The consumer products giant this month is notifying subscribers to its home-delivery program for Millstone coffee that they'll now have to travel to a local supermarket to buy their beans.
This comes as two other coffee marketers step up efforts to acquire a bigger piece of the estimated $3 billion home-brewed market. Mail-order is a small part of this business.
Starbucks Coffee Co., in a bid to expand its brand beyond its estimated 1,500 U.S. retail outlets, is testing a mail-order initiative offering a free drip coffeemaker to new subscribers.
Kraft Foods, meanwhile, has stepped up advertising for its segment-leading Gevalia Kaffe, with a test of its first TV advertising, from FCB Direct, New York (AA, Feb. 22). Gevalia, an estimated $150 million brand, essentially owns the business of giving away free equipment to lure new subscribers, and has built sales through print ads in upscale magazines.
Starbucks sees a growth opportunity in mail-order.
"We feel that a mail-order customer is one of the most loyal customers," said a Starbucks spokeswoman.
Starbucks, which in fiscal 1998, ended Sept. 27, derived 16% of its $1.3 billion in revenues from specialty sales, doesn't disclose figures for its mail-order business. Last November, it launched a coffee delivery program for home offices and small businesses as another tactic to increase specialty sales.
"We anticipate that specialty sales will increasingly dominate Starbucks' revenue mix over the next several years as domestic retail saturation becomes an increasing reality," wrote Stacy Jamar, an analyst for Salomon Smith Barney, in a recent report.
SWITCH IN TACTICS
Starbucks has built its brand with little traditional advertising, but in this case the company is using familiar tactics. "Announcing our most convenient location ever," reads the envelope containing the coffeemaker offer. "We've reserved a valuable welcome gift for you."
The marketer touts it as a $49.95 value. Coffee costs $10.95 per pound, plus $4.35 for shipping and handling.
A spokeswoman for P&G declined to say why the Millstone program wasn't expanded beyond its test, which
she characterized as small. Millstone is the third-largest whole-bean brand sold in supermarkets, behind A&P's coffee and private label, according to Information Resources Inc.
The Millstone effort, dubbed Signature Blend, marked an attempt by P&G to customize its product to individual consumer tastes. Customers can still order the brand for home delivery from Netgrocer, the Internet grocery site.
N.W. Ayer & Partners, New York, is the agency for Millstone.
P&G BUYS BROTHERS COFFEE
While P&G may have ended its mail-order test for that brand, it's still hot for coffee in other venues. Last week, it announced a $22.8 million deal to acquire Brothers Gourmet Coffee, marketer of the No. 4 whole-bean brand sold in supermarkets. Brothers has been operating under Chapter 11 bankruptcy protection. Ayer is likely to win the Brothers ad account, previously in-house.
Neil Stern, managing partner of retail consultancy McMillan/Doolittle, said the mail-order niche is worth pursuing. That Millstone pulled out reflects its latecomer status to mail-order, he said.
"Of the brands, Gevalia is first, and Starbucks has the strongest brand recognition," he said. "It's going to be a relatively small business no matter what, but a nice niche."