Just when you think the world can't fit any more Starbucks (NASDAQ:SBUX), the coffee chain finds ways to cram in more.
The ubiquity of the frappuccino franchise has often been a subject of mockery -- comedian Lewis Black once said he saw the end of the world upon finding one Starbucks across the street from another. But despite the jokes, investors are the ones who have been laughing all the way to the bank as the stock is again at an all-time high and the company has grown to more than 22,000 stores worldwide.
Last week, Starbucks opened the first of a new store format that could allow it to add hundreds, if not thousands, of locations to already densely packed neighborhoods. The Express store, as it's called, opened on Wall Street across from the New York Stock Exchange. At just 538 square feet, the store is the size of a large living room and offers a limited menu of coffee, tea, and espresso drinks, as well as pastries and breakfast sandwiches. Gone from the menu are frappuccinos and other blended drinks.
Starbucks describes the store as a "pilot project tailored for customers on-the-go who want high-quality Starbucks products in a beautiful environment, coupled with the efficiency that comes with knowing what they want, quickly."
The express store aims to speed up service by having an order-taker greet customers upon entering the store. The customer then moves to the register to pay, and finally picks up their drink at the next station once it's ready. The interior is pleasingly designed with wood paneling on the walls and ceiling. The format seems to make business sense, as a majority of Starbucks customers take their orders to go, meaning a store without seating will still cater to most of its customers, while significantly reducing occupancy costs. Any attempt to increase speed of service is also helpful.
Reserve bars for some, express stores for others
Starbucks attracted headlines with the opening of its Reserve Roastery and Tasting Room in Seattle last year, which visitors likened to a Willy Wonka factory for coffee. The Reserve brand is Starbucks' attempt to extend its brand higher into the luxury space, offering exotic, rare beans from around the world roasted in small batches. Starbucks plans to open 500 Reserve cafes around the world by next year, as well as another Roastery in Asia.
The express store, then, seems like a natural complement to the high-end Reserve cafes. While the Reserve cafes cater to coffee connoisseurs, perhaps looking to sample different brews and spend some time savoring their beverages, the express stores are clearly targeting a different type of Starbucks customer, the rushed commuter -- or any passerby in need of a quick jolt. The new format is also an indication of the company's increasing ability to fragment its customer base and meet each of their needs in a more direct way. It also gives the company the opportunity to adapt to different markets.
New York and the East Coast, in general, comprise a mostly brewed coffee market, so offering the stripped-down menu in the financial district makes more sense than it might in other places. Another example of Starbucks' fragmentation strategy is the expansion of drive-thru stores, which now make up 40% of locations in the U.S. alone. Those stores are meeting the needs of customers who want the convenience of getting their order without leaving their car.
Starbucks plans to open four more express stores in New York this year, and will launch a delivery pilot program later in 2015, bringing drinks to customers inside the Empire State Building. At least 20 other Starbucks locations can be found in New York's financial district, a sign of high demand, and the success of the express store could allow the company to open many others in high-density locations.
Innovations like the express store, the Reserve Roastery, and Mobile Order & Pay have allowed Starbucks to put up impressive growth numbers, surprising the market along the way. And with those new ideas just now being introduced, Starbucks is showing that the runway for growth is far from exhausted.