Starbucks wakes up to liqueur possibilities

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The world's biggest coffee chain is about to take on the biggest coffee liqueur.

After successful tests in two markets, Starbucks Corp. and Jim Beam Brands are rolling out Starbucks Coffee Liqueur in early 2005. They're squaring off against Allied Domecq, whose Kahlua brand dominates the category.

It promises to be a tough fight. Starbucks is a hot marketer that has successfully extended its brand into products from bottled Frappuccino drinks to ice cream. Allied Domecq, which appears to have reversed sales declines for Kahlua, enjoys the advantage of having a product already familiar with consumers and bartenders.

Countering that will take money and time. Tom Pirko, president of BevMark, gives the advantage to Kahlua. "It's an uphill battle," he said. "You wonder if Starbucks can knock off a brand that in the consumer's mind is the definition of coffee liqueur." Kahlua sold 1.3 million cases in 2003, according to industry newsletter Impact.

good response

But industry consultant Arthur Shapiro expects Starbucks to be successful. Consumers are "looking for more ... excitement and news in that category," he said.

Starbucks and Jim Beam, a unit of Fortune Brands, announced in April they were teaming up to launch a cordial that later went into test in Denver and Austin, Texas. Norman Wesley, CEO of Fortune, announced an early 2005 rollout during an analyst call last month, though both companies declined to make further comment.

During the earnings call, Mr. Wesley said consumer response in the test markets was excellent. "The product appealed to a broad range of consumers and demonstrated potential to expand the category."

Dean Wiseman, a sales associate at Austin distributor Twin Liquor, concurred. Twin Liquor handles about 60% of the bars and clubs in Austin. "It's doing real well," he said, noting that bars and clubs are reordering it-the big test for a new brand. He said the brand moves about four cases a week, good for a new brand. Still, Kahlua sells six to eight cases and hasn't been slowed by Starbucks.

Jim Beam and Starbucks haven't disclosed marketing plans, but observers expect they will use print and cable TV to support the brand-as does Kahlua.

Omnicom Group's BBDO, Chicago, will handle advertising and Ketchum, Chicago handles public relations.

Kahlua, meanwhile, saw sales decline by 1.5% in 2003 coming off a 5.7% drop in 2002 and a 3.4% drop in 2001, according to Impact. But AC- Nielsen numbers show the brand up 4.4% for the 52 weeks ended Sept. 25.

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