When you hear the phrase "buying local," images of farmers' markets or handcrafted artisan products probably come to mind. Probably the last thing most Americans would associate with the local-food movement is a corporate chain such as Starbucks Corp. (SBUX +0.78%), which has blanketed the country with outlets that seemingly sell the same product marketed in the same way. However, the coffee giant's latest maneuver is a dedicated step away from that perception and shows how the company is always searching for new ways to reinvent itself.
How the program works
In cities such as Washington, D.C., and New York, Starbucks is partnering with local bakeries to provide regional treats and new menu items for its customers. In 283 locations in the Washington area, for example, the coffee chain is serving a sweet-potato cake from Delectable Cakery in Maryland. The sweet0potato cake is the bakery's signature piece, made using all-natural ingredients from a family recipe that was passed down to the founder. It's exactly the opposite of the type of product you'd expect to find in a chain store like Starbucks.
In New York, meanwhile, Starbucks has partnered with Bantam Bagels to sell its trademark stuffed bagels.
The program is beneficial to the small-business providers, as it gives them enormous exposure and a sizable sales bump, and in turn it gives Starbucks some of the small-business charm that gets lost in large chains. In other words, it takes the best of type of business, combining Starbucks' scale, operational capabilities, and efficiency with the unique taste and local flavor of a small bakery.
Food isn't the only area where Starbucks is going local
Partnering with local bakeries is just the latest result of long evolution in the company's strategy. In 2008, the chain was struggling, having outgrown itself. The brand was tired, and the stock was on its way to a 75% drop over a two-year span. Founder Howard Schultz returned to the CEO chair and began closing stores in an effort to regroup and turn the business around.
The company believed it was valuing "growth over content," and its store design was becoming stale. To right that problem, the company totally revamped its design shop, decentralizing and instead creating eight design studios across the U.S. and 18 around the world, with each one tasked with developing a look reflective of the local flavor. According to Andrew Bello, managing director of U.S. store design: "We strive for local relevance. And local relevance for us is not just hanging a picture of the local landmark on the wall."
New stores were given flourishes to individualize them and help them fit in with the surrounding community. At a store in New Orleans, for example, the company installed lights inside of horns; a store in Seattle, meanwhile, was made out of shipping containers.
More segmentation ahead
Starbucks' moves to localize and individualize its design and menu offerings is part of a larger strategy to diversify its entire range of store types to meet its customers' wide range of needs. Late last year, the company unveiled its first Reserve Roastery, a coffee factory that some likened to a Willy Wonka-like shrine to coffee, and hundreds of Reserve stores where the gourmet brew will be served are in development. On the other hand, Starbucks is also rolling out Express stores that offer a limited menu and quick service in a footprint of just around 500 square feet.
Both formats serve to extend the Starbucks brand and customize it for those looking for a high-end gourmet coffee experience or a quick caffeine fix.
The local food partnerships, the store differentiation strategy, and Starbucks' recent foray into Mobile Order and Pay, as well as its dominance of mobile payments, are all a reflection of the company's willingness to continually reinvent itself and push itself to improve. Though it's one of the strongest brands in the world, and without a true rival in the coffee industry, management has no interest in relying on the same formula for future success, unlike other legacy fast-food brands that are struggling today in part because they haven't adapted.
That's one excellent reason to bet on Starbucks' continued success, and why customers and investors should expect more surprises such as the locally sourced sweet-potato cake.
