Business

The Future Of Starbucks Is Slower And More Expensive

Are we approaching Peak Coffee? As everyone from the gas station to the burger joint rush to improve their coffee game, Starbucks is aiming for a new kind of market.

Barbara Kinney / Via Starbucks.com

There was a time when “latte-drinking” was a dismissive synonym for an out-of-touch urban elite, when Starbucks was virtually alone among the fast food giants in obsessing over new espresso-based inventions.

Those times are long gone. Now, latte culture is so mainstream that Starbucks gets dragged into the culture wars for insufficiently Christian-themed Christmas cups, McDonald’s has a $4 billion a year coffee business, and Dunkin’ Donuts is launching a macchiato. Everyone wants a piece of the coffee business now — and Starbucks needs to think hard about how to preserve its position as king of the mountain.

The question is an urgent one, because as competitors get better at making passably-good espresso drinks, Starbucks, while still growing, has missed its US sales targets for several quarters in a row. As the coffee wars heat up, some customers think Starbucks has lost its luster — and some of its own employees say its standards are slipping.

Starbucks thinks the answer to all this is a concept called “Reserve,” the brand name for what will essentially be a fancier version of Starbucks.

At Reserve cafes, customers will be prodded to experience all the minutiae about roasting, brewing, and sipping coffee. At its high-end, a 12 oz. cup of siphon-brewed Reserve coffee costs $10, and can take ten minutes to brew. It’s a pricey, mellowed out alternative to coffee as just another kind of fast food: the mundane experience of ordering latte at the drive-thru and leaving as quickly as possible.

The Reserve brand will appear in the wild in three ways. There will be large Reserve Roasteries, high-end cafes with coffee beans being roasted on site. There will be Reserve stores, which will have their own logo and won’t brew regular Starbucks coffee. And there will be Reserve bars that will be built inside existing Starbucks locations.

For most of us, those Reserve bars will be the most visible part of the new brand, with Starbucks planning to put them in 20% of its cafes in the next five years.

A Reserve bar at an LA Starbucks Matt Glac / Via Starbucks

I visited one of the new Reserve bars in a New York Starbucks. The cheapest options were pour-over coffee and coffee brewed using Starbucks’ Clover machine, both $2.95. But taking a recommendation from the cashier (you order Reserve drinks at the regular counter with all the other customers) I opted for a latte with Nicaragua La Roca beans.

“Is it more expensive than a regular latte?” I asked. “Yes, but only by like $0.50,” he replied. The order went through, and I headed a few feet over to the Reserve bar, a counter with stools facing the prep area so you could sit and watch your drink being made. The barista called my name, and handed over my latte in a disposable, black Reserve cup. He didn’t initiate a conversation about the coffee, which was fine, because the reality was I didn’t really have time anyway.

Did it taste better than a regular latte? I believe it did, but, I was thinking a lot harder about it than I normally ever would. The whole transaction, it felt like a normal Starbucks experience, but 20% nicer.

Nicer and more expensive sits nicely with Wall Street. “We are optimistic on [Starbucks’] premiumization strategy to continue to build a moat around the brand,” wrote analysts at Cowen and Company, “as well as potential learnings to be derived for core retail stores.”

Reserve launched in 2010 as a line of single-origin coffee beans sold by Starbucks. But in the ever escalating coffee wars, offering a higher-end bean is nothing special. The company’s solution was to rethink its retail experience, which would be harder to replicate, especially at the scale Starbucks operates at.

It’s a huge task, and will be led by the man who ran Starbucks as it defined the first wave of the global espresso craze. Starbucks chief Howard Schultz, who first took the top job at the company three decades ago, will focus exclusively on the Reserve brand after he steps down as CEO next year.

The first Reserve Roastery opened in Seattle in late 2014, and it’s a theatrical coffee-themed playland where expensive single-origin beans get roasted, rocketed through tubes along the ceiling into displays cases, and brewed using methods that lack the speed and convenience of a good old auto-drip coffeemaker, but pack a lot more romance.

The Starbucks Reserve Roastery and Tasting Room in Seattle Jason Redmond / Reuters

Baristas are trained to tell customers all about their cup of coffee, if they want. It’s a service that has Schultz’s fingerprints all over it — in the past, the CEO has encouraged his baristas to talk to customers about everything from their drinks to politics. All this entertainment costs more too. “The coffee is priced closer to cocktails,” one reviewer wrote on Yelp.

It’s is very much the corporate response to the obsession with artisanal products that has penetrated so many aspects of our lives. People say they want to know more about what they’re eating, and to eat things that were made with care, and the world of coffee has become overrun with cafes and chains that treat the product like a combination of fine wine, gourmet food and sacred ritual. Starbucks is playing catchup, but doing it on a scale no other coffee business can approach.

Starbucks plans to open about 20 Reserve Roasteries, in major cities across the country. One tier down from the Reserve Roasteries will be dedicated Reserve cafes, and Starbucks plans to open 1,000 of them. Then there’s the Reserve bars inside Starbucks stores: the company plans to open 4,800 of them by 2021.

Is this what coffee drinkers want? Starbucks says it is encouraged by the results so far, calling the Seattle Roastery “the most successful store opening in the company’s history.”






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Venessa Wong is a business reporter for BuzzFeed News and is based in New York. Wong covers the food industry.
Contact Venessa Wong at venessa.wong@buzzfeed.com.
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