Can Starbucks Sell Good Booze as Well as Good Coffee?

Starbucks is jumping into the world of wine, but there are plenty of challenges ahead, even for a strong business.

Apr 3, 2014 at 6:00PM

Everyone is talking about the new Starbucks (NASDAQ:SBUX) plan to sell wine in some of its locations, but very few people are talking about how long this plan has been in place. In October 2010, Starbucks reopened one of its Seattle locations, adding wine and beer to the menu. In its announcement, Starbucks said that the coffee alternatives were supposed to give customers another way to enjoy Starbucks in the afternoon and after work.

It's the same rhetoric that came out recently, with Chief Operating Officer Troy Alstead telling Bloomberg that the new offerings have brought in an evening crowd in the markets where it's been tested. Right now, those markets include Seattle, Chicago, Atlanta, and Southern California. For Starbucks, the question is whether the program makes sense on a national scale.

Challenges to selling booze at Starbucks
The benefits from solid alcohol sales are clear -- higher average tickets, more customers, and a steadier flow of business throughout the day. The drawbacks revolve around the difficulty of selling a legally restricted product.

As a baseline, your employees have to be a certain age to serve alcohol. In most states, the legal age for serving alcohol is 18, but some bump that age up to 19 or even 21. That changes the way that stores hire and staff their locations, at a minimum.

On top of the server requirements, Starbucks will now have to maintain liquor licenses in locations that serve alcohol and will be subject to legal obligations to card customers. Since the businesses serve coffee, it's likely that many locations will have a mix of underage and legal drinkers on any given night, making policing patrons that much more difficult.

The payoff for Starbucks
Balancing risk and reward is something that Starbucks has excelled at for years. While taking on the risks of alcohol service may seem daunting, if that old dude who runs Joe's Bar & Crab Shack in India can manage it, I imagine Starbucks will figure it out. The reward for success is massive.

Starbucks is clearly focused on spreading out its business to take advantage of the nighttime potential. Our "caffeine equals no sleep" mental math keeps many of us from even considering Starbucks after work, unless we want a milkshake.

Wine consumption in the U.S. is growing at a fantastic rate. Since 2000, per-capita consumption of wine in the U.S. has grown by 35%. Starbucks' main goal is to increase its evening business, but tapping into the wine market -- and beer in some locations -- is clearly going to be a big potential revenue driver.

Starbucks is no stranger to launching new product lines, and the early success of its La Boulange and Teavana acquisitions should give investors plenty of hope. On the other hand, neither of those undertakings required the kind of local legal wrangling that's likely to be seen if wine makes its way into a Starbucks near you. Based on its past success, though, I'm optimistic that Starbucks can get it done and take advantage of the second half of the day.

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Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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