SEATTLE, Wash. -- In 2003, Starbucks opened up shop next to Douglass Distributing's showcase location in Sherman, Texas. Some Douglass execs feared sales carnage. The actual damage: Coffee, cappuccino and hot chocolate sales dropped 19% from March to August 2003part of which may be blamed on seasonalitywhile sales slipped 5% between the first and fourth quarters of 2003.
Four years later, sales are still down 5% from pre-Starbucks levels, although they are higher than the fourth-quarter average in 2003. I think this shows that there was a hit on our [image-nocss] store but it wasn't devastating, Diane McCarty, president of Douglass Distributing, told CSP Daily News. McCarty, however, does believe Starbucks may cap the store's future growth.
And that's despite the fact that the Sherman location now features a large coffee bar as part of the ExxonMobil On the Run concept. Sherman, Texas-based Douglass Distributing operates 15 Lone Star c-store locations.
That said, McCarty is still a loyal Starbucks customer. I hate coffee. I don't drink coffee, never have. I am an extra-caramel Caramel Machiatto with-whipped-cream buyer now, she said. I bet I go twice a week. I'm blown away by their success at making people want something we didn't even think we wanted.
C-stores compete with Starbucks every day; partnering with the coffee giant, on the other hand, is rare. As of the end of 2006, approximately 36% of Starbucks stores in the United Statesor 3,500were operated by licensed partners.
We work with large retail organizations such as Target, Safeway, Kroger and HMS Host to open locations in areas where our customers want and expect us to be, spokesperson Bridget Baker said, for example, an airport or grocery store.
Although Starbucks has largely eschewed the c-store channel for expansion, it does have a few partnerships in the industry, including TravelCenters of America, Canadian Tire (which actually leases space to Starbucks), and, for the past two and a half years, Davis Oil. (To read more about Davis Oil and its partnership with Starbucks, click here.)
The second we put up our first billboard to say there's a Starbucks available at Stony Creek, people were pulling off the road who'd never stopped here before, John Cary, vice president of operations for Davis Oil Co., Stony Creek, Va., told CSP Daily News.
Davis Oil president Rex Davis had to do a lot of footwork pursuing Starbucks, but in the end, he was successful. Once they came in and saw the location, the level of service we gave, the level of cleanliness we kept here, then they decided it was going to be a good fit for them, said Cary.
Of course, the good thing about it is we do believe we have a good facility built around the Starbucks, so when they stop for the Starbucks coffee, they also make a point to get a Subway sandwich, go over into our travel center and spend money there, as well as fueling, said Cary. It's really been a win/win for us all around.
Cary said fuel sales increased 20% the first month the location was open, and 10% each month compared to the previous years. Interestingly, inside sales were not affected. Profitability is higher at Starbucks than Davis Oil's Subway outlet, and the space also has a lower labor cost. The retailer is currently in talks with Starbucks to open a second licensed location.
Despite the lure of blended drinks, Cary said the No. 1 beverage sold at the Starbucks location is drip coffee. We have a lot of truckers who fill up a 30-ounce mug with Starbucks coffee and think the world of it, he said.
Maurice Minno, partner with foodservice consultancy ISUS Inc., Minneapolis, and a former Starbucks exec, said the company did play with the idea of selling its coffee in the convenience channel. Two c-storesone in Seattle and one in San Franciscoboth featured an attached Starbucks caf a that operated independently, but the tests fizzled.
There's somewhat of a negative view on the convenience channel based on petroleum and the overall view of convenience retailing in the U.S., he said. That negativism does not align with the pros and positives of the Starbucks brand and retail offer. They're looking for higher-profile location opportunities, I think, than the c-store channel.
For more about Starbucks' go-to-market strategy, see the September issue of CSP magazine.
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