Do you love gourmet coffee but hate getting out of your bathrobe?
Starbucks Corporation (NASDAQ:SBUX) has a solution for you. The coffee giant announced earlier this week that it is launching a subscription delivery service of its small-batch Reserve Roastery coffee beans.
The delivery will be available by subscription and aims for all customers to receive their coffee within three to five days of roasting as shipments will go out less than 48 hours after roasting is completed. CEO Howard Schultz called the program "the freshest, fastest and most innovative whole bean coffee experience in the marketplace" save visiting the Roastery in Seattle itself. For $24 a month, subscribers will receive one 8.8-ounce bag of small-batch coffee delivered to their home.
Subscriptions themselves aren't a new thing for Starbucks, as regular deliveries of coffee and tea are available on the website, but the Reserve subscription marks Starbucks' latest attempt to stretch the upscale reach of its brand as the company focuses on differentiating its high-end Reserve coffee and e-commerce revenue streams.
Reinvigorating the brand
The launch of the Reserve subscription comes at a time when Starbucks is facing competition from small-batch producers such as Stumptown, Intelligentsia, and Blue Bottle Coffee, which have benefited from rising demand for gourmet coffee.
The introduction of the Reserve brand last year and the partner delivery service should help Starbucks' strengthen its leadership position in high-end coffee, and the move is a smart one as it targets the company's most desirable customer: an upscale coffee connoisseur who is willing to pay a premium and will commit to buying at regular intervals through a subscription, thereby allowing the company to save on in-store expense. It also capitalizes on the growth of e-commerce and ties in with the company's other initiatives, including regular delivery of prepared drinks from its stores, which is expected to be rolled out later this year.
Notably, an 8.8-ounce bag of the Reserve coffee would only yield about 20 6-ounce cups, meaning regular drinkers might want to double up on their subscriptions so they'd have more than 20 cups' worth in month, giving Starbucks a high-margin revenue stream from individuals. Starbucks currently roasts the Reserve subscription batches just once a month, but it's easy to see that frequency increasing if the program becomes more popular.
Reserve isn't the only thing heating up
Starbucks stock is trading at all-time highs as the company's performance and future prospects have never looked better. In its most recent quarter, the company's sales jumped 13% and earnings improved by 16% as same-store sales were up 5%. For the current year, it expects revenue growth of 16%-18%, and the company plans to open 1,650 new stores.
Finally, the macro environment also seems primed for Starbucks' benefit as demand for coffee is projected to rise nearly 25% over the next five years, according to the International Coffee Organization. The institution cited increasing demand in China, India, and Latin America, all regions Starbucks has targeted for expansion. That expected increase in demand has caused some industry analysts to worry about rising prices, but either way Starbucks should come out a winner.
Starbucks is by far the most prominent and recognizable international coffee brand, and the Reserve Roastery and delivery program should reinforce its brand strength as the company seeks to provide coffee drinkers around the world with an affordable luxury. It's just the latest evidence that Starbucks' caffeinated growth isn't about to run out of fuel anytime soon.