Is Starbucks About to Become a Hip Wine Bar?

Four years ago, a single Starbucks (NASDAQ: SBUX  ) location in Seattle began serving beer and wine in the evening. In the past two years, Starbucks has rolled out a "Starbucks Evenings" concept to a few dozen U.S. locations. At these stores, Starbucks sells beer and wine along with tapas-style small plates and desserts after 4 p.m.

Starbucks plans to sell beer and wine after 4 p.m. in many U.S. stores.

Starbucks now plans to implement the "Starbucks Evenings" concept more widely in the U.S., eventually reaching thousands of locations. Selling beer and wine in the evening at more stores could propel Starbucks' earnings higher in the next five years and beyond. However, it also comes with some risk -- as struggling fast-casual joint Cosi (NASDAQ: COSI  ) has learned the hard way.

Leveraging the store base
For Starbucks, the appeal of serving beer and wine in the evenings is clear. Last month, CEO Howard Schultz noted that the average "ticket" at Starbucks is just $5. A single glass of wine will ring up at a significantly higher price. If small plates like parmesan-crusted chicken skewers or bacon-wrapped dates catch on, transaction prices could go even higher.

Most importantly, Starbucks is taking advantage of the fact that its stores tend to be busy in the morning and afternoon, but are less crowded after 4 p.m. Driving more store traffic and sales during a weaker part of the day will allow Starbucks to better leverage its fixed store-related expenses. This could potentially improve the company's profit margin significantly.

Most Starbucks cafes are bustling early in the day but see less business in the evening.

Starbucks won't roll out the Starbucks Evenings concept to all of its 11,000-plus U.S. locations. For now, Starbucks seems to be concentrating on downtown and transit-friendly locations rather than suburban strip-mall stores for the Starbucks Evenings program. Still, the concept of serving alcohol at any Starbucks has plenty of detractors.

Do coffee and booze mix?
There is certainly some risk in trying to sell coffee and alcoholic beverages in the same store. Fast-casual sandwich shop Cosi has a "European cafe" concept that's similar to Starbucks in many ways. Early on, many Cosi restaurants were built with a coffee bar on one side of the store and a full bar on the other!

Selling beer and wine alongside coffee hasn't worked out too well for Cosi.

For many customers, Cosi simply didn't make sense. It was serving coffee and breakfast in the morning, offer sandwiches, soup, and salad during the day, and then became a bar of sorts in the evening. The lack of focus at Cosi led to a downward slide in customer service over time. As a result, formerly loyal customers stopped coming, even though they still liked the food.

Obviously, Starbucks is starting in a far stronger position than Cosi. The key to Starbucks' foray into beer and wine is that it has already solidified its position as the leading coffee brand in the United States. Even if Starbucks starts selling beer and wine in many of its stores, people will still recognize it as a coffee shop first and foremost. In other words, there's no reason to expect a Cosi-like identity crisis.

Starbucks will also be primarily about coffee.

On the other hand, there is still a potential problem that the addition of beer and wine in the evenings could drive away Starbucks regulars, causing them to leave at 4 p.m. or never come at all. Some customers are worried that Starbucks will become too loud in the evenings, making it difficult to work or enjoy a quiet conversation.

However, Starbucks' prices will probably draw a refined crowd that won't generate the noise you might find at a bar. With beers priced around $5-$6, glasses of wine running $8-$10, and no hard alcohol, Starbucks clearly isn't catering to people looking to get drunk.

There could certainly be the occasional rowdy customer, but fears that beer and wine will destroy the Starbucks atmosphere are overblown. Lastly, most Starbucks customers -- including myself -- go during the morning or afternoon. The typical Starbucks customer will be long gone by the time baristas start pouring beer and wine.

Foolish bottom line
Starbucks' decision to roll out beer and wine sales after 4 p.m. to thousands of its cafes in the U.S. has some risk, but the upside is tremendous. In a best-case scenario, it will drive another big step up in same-store sales for Starbucks while evening out foot traffic across the day.

Starbucks has been testing this concept for several years, so it's safe to say that management believes it has a formula that will work. Getting Americans to accept the idea that a cafe would serve both coffee and alcohol will take some effort, as Cosi's troubles show. However, if anyone can pull it off, it's Howard Schultz and Starbucks.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.


Read/Post Comments (1) | Recommend This Article (0)

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.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2921079, ~/Articles/ArticleHandler.aspx, 12/20/2014 11:44:19 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement