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Coffee On The Rocks? Starbucks Reserve Might Shake Up Industry

(AP Photo/Elise Amendola)

(AP Photo/Elise Amendola)

Here’s a thought on getting the public to pay $12 for a cup of coffee: Have the barista wear suspenders and add a bourbon-flavored swizzle stick.

I allude here to plans by Starbucks CEO Howard Schultz to launch a chain of luxury coffee bars, and how well the concept compares with another long-standing social endeavor — the corner bar. When thinking of super-premium comparisons to the high-end Starbucks Reserve Roastery brand, my mind keeps returning to the craft cocktail lounge and its respected mixologists.

I think for good reason. Americans are drinking less alcohol, yet spending more on it, because we are choosing pricier beer, wine and cocktails, according to Bloomberg. Nearly half of all wine sold (48%) now costs more than $10 a glass, and cocktail prices easily ratchet north of that.

Similarly, coffee is undergoing an innovation evolution of its own. In addition to lattes and macchiatos infused with vanilla, salted caramel or pumpkin, talented baristas give us a choice of flat whites, cold brews or nitrogen-infused coffee. And with each new idea, the price climbs. But to succeed, the in-store coffee experience should live up to the hype — and the price.

With that in mind, let’s look at Schultz’s latest coffee fancy through craft-cocktail goggles.

From Plain Joe To Gingerbread Latte

Coffee, just like beer and vodka, is at its core a commodity product. Twenty years ago, you might have been considered a fool for paying $5 for a cup of joe.

Yet Schultz, in his decades at Starbucks, has transformed the way people drink coffee and, as The Wall Street Journal observed, even socialize: “Starbucks showed Americans that coffee could be more ambitious than home-brewed Folgers.”

n this way, Schultz is following the lead of cocktail bars, which have been pretty ambitious themselves. Crafty mixologists (once called bartenders) are creating $20 cocktails with small-batch spirits, botanical infusions and chef-quality ingredients.

With his plans to pursue the Roastery concept, which began with a location in Seattle two years ago, Schultz will retire as Starbucks’ storied CEO. At the Roastery in Seattle, which refers to itself as a shrine, the coffee is roasted onsite and then brewed by Starbucks baristas carefully selected from across the country. A 12-ounce cup of coffee that involves a siphoning process costs $12.

Starbucks plans to open 20 to 30 such locations, plus as many as 1,000 similar locations, to be called Starbucks Reserve, that will not include on-site roasting.

Brewing A $100 Million Idea

The cost to build these locations will reflect the $12 price for siphoned coffee. Some analysts estimate Starbucks will invest about $100 million a year building the stores. Selling enough coffee to cover that cost will be a challenge, unless Starbucks intends for its traditional stores to help cover the bill.

A yet bigger challenge may be distinguishing the fare at the two chains. Regular Starbucks already has a pretty sophisticated and complex menu. As Credit Suisse analyst Jason West put it to The Wall Street Journal: “If you’re going to throw on top of that another level of premiumization and innovation and add an espresso bar, this could make things more challenging.”

Schultz has said the in-store experience at the Roastery will entice computer-bound consumers, who spend a lot of time shopping online, to leave their homes. To this point I can’t help but ask: Have you been to a Starbucks lately? I’d estimate 90% of the people there are staring into glowing screens.

Perhaps Schultz is also trying to graduate regular Starbucks visitors to a more sophisticated coffee experience. That experience includes a view of the entire roasting operation, a well-stocked coffee library and access to brews derived from the best beans Starbucks can muster (less than 1% of its beans qualify).

Justification? Maturing Coffee Market

The market is certainly maturing into the Schultz vision. Younger consumers are more open to experimenting with new coffee beverages or preparation methods, according to the National Coffee Blog. Roughly half of all consumers ages 18 to 39, when asked where they drank coffee the day before, said it was away from home.

It’s little wonder specialty coffee sales are increasing by 20% a year.

Still, the gap between a $5 cup and a $12 cup is wide. To maintain its target customer base, the Roastery will have to transport them to a new café plane — an opulent environment that can be justified as a personal indulgence. That justification is achieved by stimulating the senses in purely emotional ways. To refer to the craft cocktail comparison, it’s the equivalent of taking a well-deserved break in a soothing environment, or celebrating an occasion with friends.

And let’s face it: There’s a snob aspect to it as well. Anyone who pays $12 for a cup of coffee ostensibly appreciates the difference, and therefore can enjoy being different.

Considering the number of people willing to wait seven minutes in line for a $5 blended coffee drink, and not even stay, getting them to pay twice as much may not be so hard to achieve, if the customers are made to feel special. For this reason, the weight of the Roastery’s success rests largely on the entire experience.

The location’s atmosphere — the way it makes its visitors feel — must justify the higher price tag. Just like Starbucks reinvented coffee from the traditional doughnut chain to a living room break, the transition from current Starbucks to the Roastery concept must come with an equally enticing change to the experience. This is crucial to reconditioning consumers to accept $10 latte breaks. Coffee, like craft spirits, could become mysterious and magical.

If Schultz can achieve this, and get the experience just right, a $12 cup of java might not sound so nutty in five or so years. Bring on the swizzle sticks.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here

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