http://www.reuters.com/article/idUSN0319853720100804

LOS ANGELES, Aug 4 (Reuters Life!) - Starbucks Corp will begin testing summer drinks with a base of green, unroasted coffee on Wednesday as it works on new products to drive sales and differentiate itself from rivals like McDonald's Corp (MCD.N).

The drinks, called "Refreshers," will be sold at 113 company-operated cafes around San Diego, California, and priced from $2.50 to $2.95. Starbucks' vice president of global beverage Julie Felss Masino said they are made of fruit and low in calories and caffeine.

Ingredients include a "flavor neutral" powdered extract made from unroasted green coffee and formulated to have less of a caffeine kick than regular coffee, she said.

"It's coffee that doesn't taste like coffee," she said.

Investors watch new product launches from high-profile companies like Starbucks because they can open up new sales opportunities. Starbucks invented the Frappuccino blended beverage and turned it into a $2 billion annual business,

Starbucks has been focusing on new drinks after a massive restructuring that closed roughly 900 cafes globally. (Reporting by Lisa Baertlein)

Starbucks is stooping to new lows.

Death throes are never pretty. *$s has nowhere to go; McDs, Dunkin, and all the other fast food places are moving into their market niche from below, and all the 3rd wave cafes from above.

Oh yummy! Does it taste like chicken? Maybe I'll go get some pizza that doesn't taste like pizza.

another_jim wrote:Death throes are never pretty. *$s has nowhere to go; McDs, Dunkin, and all the other fast food places are moving into their market niche from below, and all the 3rd wave cafes from above.

If I were Starbucks, I'd fear the encroachment "from below," but from "3rd Wave Cafes"?

I think NOT.

ken

The number of 3rd wave cafes is growing exponentially; admittedly from a tiny base number, but fast enough to become significant in five years or so. Moreover, the existing cafes that survived the past Starbucks onslaught all have improved quality. So despite Schultz's semi-public email jeremiads, it will be very tough for them to open places or change existing ones to have real espresso machines and better, fresher coffee.

They have opened one trial cafe in Seattle, not under the Starbucks name, that also serves wine and beer. I have a press clipping alert on it and have heard nothing further so far. It'll be interesting to see how it does, and how much they have riding on it.

My feeling is that their market niche is now between a rock and a hard place

People go to Starbucks for a lot of different reasons but hardly any of them have to do with the quality of the coffee or espresso drinks produced (although they might say something different). The fact that better cafes make better beverages than they did before is irrelevant, except maybe at the margins. It is all about appearances, buzz, ambiance, and the fact that they are ubiquitous. Like many other people here, I have been to cities with fine cafes within a stones throw of a Starbucks, or as is often the case, several Starbucks. Those Starbucks locations are often completely full of seemingly satisfied customers.

"Third Wave" espresso chains are like a gnat on Starbucks' nose; perhaps a petty annoyance but nothing more. They will remain so. Most people have no taste in coffee and even if you serve them something better and even if they acknowledge that it is better, you will see most of them back in the line at the Starbucks a day or a week later.

On the other hand, the fast food chains, especially if they price their drinks enough below the comparable item prices at Starbucks, are a real threat. These chains are as ubiquitous as Starbucks, can serve similar tasting plonk easily, share many of the same customers anyway, and in a bad economy will get customers on the basis of convenience and cost.

ken

Sadly, I'm with Ken on this one.

Much of it is about availability, convenience, and consistency. Just last week I was in Salt Lake City at a trade show. There was a Starbucks in the lobby of my hotel. So instead of getting in the car and driving halfway across the city to a 3rd wave cafe that might have better coffee (depending on which barista was on duty), I just popped down to the lobby and got a straight shot and a skim latte. Although I had to choke them down, I knew exactly what to expect and they were much better than the coffee in the Concierge Floor lounge, which had no-doubt been sitting there for hours.

Starbucks made its mark by offering a variety of creative and fun coffee/tea drinks that are a heck of a lot better than the dreck you find in most hotels, restaurants and offices. They perfected cookie-cutter processes to make sure their drinks are the same wherever they're served, and they provided thousands of locations for easy access.

But American consumers don't go to Starbucks for the taste of good coffee. They go for the quick, convenient coffee/milk-flavored sugar and caffeine high/jolt. Like all fast-food chain products, it's consistent, dependable and available everywhere. You can get roughly the same drink at any of thousands of locations around the world. If you drink Grande Hazlenut Lattes in your homeown you can be sure that you can get one at an airport halfway across the globe and it'll taste just about the same.

McDonalds and many others have made fortunes from our national insistance that everything must be predictable, even if it means sacrificing quality for "good enough". That's what makes Starbucks particularly vulnerable to McDonalds and Dunkin' Donuts. Those chains have vast and long experience in catering to America's obsession for consistent mediocrity, and they know how to do it faster and at lower cost. And they have a lot more locations. They also have drive-up windows so you don't even have to get your fat *ss out of the car. The quality may be a smidge below Starbucks, but that'll be OK as long as it's hot and a little cheaper. Starbucks may live and die by the superautomatic.

Yeah, Starbucks will probably retain the upscale crowd that wouldn't be caught dead at a fast-food joint but doesn't understand fine coffee either. They have the advantage of somewhat better quality coffee (though usually stale and always badly roasted), a large variety of drinks, decent baked goods and other munchies, and a comfortable atmosphere for those who want to sit at a table and surf the web.

But I wouldn't buy any Starbucks stock right now.

The 3rd wave may continue to grow in popularity, but it's unlikely to make a dent in the business of any of the chains, even Starbucks.

If you ever asked Ray Kroc (McDonald's mastermind) what business he was in, he would have told you that he was in the real estate business. It was never about building a better burger, rather producing a consistent result with quick turnaround. Once enough people knew what they could expect walking into a McDonald's (or via the drive-thru), all that was left was finding the best location to encourage maximum traffic.

Charbucks' strategy was much the same, but they also were well aware that many locations would be money losers. They are mainly concerned with branding their name, and in the future, you will see that the vast majority of revenue made under the name Starbucks will be in the coffee aisle of the grocery store.

I don't know how well Starbucks is doing in supermarkets, hotels, suburbs and small towns. I do know how it is faring in Chicago and other big towns: since about 2006, they are getting creamed.

In 1993, Starbucks opened about 20 to 30 places in Chicago, and about 100 to 200 small cafes went deservedly bankrupt that year, since they were awful in both ambiance and drink quality. In the later 90s and early 20s, the number of Starbucks tripled, but the number of independents that went out of business slowed, stopped, and then reversed. Right now, there is a Starbucks at every second to third corner of every commercial street; but they are all bracketed by other cafes and fast food places, and the locals mostly prefer these. The Starbucks get mostly out-of-town or out-of-neighborhood customers who don't know or trust the local cafes.

Even this limited audience is being attacked in two ways. First, local cafes are putting out "we serve Intellligentsia," or Metropolis, or even Illy and Lavazza signs. Second, internet's local pages serve up customer reviews of every establishment, so that anyone with a smartphone can get the skinny on any place they see instantly. That unknown local cafe next to the Starbucks is now instantly knowable.

For customers, the downsides and risks of not knowing a place are decreasing rapidly, and this spells trouble for Starbucks and all other chains that compete on brand rather than price. As specific local information becomes more and more instantly available to non-locals; the competitive advantage of branding diminishes and disappears. Chain stores have to be cheaper, not just equipped with a well-known logo, to have an advantage.

The changeover is happening rapidly in cities, where I see less and less brands, and more and more local business. In the suburbs and exurbs, the shopping malls and strips still look like advertising pages out of old magazines. But just like old magazines, all these brand-centric retail colonies will die out. And Starbucks along with them.

Fame just isn't what it used to be.

Peppersass wrote:Much of it is about availability, convenience, and consistency. Just last week I was in Salt Lake City at a trade show. There was a Starbucks in the lobby of my hotel. So instead of getting in the car and driving halfway across the city to a 3rd wave cafe that might have better coffee (depending on which barista was on duty), I just popped down to the lobby and got a straight shot and a skim latte. Although I had to choke them down, I knew exactly what to expect and they were much better than the coffee in the Concierge Floor lounge, which had no-doubt been sitting there for hours.

Wow, so you stayed at the Sheraton on 400 South or the Marrirott on 200 South and ordered a super-auto shot and latte "choked them down" instead of heading just a few blocks down the road to three of Salt Lake's best coffee shops? One nice thing about SL,UT is that within a few blocks you can have some of the best espresso the city has to offer, it may not be perfect but it beats *$s. You could have walked down Fourth South to about 250 East just north of our award winning library and gone to the shop below Stoneground restaurant where the proprietor and his wife roast and serve a selection of single origins, or to Third south and about Third East next to the palm tree rental shop for some Gen-X, Linea-brewed Intelligentsia, or for a nice morning stroll to 1040 East and 200 South where you could have had what my kids think is the best iced mochas in town, brewed with PT's.

I'm sure the SL,UT members of this forum will add their comments, but man, you missed out. All the way from NH to hang with the Outdoor Retailers and you passed up on some good coffee. True, we are bulging at the seams with Mormons but Utah makes some pretty great beer and coffee along with the snow that comes wintertime.