What's cooking at Starbucks

by Monica Watrous
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Truffle macaroni and cheese is coming to more Starbucks locations.

SEATTLE — Bacon-wrapped dates, truffle macaroni and cheese and a glass of Chianti have the makings of a fine-dining meal. And soon, more customers will be able to enjoy these items at Starbucks.

Over the next five years, Seattle-based Starbucks Coffee Co. is expanding its evening menu of small plates, wine and beer in up to a fourth of its coffee shops in the United States. The roll-out is part of strategic plans to improve food offerings and increase traffic across day parts.

Starbucks expects to double its food sales through 2019 and deliver an incremental $2 billion in the United States.

“Food has delivered 2% comp growth in fiscal 2014,” said Cliff Burrows, group president, U.S., Americas and Teavana, during the company’s Biennial Investor Day on Dec. 4. “It also gives us the confidence that we can innovate in other day parts and that we can really grow those day parts.”

Recognizing a demand for heartier, handheld breakfast items, Starbucks this year added four sandwiches to its morning menu, including a slow-roasted ham and Swiss cheese on a croissant bun, vegetable and fontiago cheese on a ciabatta bun, egg and cheddar on multigrain toast, and reduced-fat turkey bacon with egg whites and reduced-fat white cheddar on an organic wheat English muffin.

Starbucks added new breakfast sandwiches earlier this year.

“Owning breakfast, owning that early morning is still really important for us,” Mr. Burrows said. “The biggest opportunity is still lying with breakfast sandwiches and to convert existing beverage-only customers in our stores in the morning peak to buy our food. And in the last quarter of fiscal 2014, we saw breakfast sandwiches grow by 30%.”

But lunch represents an even bigger opportunity for Starbucks. At the end of June, the chain debuted a grilled cheese sandwich and a turkey pesto panini, which contributed to 14% year-over-year sales growth in the lunch platform in 2014.

“But we really have a very, very small share of the lunch business today, and we estimate that at about $95 billion in our sector and we’ve got less than 2% share,” Mr. Burrows said. “Now we’re going to continue to up-level our offer. We’re going to introduce proven winners, and we’re going to take a really disciplined approach so that we limit and minimize the disruption for our store partners and for our customers.”

Another strategic priority for Starbucks is the underutilized evening day part. In select markets where Starbucks’ evening program has been implemented, stores have posted a sales lift of mid to high teens during the day part. Starbucks expects to expand the menu to about 20% to 25% of U.S. stores, or 2,000 units, over the next five years, delivering an incremental $1 billion in sales.

“It gives us a chance to extend that third place, creating this new occasion, this incremental visit where customers can come, relax, connect with friends or be alone in a safe, comfortable and sophisticated environment,” Mr. Burrows said. “And evenings for us is our offering to customers, helps customers find that casual place to relax over coffee, tea, savory foods and wine.”

Innovation at Starbucks evolves from consumer insights with co-creation by baristas and customers, company executives said. A product may be developed for testing in as little as six months.

Adding La Boulange bakery products to the menu beginning in 2013 unlocked an opportunity for the chain to reengineer, reformulate and improve the quality of its sandwiches at breakfast and beyond.

“Our improvement in quality of ingredients, the way we bake it, we’re getting levels of performance we’ve never seen, 30% in quarter-four lift,” Mr. Burrows said. “So, I think we’ve given ourselves legitimacy. We’re now putting products into that warmed sandwich area, which lead us nicely into lunch, and with some pretty simple innovation around lunchtime sandwiches we’ve seen a great reaction.

“We’re building it slowly, slowly, and we’re giving people breadth, depth but most of all confidence that it will be available and be a quality product.”

Just how quality are Starbucks new food offerings?

“(It’s) a bit of a joke with my colleagues because I’m the guy who’s eaten Starbucks food for breakfast and lunch for 13 years since the day I joined here,” Mr. Burrows said. “I can assure you I enjoy it far more today than I did in the early days.”
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