Starbucks Knows How You Like Your Coffee

By Sarah Whitten

Starbucks fans, your favorite coffee shop has been taking notes.

Using consumer data, the coffee chain designed its new line of products to complement the habits it gleaned from its own stores. Basically, the company says it talked to its baristas about how customers ordered coffee, lattes and tea while in Starbucks locations and culled several industry reports about at-home consumption. It used that data to create K-Cups and bottled beverages to sell in grocery stores.

The company touted the new grocery line at a marketing event in Manhattan last week, where baristas shared stats as they poured samples.

For instance, some 43 percent of the tea-drinking customers skip the sugar, according to the company, which cites a 2015 report conducted by consumer research firm Mintel. Some 25 percent of consumers don’t add milk to their iced coffee when drinking the beverage at home, Starbucks says, citing another industry report.

To cater to those palates, Starbucks created two unsweetened ice tea K-Cups — Mango Green Iced Tea and Peachy Black Tea — and recently launched unsweetened and sweetened black iced coffee without milk or added flavors.

“It’s a way for [Starbucks] to expand a brand that’s already owning retail and bring it into consumer’s homes,” Tammy Katz, CEO and founder of Katz Marketing Solutions, told CNBC. “So, they can almost double consumption because consumers are going to want to drink it when they go to the actual Starbucks locations and now they have the freedom to drink it at home.”

Katz noted that Starbucks is tapping into a “mega trend” by offering this type of customization in its products.

The first customized items are rolling out to grocers now, and additional tailored products will land seasonally.

Starbucks’ golden goose is, perhaps, its fall-slated launch of several Pumpkin Spice flavored grocery products. The popular Pumpkin Spice Latte, which first hit stores in 2003, has driven immense foot traffic in Starbucks shops during the autumn months.

This fall, Starbucks will offer Pumpkin Spice Caffe Latte K-Cups, Instant Pumpkin Spice Latte packets, bottled Pumpkin Spice Frappuccinos and bottled Iced Espresso with pumpkin spice flavoring.

These menu enhancements and grocery store product launches are more than just providing customers with their favorite products, Katz said — it’s about getting its consumers to avoid other coffee brands while at home.

“It’s a market-share grab that will be wildly successful,” Katz said. “It will steal from Procter & Gamble and Smuckers, because they have much more power in the grocery channel…So, watch out Folgers.”

“It’s smart marketing,” Ken Harris, managing partner at Cadent Consulting Group, told CNBC. “Anytime you can get closer to what your consumer wants by your product offering and do it in a way that’s appealing to them through the uses that they will have in a particular occasion, is smart.”

He doesn’t think that Starbucks’ continued move into grocery products will detract from its coffee shop sales. Customers will continue to go to the store to buy specialty drinks that would be difficult to make at home. However, he warns that the company should take care not to overwhelm consumers with too many options.

Starbucks’ core coffee shop business on Tuesday got a thumbs up from an Evercore research note that said Starbucks is an attractive asset for investors because of its consistency of store growth, customer loyalty and demand.

“Despite being an established restaurant concept, we do not believe there is anything quite like Starbucks in the large-cap restaurant space,” Evercore said in a research statement, “[Starbucks] can grow its revenues and EPS at an annual rate of 10 percent and 17 percent, respectively, through 2020. Domestically, SBUX has laid the framework with technology and menu enhancements to enable several years of outsized growth.”

Read More at: CNBC

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