There is a sharp contrast between the new Starbucks (NASDAQ:SBUX) Reserve Roastery & Tasting Room and the neighborhood cafe a mile away, Roy Street Coffee & Tea. Starbucks built the closest thing a coffee shop has come to the Willy Wonka experience, complete with overhead pneumatic tubes that transport coffee directly from roasters to baristas, an iconic copper cask coffee silo, and railings that mimic the shape of raked coffee beans.
Roy Street, on the other hand, has baristas without uniforms, worn couches, and wobbly tables. But without Roy Street, Starbucks would likely never have built its coffee nirvana nor planned its future network of high-quality Reserve shops.
This is because Roy Street, despite the name and lack of green accents, is a Starbucks Reserve testing ground in disguise.
From secret Starbucks to new standard
In 2009, Starbucks opened Roy Street as an experimental store focused on local adaptation and item offerings unable to meet the chain's typical mass scale. The only evidence that Roy Street has any affiliation with its parent company is a few signs with small text reading, "inspired by Starbucks," and the shop's Clover machine, technology that Starbucks acquired in 2008. The Clover, which costs over $10,000 and would be out of reach for many small shops, helps automate brewing and reduces variability across single cups of coffee.
Over the past five years, Roy Street has given Starbucks deep insights into consumer tastes within neighborhood shops and how those shops can be efficient and standardized. And now, Starbucks will export the Roy Street neighborhood cafe experience to 1,500 global Reserve stores.
One of these stores is just up the street from both Roy Street and the new Roastery & Tasting Room. This shop offers Reserve beans brewed with the Clover and matched with pastries from its recent acquisition of La Boulange bakery. The Clover machine allows the baristas to integrate quality Reserve cups alongside Frappucinos. But unlike the standard coffee drinks, each cup of Reserve coffee is served with a notecard that has a description, tasting notes, and origin information of the bean. The coffee, presentation, and price is on par with more exclusive and local brands.
Taking a page from the old playbook
This follows Starbucks' previous winning strategy. After steeping itself in Seattle's coffee culture, it was able to package, scale, and deliver that coffee experience worldwide. With Starbucks offering the "average" coffee, neighborhood coffee shops shifted to compete on quality, offering beans from small roasters with special brewing techniques.
Now that small shops have educated consumers on quality beans, Starbucks can capitalize on this increased consumer awareness with the help of its Clover technology to increase scale. Once again, the company can package, scale, and deliver the premium quality coffee experience found at shops like Roy Street to its cafes worldwide.
The Reserve brand also helps Starbucks distinguish itself from giant competitors, such as McDonalds, Dunkin Brands, and Tim Hortons, but its ultimate goal is to supplant your neighborhood cafe.
While Starbucks' coffee wonderland will attract tourists faithful to its brand, the roots of the iconic building originated at the homely Roy Street Coffee & Tea. When you step inside the Roastery & Tasting Room, you can be overwhelmed by the details and large amount of wood and copper. But for shareholders, the beauty of the store lies in its ability to supply every Reserve location with top quality beans.
Dan Newman owns shares of Starbucks. The Motley Fool recommends Starbucks. The Motley Fool 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.