Starbucks’ Addition of Booze Is a Snooze

With 18,000 stores tapping out as much coffee real estate as reasonably
possible, Starbucks (NASDAQ: SBUX ) has decided to grow its top line at least
for some of its stores by widening its menu in a major way. Soon, at a couple
dozen locations in Atlanta and Southern California, Starbucks will be offering
coffee, scones and brewskis? Yes, the world's biggest chain of coffee houses
has tiptoed further into the world of beer and wine (the company already is
testing booze sales in the Pacific Northwest), looking to get more
round-the-clock revenue flowing from its admittedly-enviable real estate. The
initial reactions from consumers (not to mention investors) have been strong,
though hardly uniform. In fact, we've really only seen two basic responses,
and they're at extreme opposite ends of the spectrum people either love it or
hate it. Fair enough. But would it be OK if my response was a mere Whatever? The
Upside OK, I get the basic premise behind the decision. Starbucks has been
collecting some of the world's best retail real estate for three decades. Hot,
overpriced coffee isn't in hot demand 18 hours per day, though, so the
company's not getting the maximum bang out of its square footage. And now that
the coffeehouse sells every known variety, size, shape and flavor of coffee
conceivable to man, the natural progression is expanding the menu in a big way.
Booze is a good choice, all things considered. Coffee tends to be a morning
ritual, and Starbucks has managed to extend acceptable coffee-drinking hours
well past lunch. It's a tough sell in many locales late at night, though. Not
everybody wants to be highly caffeinated before bedtime, and a beer is more apt
to be relaxing when the sun goes down. And the profit margins for spirits are as
ridiculously high as they are for coffee in the 70% range. Moreover, at a
proposed price point of $5 and higher a pop, beer and wine at Starbucks dont
present profitability questions. The key here, however, is that the company is
gunning for a crowd it hadn't been attracting before. Starbucks has
acknowledged it expects the maneuver to attract higher-end customers a segment
that's becoming increasingly valuable while the weak economy continues to
crimp the middle class and its purchases of $4 lattes. The Downside Starbucks
didn't grow from one store in 1971 to more than 18,000 now on accident. These
guys have made savvy decisions most of the time over the course of a phenomenal
expansion. It doesn't mean every idea is infallible, though, and the
transition from just coffee to beer and wine too won't likely be as easy as
the company assumes. See, high-end beer fans tend to be as rabid about how and
where they get their beer as high-end coffee fans are about how and where they
get their java. Starbucks has spent millions of dollars and several years
refining its image and clientele base. In successfully doing so, however, it
also has become a locale that, by design, might have alienated a beer-drinking
crowd. There's just something about the ambiance that doesn't work maybe
it's too many soccer moms and too many laptops around. As such, adding beer
and wine to the menu might cause another alienation, pitting both of the
company's target markets against one another. Color Me Disinterested To be
fair, not every Starbucks is going to be offering beer and wine. In fact, the
vast majority of them won't a critical detail missing from most of the
opines. Only a few stores in the United States are slated for alcohol sales in
2012 about 0.12% of the company's locales, to be precise. And those stores
have been hand-selected specifically because they were ideal fits for that
difficult transition to beer and wine. Bluntly, I'm surprised the media has
cared as much as it has. Yes, this small experiment could be the model for all
its locales in the future. That's a very distant future, though, and hardly an
undertaking the company seems interested in making part of its typical fare
anytime soon. Investors worrying about the impact now good or bad might find
this expanded menu isn't going to matter either way anytime soon. Pick and
choose your battles. This isn't a game-changer. As of this writing, James
Brumley did not hold a position in any of the aforementioned stocks.