TrendWire, January 23, 2008

TrendWire, January 23, 2008

TrendWire

TrendWire, January 23, 2008

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The Food Channel Trendwire
January 23, 2008 • Volume 22, Number 2 • http://www.foodchannel.com

IN THIS EDITION


Coffee Wars Continue to Make Big News

Anyone who has not been living on another planet knows that coffee isn’t just an accompaniment anymore. Over the past 20 years, what once was a simple beverage choice at just about any restaurant has grown to become its own industry, one worth $60 billion annually. Much of that revolution was led by Starbucks (http://www.starbucks.com). As the competition for the coffee dollar gets stiffer with more traditional restaurants going after the same customers, all the players are continuing to make changes to stay competitive.

Love it or hate it, Starbucks has a large following that it’s been able to grow, with nearly 11,000 stores open in the U.S.A. alone, with another 3-5 opening each and every day. It has diversified the menu extensively to move beyond coffee into noncoffee beverages and numerous food items, including salads and sandwiches. But with this explosive growth has come some pain, as evidenced by the now-infamous February 2007 internal memo from Howard Schultz (Chairman of the Board of Starbucks) wherein he fretted to upper management about the “watering down of the Starbucks experience.” After many months, the board decided he should retake the helm as Chairman, President and CEO, announcing the decision earlier this month. We’ve excerpted his open letter to Starbucks customers here:

“We have enormous opportunity and exciting plans in place to make the Starbucks Experience as good as it has ever been and even better. In the coming months, you will see this come to life in the way our stores look, in the way our people serve you, in the new beverages and products we will offer. That is my promise to you.Everyone at Starbucks looks forward to sharing these initiatives with you.”

In a subsequent letter to employees, he identified the company’s new strategy, summarized unless otherwise noted:

  • Refocusing the customer experience (as noted in his letter to customers)
  • Slowing domestic growth, including closing underperforming stores in the United States
  • “Reigniting the emotional attachment with customers and restoring the connections customers have with Starbucks coffee, brand, people and stores”
  • Realigning the organization to support the new strategy
  • Increasing international growth, including accelerating store openings abroad

While some of Starbucks’ problems are of its own making, Schultz contends, much of the problem has to do with more choices of high-quality products in the marketplace than ever before. And take note—the product isn’t just the coffee; instead it’s a full experience that restaurants are trying to create within their own brands.

By the end of 2008, McDonald’s plans to add coffee bars, along with baristas to run them, to nearly 14,000 of its American restaurants. In addition to premium coffee drinks, it plans to offer smoothies and bottled beverages such as green tea and juices. The coffee world is watching to see how it goes, since reviews of the McCafe experience in 2003 were mixed, primarily due to equipment problems it contends have been solved, presumably with the help of its newly created position of barista. This news marks the single biggest menu change since McDonald’s added breakfast 30 years ago. McDonald’s plans to price its drinks roughly 60-cents cheaper than Starbucks and other premium coffee houses.

A 100-unit franchisee of Wendy’s (http://www.wendys.com) recently added a coffee bar called Javaccino’s to his unit in Starkville, Miss. While it’s not a formal companywide initiative, Gene Carlisle, chairman of the corporation that owns the franchises, says he’s operating with the company’s blessing. With the addition of three flat-screen TVs, cozy furniture and wireless internet, Javaccino’s feels more like a café than a QSR. In addition to the standard lattes and cappuccinos, customers here can get a Frosty-cino, which is a Wendy’s Frosty with coffee flavoring and chocolate or caramel syrup. This particular unit is located close to the campus of Mississippi State University, and many of the customers exploring the new coffee bar are students and faculty.

Watch for other QSRs to follow suit, especially with initial small-scale trials. We may see changing store layouts, increased specialty drink offerings and overall customer experience improvements within several brands. And we believe that family-dining and casual-dining restaurants could come along for the caffeinated ride in the very near future.

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