SEATTLE -- With the dismal economy, Starbucks Corp. is hoping to find a sales boost through value meals, said the Associated Press. Starbucks has yet to offer many details about what CEO Howard Schultz described to investors last week as "several breakfast pairings" at "attractive" prices. More details are expected later this week.
The tug of war for coffee drinkers has gotten hotter in recent months, with McDonald's Corp. offering new, lower-priced specialty coffee drinks and Dunkin' Donuts advertising value-minded deals. "You've got a lot of options right now for the [image-nocss] more price-conscious consumer to save money," Andrew Hetzel, the founder of coffee consulting group Cafemakers, told AP.
But analysts wonder if the plan will be enough to keep value-seeking customers from abandoning the mermaid for the clown.
Starbucks is looking to rebound from dismal U.S. sales as more consumers cut back on spending in the deepening recession. In its fiscal first-quarter report last week, same-store sales, a key indicator of a retailer's performance, dropped 10%. That's worse than the 8% decline in the fiscal fourth quarter.
Restaurants have been increasingly trying to break into the specialty coffee market, which has grown substantially since 1995, when only 2.7% of adults drank a specialty coffee drink every day, according to the Specialty Coffee Association of America. In 2008, that percentage stood at 17%.
Starbucks will not say whether competition from its lower-priced rivals has contributed to its sales decline. But analysts say the economy may be driving more value-minded consumers to switch brands rather than just cut back. "It's hard when people automatically see Starbucks as being more expensive," Stifel Nicolaus analyst Steve West told AP.
McDonald's is halfway through its nationwide launch of its new espresso-based drinks and said sales are hitting or exceeding internal targets. It declined to elaborate, but cited the popularity of the drinks as one factor in its better than expected fourth-quarter results.
McDonald's now offers the drinks in about 7,000 of its nearly 14,000 U.S. locations. Although it is still rolling out the beverages, it is already heavily promoting them locally through coupons and samples. The McCafe drinks are about 65 cents or about 25% cheaper on average than those at Starbucks. When shots of flavors are added, the savings increase because a flavor shot costs 35 cents each on average at Starbucks. The shots are free at McDonald's.
West said he thinks the McCafe drinks will do well. Given Starbucks' sales declines, he said, "I've got to imagine some of those people are going to McDonald's."
And while McDonald's is well-known for its value meals, those include only the regular drip coffee, not the new espresso-based drinksat least not yet.
Not to be outdone, Dunkin' Donuts is trying to attract value-conscious consumers with specially priced coffee and food combinations, such as a medium drip coffee and an egg white flatbread sandwich for $1.99. The company, which is privately held, doesn't report financial results and declined to give specific figures. Much of Dunkin's market base is price-sensitive customers, whereas Starbucks' customer base still includes a die-hard core that may be unwilling to trade down on their coffee.
Meanwhile, Seattle's Best Coffee said it will expand its franchising program to offer cafe opportunities in the United States. This strategic decision to build Seattle's Best Coffee through franchising allows its parent, Starbucks Corp., to use a multi-brand strategy that leverages both the Starbucks and Seattle's Best Coffee brands to capture more of the growing specialty coffee segment, ultimately providing options and variety in the marketplace.
This decision comes after nearly four years of successful development of the Seattle's Best Coffee brand, through a national licensing program, to more than 550 cafes nationwide. Seattle's Best Coffee is an accessible entry point to specialty coffee for many customers. The brand offers milder coffee blends and flavored coffees, as well as a diverse product portfolio, including cold-brewed iced and blended coffee beverages, tea and other noncoffee beverages and warmed sandwiches and food items.
Seattle's Best Coffee offers potential franchisees a set of retail cafe concepts ranging from small space solutions to street-side coffeehouses. This includes customized cafes that are designed specifically for each location and cafe footprint, allowing a qualified franchisee to develop a market based on the opportunity available. Additionally, the brand offers franchisees a program with complete training and operations experts for initial cafe set-up, as well as ongoing development and operations support.
The company is offering franchises to qualified and select applicants, using a predefined set of criteria and focusing on multi-unit franchisees with a proven track record of success. Expansion of the franchise program will have an initial focus on Western states and Texas; however, inquiries from other regions nationwide will be considered. As part of broader cafe development rights, Seattle's Best Coffee has access to real estate in certain markets that may provide an opportunity to qualified franchisees.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.