Why You Are Not Drinking Nearly Enough Starbucks

Even Its Most Staunch Loyalists Drink Only 3 of Every 10 Cups at the Chain -- the Java Giant Intends to Fix That

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CHICAGO (AdAge.com) -- Remember the days of two Starbucks stores on one corner in some cities? That was just the beginning. The brand that many experts said was all washed up two years ago is back, with two consecutive quarters of same-store-sales gains -- and it wants you to drink a lot more of its coffee.

Despite a seemingly ubiquitous presence with 11,000 coffeehouses, Starbucks estimates that it holds less than 5% of the brewed-coffee market in the U.S. So the company is looking for ways to get in on more of that business, whether it reaches people through fast-food chains, in their homes or at their desks. Even Starbucks' most loyal customers consume only three of every 10 cups they drink in Starbucks stores, and since there are about 40 billion servings of coffee sold in the U.S. every year, that leaves Starbucks plenty of cups to conquer. And the real action is in grocery: According to NPD Group, four in five cups of coffee are consumed at home.

"We have a lot of opportunity both domestically and globally," Starbucks Global CMO Annie Young-Scrivner said in an interview. "We're looking at brewed-coffee expansion and, definitely, 5% gives us room to expand."

To that end, Starbucks is leaning on additional brands, such as Seattle's Best Coffee, to fill in where its flagship caf├ęs can't.

"At some point, you have to think that the Starbucks brand is getting itself overexposed," said Lynn Dornblaser, director-consumer package goods insight at Mintel International. "And if that's the case and they still want to grow market share, then they need to think very creatively about how they do that."

Three-pronged approach
During the recession, Starbucks' grocery-distributed bagged coffee suffered the first real sales decline in years. According to SymphonyIRI, sales fell 6% from last year to $199 million while the category was up 6% to $2.5 billion (the data doesn't include Walmart and club stores). Starbucks is responding with a three-pronged approach: launching Via in grocery stores, introducing flavored coffee and ramping up in-store promotions that have carryover benefits to the grocery business.

Ms. Young-Scrivner said that not only is Via performing ahead of expectations, but it's also being used in a variety of ways. Half of the Via serving occasions are at home, she said, while 25% are in the office, and the remaining quarter are consumed "on the go."

In partnership with Kraft, Starbucks will launch its first flavored coffees in supermarkets next month. The decision came after the company discovered that 60% of its bagged coffee buyers were either drinking flavored coffee or adding flavored creamer, but because Starbucks had no entry, it was "out of consideration," Ms. Young-Scrivner said. But 75% of those consumers said they'd buy a flavored product if Starbucks made it. The result, after more than two years of testing, is Natural Fusions, in vanilla, caramel and cinnamon. Marketing is still under wraps, but is expected to begin in the summer.

Starbucks has also taken more control of its grocery advertising, once handled primarily by joint venture and licensing partners. Mr. Davenport said the chain worked with Kraft to move its bagged-coffee business from DraftFCB, Chicago, to agency of record BBDO, New York.

Starbucks is trying to pump up Seattle's Best with a new look and tagline, "Great Coffee Everywhere," from agency of record Creature, Seattle. The brand will go from 3,000 points of distribution last year to more than 30,000 before the end of this year. Seattle's Best President Michelle Gass says the appetite for premium coffee is increasing, with 35% of consumers drinking it today, compared with 29% three years ago. Eventually Ms. Gass expects her coffee to show up in coffee carts and vending machines.

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