Earlier this week, Starbucks officially launched VIA Ready-Brew, the company’s first-ever instant coffee product.Like many people, I am concerned about the brand dilution impact of this move. When I see Howard Schultz saying that “the majority won’t be able to taste the difference”, I think that says more about the poor quality of Starbucks’ regular coffee, as opposed to the great quality of their new instant brew.
That said, I think this is a very smart adjacency move by Starbucks. After years of amazing top-line growth, Starbucks' strategy of building new storefronts has not been effective in recent years. Expanding into instant coffee gives Starbucks access to a $21 billion market, without cannibalizing in-store sales (although some cannibalization will occur to their packaged coffee products).
Also worth noting, the instant coffee market has been ripe for innovation. Although I have not followed instant coffee with any sort of consistency, the last major instant coffee innovation that comes to mind is the Folgers plastic canister. Starbucks, with its focus on customer experience and heavy investment in coffee R&D, is bringing a bold innovation in a category that has lacked big news for quite some time.
Although the current economic environment seems to be odd timing for launching a new, mass-premium product, Starbucks is doing a great job of leveraging its core capabilities and applying them in a relevant market. The innovation logic of Starbucks VIA makes sense; in the coming months, we'll see if instant coffee drinkers think it makes sense to pay a lot more for presumably better instant coffee.
5 comments:
While I agree this may be good for the instant coffee market, which is definitely ripe for innovation, is this really good for Starbucks? I mean, can't you see this as "jumping the shark." It's a good move but not sure if it is for them. To me, it sort of cheapens the brand.
I've had faith in Starbucks in recent months. I believe the launch of their test store, 15th Ave Coffee and Tea (http://www.streetlevelcoffee.com/), was the right move. Trying to bring back the "local" feel is a shout out to the past. Opponents say that it's competing with the other local shops but isn't that how Starbucks started on Pike?
This topic resonates with me since I was in Seattle last month and had a chance to visit the test store. It felt local and, without the "inspired by Starbucks," I would have thought it was just another great coffee shop in Capitol Hill.
Hi Daniel,
Yes, as I state earlier in the blog post, I am very concerned about the brand dilution impacts, which is another way of saying "cheapens the brand".
Keep in mind, however, that Starbucks has already been stretching its brand for years. Some of the adjacency moves they have made to date include coffee ice cream, coffee liquor, and bagged coffee in retail. One might argue that teaming up with Pepsi on a bottled Frappuccino was jumping the shark, but it's been a great success.
As long as the core is coffee, they have generally been successful.
I do think that the 15th Ave Coffee and Tea move is an interesting one. As consumer companies grow, many build new sub-brands for premium and value-based offerings. Gap's experience with Banana Republic and Old Navy suggest that managing a "house of brands" in retail can be a winning formula but also very difficult to sustain.
Gordon
Gordon – I am aware of the term brand dilution and it must have been an oversight on my part.
I like that you see 15th Ave as an "interesting" new venture. We shall see how this plays out. Capitol Hill residents are definitely unhappy about it.
DL
Hmmm. It's SO easy to make coffee these days. Instant is just about as fast as regular. And if the taste is bad- or, not *Starbucks* quality... I don't see it as being workable.
> I believe this move on Starbucks was an effort to capture the less money-ied group. Closing locations perhaps sparking a what-should-we-do reaction? Or am I getting this confused with Blockbuster?
> For instance, the NFL team who fails to have an 80% stadium capacity, their game will not be aired. What about areas more economically harder hit, like Detroit? Who's ever going to see those Lions again?
> Look at the new Cowboy stadium that holds a ridiculous number of people. Even the Cowboys and their shiny new stadium might be in jeapordy. Can Jerry fill it to a certain 80%?
I'll be at the stadium on Oct. 19th for a Chamber of Commerce luncheon- should be interesting. (My businesses are in the Chamber.)
> I always had instant coffee when I visited my dad. Never any other time.
Interesting post. We shall see in the coming months how this plays out.
Hi Entrepreneur Chick,
It will be interesting to see if people think the new VIA instant coffee is Starbucks quality. To prove that VIA is just as good, Starbucks has been running a "VIA Ready-Brew Challenge" over the past several days. Go to any Starbucks, try a VIA, and get a coupon for a free tall brewed coffee for free!
Starbucks is definitely looking for new avenues to growth. Chasing a new target customer and a new industry (instant coffee) appear to be core to their strategy.
You're going to the new Cowboys stadium...that sounds really great! As for filling the new stadium...Tony Romo needs to stop turning the ball over if Jerry wants people to watch!
Gordon
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