the infrastructure costs of building a Starbucks store to sell its products.
Starbucks also sells ice cream and bottled Frappucino drinks in various retail outlets. This retail footprint gives Starbucks a nice advantage, in that as they grind through their weekly grocery shopping, customers are bound to recognize a product they associated with high quality, leisure, and enjoyment, which should encourage them to buy it in these alternative channels.
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Julie Jargon, “For Starbucks, a New Retail Mix,” The Wall Street Journal, August 19, 2010.