Wall Street Journal
March 16, 1999
Starbucks, a Grand Master of Coffee,By RICHARD GIBSON
Finds Food Can Be Harder to Brew
Staff Reporter of THE WALL STREET JOURNAL
Starbucks Corp., the company that got America to spend $2 for a cup of coffee, is moving on to sandwiches, salads -- even macaroni and cheese -- in an effort to turn its caffeinated brand name into a round-the-clock "lifestyle."
Starbucks is testing a $5.50 tuna sandwich and other pricey lunch items in a line of "grab-and-go" items at its coffee shops in Washington, D.C., and its hometown of Seattle. The company is cooking breakfast, lunch and dinner at "Cafe Starbucks," Seattle restaurants with liquor licenses and table service.
Meanwhile, in San Francisco, Starbucks is serving up chocolate tortes and $7 liquor-laced lattes at a trendy coffeehouse called Circadia. And it has agreed to buy Pasqua Coffee, a San Francisco coffee-and-sandwich chain that prepares food for its 56 California and New York coffee bars in two bakeries and three commissaries.
Food represents the next step in what Starbucks says is its mission to build a global brand as powerful as Coca-Cola. It also is a way for the company to feed investors accustomed to a diet of fast growth. Since its initial public stock offering in 1992, the value of Starbucks' shares has increased nearly 12-fold.
Now, if only Starbucks could make food that tastes as good as its coffee does. Quality is already an issue with the morning pastries it sells in the coffee bars. "It's their Achilles' heel," says Allan Hickok, an analyst at U.S. Bancorp Piper Jaffray.
Outside vendors supply Starbucks shops with their baked goods, often delivering them in the middle of the night. As a result, the muffins and pastries don't always approach the freshness of baked goods sold at Dunkin' Donuts, Cinnabon and others that bake in stores.
Looking to Upgrade
Starbucks says it recognizes the pastry quality is a problem and is working to upgrade offerings in several Northeastern markets. But clinging to the view that food odors could compromise its venerable coffee beans, Starbucks says it wouldn't dream of installing kitchens in the coffee bars.
"We're never going to cook anything in an existing Starbucks -- never," declares Howard Schultz, founder of the modern Starbucks chain and its exacting chairman and chief executive.
One result is that Starbucks is finding it hard to sell sandwiches that meet its customers' quality expectations. Among the grab-and-go fare Starbucks is testing in Seattle and Washington are a $5.50 grilled-chicken Caesar salad and a $4.75 Greek pasta salad, and sandwiches for $5.25 or more, including turkey and provolone, roasted vegetables and mozzarella, and ham and Swiss.
In Seattle, in a recent sampling of the $5.50 tuna-and-cheddar sandwich, it turned out to be a lone piece of wilted lettuce compressed with a tuna patty, which peeled off the dry bread but stuck to a thin triangle of cheese.
Starbucks' Mr. Schultz says he is quite aware of the glitches that the company's food experiments are meeting. In Washington, he says, the sandwich test has gone "phenomenally well" and "exceeded expectations." In the end, he vows, whatever food Starbucks serves will match its coffee -- be "best of class," as he puts it.
Company executives are cagey about exactly how high their food ambitions run. If the Seattle and Washington sandwich tests go well, Starbucks says, it will put the items into eight more markets this year.
Lots of Visitors
One thing is clear: If Starbucks can develop a viable food menu for its 2,000 coffee bars, it is in a position to become an instant force in fast food. Starbucks claims it serves eight million customers a week, who typically make 18 visits a month to its coffee shops -- making it "the most frequently visited retailer in America," according to Mr. Schultz.
Hambrecht & Quist restaurant analyst Bonnie Kramer Tonneson says food "will be critical" for sales growth at stores open at least a year. Starbucks' morning customers leave an average of $3.40 on the counter for their java fix, which may include a pastry. Starbucks figures customers could easily spend twice that amount at lunch. Forty percent of the typical Starbucks sales occur before 11 a.m. Food accounts for just 14% of the company's annual revenue of $1.4 billion.
Cafe Starbucks, which the company is testing in three Seattle locations, has kitchens and seat from 30 to 80 people at tables with waiters. These cafes serve three meals a day, including dessert and, at two of them, liquor-piked coffee drinks. Early reviews haven't been kind. "Fish out of water," Fred Brack, a local Internet reviewer with seattle.sidewalk.com, commented.
Over a recent three-day period, repeated visits to the cafes found that the food is uneven, the orders are sometimes slow and the help is earnest but apologetic. The most promising meal was breakfast, which features a bottomless cup of coffee and some inventive egg dishes, including a tasty Wild Mushroom Scramble for $6.95.
At dinner, portions were substantial, but the food was disappointing or worse. At one cafe, beef stew was meatless. The meatloaf and accompanying roasted vegetables were heavily peppered, and the linguini marinara could have come from a can. The cafes charge as much as $8.50 for chicken pot pie and $7.95 for old-fashioned meatloaf with garlic mashed potatoes and oven-roasted vegetables.
Where's the Milkshake?
In the spring, new menu items will include roast beef marinated in stout for $12.95 and baked macaroni with cheese for $9.95. At the company's newest cafe, in West Seattle, salads took 23 minutes to arrive. A milkshake never did. Afterward, the waiters blamed the menu, saying that the lone chef was strained cooking everything from pancakes to chicken pot pie.
Mr. Schultz says the cafes are catching on as affordable places to bring a family for dinner: Customer counts and sales per hour are rising. Still, he acknowledges mistakes. "I am intimately aware of the pros and cons of what we are trying to do, the mistakes that we're making," he says, adding, "I am very proud of the courage we're showing."
He continues, "You can't compare this to a white-tablecloth restaurant." And he admits, "We don't know what we have yet, and we certainly don't know what we're going to do with it." Still, some patterns are evident. The cafes' desserts and coffee-flavored after-dinner drinks are hits, indicating that after-dinner fare, including alcohol, may be one direction in which the experimenting will take Starbucks.
"We never assumed that food would be the only answer," says John Richards, Starbucks' North American president. "We always looked at food as a companion to a more elaborate and more extended beverage business, because beverages in various forms are really where the money is."
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