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The WSJ is reporting (the link may not work for long) that Starbucks will soon be offering hot breakfasts like egg McMuffins in many of its D.C. area locations. They’re obviously not calling them McMuffins, but that’s the basic idea. The move comes after a successful trial run in Seattle and is likely a prelude to a much larger rollout.

The benefit to Starbucks is obvious: there’s a limit to how much coffee any one location can sell and they’ve already raised their prices. The company seems to be betting that the best way to increase revenue is to expand the retail part of its business. The upside is more choices for customers; the downside is that Starbucks becomes less like a cafe and more like, well, McDonalds.

If the shift toward retail is successful it’s worth pondering the possible effects it will have on smaller chains and independent stores. Starbucks provides many consumers’ first experience with gourmet coffee and in many ways defines their expectations of what a coffee shop should be. Expanded product selection could raise the bar for the corporation’s competitors.

The risk to Starbucks is that they will lose their focus on making quality coffee drinks. Serving hot foods adds one more thing for employees to learn and managers to oversee. The sheer size of the corporation (currently around 9,000 stores) has already led to its replacement of skill intensive espresso machines with ones that are nearly automatic. Additional complications to the running of an individual shop will only make it harder for them to be innovative with coffee.

My prediction is that if their strategy succeeds the biggest threat will be to the smaller chains like Caribou. Consumer expectations may force them to adapt and expand their own product lines, but going head to head against Starbucks’ economies of scale may prove quite the challenge.

I expect that independent coffee shops will have much less reason to fear, as they will always be able to compete with corporate coffee on atmosphere and quality. Their advantage on the former is obvious; on the latter, they can afford to nimbly make changes to their equipment, beans, and techniques that would be terribly painful for the Starbucks giant to adopt.

Long time readers of this blog know that I’m no enemy of Starbucks. They treat their employees well, they’ve been hugely successful in expanding the market for cafes, they serve some high quality products, and, contrary to the common image, they’re not out destroying the little guy. I just hope their expanded food sales don’t cause them neglect coffee drinks and start treating them as just one product among many.

One more note: the other innovation mentioned in the WSJ article, HearMusic CD burning stations on which one can burn a customized seven song CD for $7.99, strikes me as a little odd. They’re apparently profitable in test runs, but it seems like Starbucks could be hitting the tail end of a trend as upscale customers transition to MP3 players. This would have been a great idea two years ago; I’m not sure I’d want to invest in these for half my stores right about now. It’s their money on the line though, so I’ll trust they’ve done better research than I can do from my couch.

[Hat tip: Starbucks Gossip.]

Comments

  1. Joel says:

    Wow, fascinating article on Starbucks and its relationship to local neighborhoods and businesses. I’m one of those people who always lumped Starbucks in with Wal-Mart, a legitimately evil company, but I guess that’s a poor comparison on my part. Lesson learned.

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