A Smart Strategy for Starbucks

Retailers and restaurateurs tend toward one of two choices when recession strikes:

  1. Lower prices to maintain traffic and move product.
  2. Become different enough to warrant a fair price premium.

Starbucks (Nasdaq: SBUX  ) appears to be opting for the latter. The coffeehouse made famous by thick, sugary, caffeinated drinks and not-terribly-healthy baked goods is asking patrons whether they'd buy gluten-free snacks if offered the choice.

"After enjoying our tasty holiday treats, we are ready to jump into the New Year, full of fresh ideas. One popular idea is for Starbucks to offer more gluten-free options," reads a post at the company's Ideas in Action blog. "We've started doing some operational testing in a select number of our stores and the baristas & customers who participated were psyched about the idea. One barista shared, 'Out of all the tests we've done, this one feels like we're doing the most for the customer!'"

Probably true, to judge by the more than 400 responses to the post. Most were unwaveringly positive. "This is wonderful news! I am a Starbucks coffee junkie! I also have celiac disease," wrote a respondent nicknamed Ursi. (Gluten can cause serious health problems for those with celiac disease.)

This poster is not alone. Researchers at the University of Chicago's Celiac Disease Center estimate that 1% of the population is afflicted, and that 12 million Americans suffer from symptomatically similar but genetically different food allergies. I can testify to that; my eldest child suffers from allergies and celiac.

And it affects the way my wife shops at Starbucks. "It would be such a treat to stop by to grab a coffee for myself and get a cookie or something like it for him," she wrote in response to the post.

There's more than goodwill at work here. (Although Starbucks could use some PR help about now.) Gluten-free foods are growing in popularity, to the point where Whole Foods Market (Nasdaq: WFMI  ) is no longer the only option. Kroger (NYSE: KR  ) has a gluten-free guide at its corporate website, and Safeway (NYSE: SWY  ) gets high marks from advice-givers at the Celiac.com discussion boards, for example.

Billions are at stake. MarketResearch.com says the gluten-free food and beverage market is growing by 25% annually and will be worth $1.7 billion next year. If those estimates are even close to correct, Starbucks is smart to act before Peet's (Nasdaq: PEET  ) and Caribou Coffee do.

And if they're not? So be it. Once a hyperactive highflier, today's Starbucks is like me before my morning jolt of caffeine -- half-asleep, unable to move much. A gluten-free menu could be the shot of espresso this business needs.

Take a taste of related Foolishness:

Starbucks and Whole Foods are Motley Fool Stock Advisor selections. Starbucks is also an Inside Value pick. Try either of these Foolish services free for 30 days. There's no obligation to subscribe.

Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool owns shares of Starbucks and is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is a sipper, not a drinker.


Read/Post Comments (4) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 28, 2009, at 6:49 AM, shakingmyhead wrote:

    How wonderful for Starbucks! But, if you are avoiding any foods due to allergies or sensativities, you may want to read this other article to see how Starbucks treats you and your health concerns after an incident.

    "The Canadian Food Inspection Agency is investigating Starbucks' labelling practices, after a young woman ate a parfait from a Coquitlam, B.C., outlet and almost died. "

    and

    "...Fraser Health Authority, which launched an investigation. Records show environmental health officer James Wong inspected the Starbucks and asked for a copy of the incident report the shop had on file.

    Wong's notes indicate the restaurant manager spoke to someone at Starbucks' Seattle head office and was told not to release company information. Under B.C. law, licensed food outlets are required to hand over any relevant documents health inspectors ask for.

    "Manager … became tentative and evasive after speaking over the phone to someone at the customer service desk in Seattle," Wong wrote.

    He then wrote a letter, citing the law and demanding the report, which Starbucks eventually produced. That incident report, signed by the manager and sent to Seattle, reads, "Customer came in and bought parfait and had an allergic reaction to nuts … we don't know any of the details." "

    http://www.cbc.ca/consumer/story/2009/01/26/bc-starbucksalle...

    Oh yeah, they offered her a coffee card for the inconvenience. Yeah, that's great...

  • Report this Comment On January 28, 2009, at 12:29 PM, mberan wrote:

    So how many of the additional 1,000 people that they're letting go are gluten free? They won't be able to afford anything. Starbucks, still over roasted, over priced, and over hyped.

  • Report this Comment On January 31, 2009, at 9:35 PM, kendallrempe wrote:

    I have celiac disease also, just diagnosed 2 yrs ago. I have been a big Starbucks fan and go there w/ the whole family of 5. However, I haven't gone as much w/ the whole family in the past 2 yrs b/c I can't get anything to eat. I'll go by myself for just the coffee. But it is too tempting to see my kids eat all those gluten loaded pastries, while I just sit there. So my husband takes them now. That would be great if they offered a gluten-free alternative (other than fruit).

  • Report this Comment On February 03, 2009, at 11:02 AM, Computerjockey wrote:

    I don’t expect the usual S’bucks monkeys/idiots/cone_heads to be able to properly separate or handle the GF stuff.

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