Growth | July 2012 | By Robert Lillegard
How to Win in Retail
Starbucks’ market saturation has become a pop-culture touchstone. The chain has more than 17,000 retail locations worldwide, and a sizable majority of those are in the U.S. More than a few jokes have sprouted up around the seeming omnipresence of the Starbucks brand.
But Starbucks is about to get even bigger. By purchasing the Evolution Fresh brand of juice toward the end of 2011, it’s making a major step in the retail space. Not only is it replacing Naked Juice in its stores with its own product, but it’s also taking the juice to grocery-store aisles in hopes of capturing a slice of the $5 billion refrigerated juice market.
The Evolution Fresh juices join an already impressive stable of Starbucks grocery products. Its Frappuccinos, Doubleshots, and other ready-to-drink beverages energize everyone from busy moms to college students pulling all-nighters. And, after a recent redesign of its bagged coffee packaging and the introduction of the lighter Blonde roast, Starbucks is only going to continue increasing its footprint at retail locations.
Licensing for retail is big business, as many quick-serve brands have already discovered. Taco Bell and Kraft teamed up to produce a line of taco, nacho, and fajita kits for eating at home. The Dunkin' Donuts Original Blend, which is produced and distributed by the J.M. Smucker Company, beat out all rivals to become the No. 1 packaged coffee stock-keeping unit (SKU) in grocery stores. TCBY’s new Greek frozen yogurt was on shelves nearly as soon as it was in stores. Then there’s Burger King, which famously released a line of T-shirts and a meat-scented cologne.
While most brands view licensing as a mere offshoot of their core product, there are opportunities to take it even further. Gary Stibel, founder and CEO of the New England Consulting Group, says there’s a rich history of restaurants moving into the retail space. Some have performed so strongly that it’s become their main focus.
“Historically, the best [retail] brand of all time is probably Stouffer’s,” Stibel says. “But you may not realize Stouffer’s was ever a restaurant.”
When Stouffer’s started in 1922, it was a quick-serve dairy stand that offered customers free crackers as a perk with their buttermilk. That small stand expanded into a full-service restaurant, then grew to the point that the company began opening other locations. In the ’50s, Stouffer’s began producing frozen foods, a side of the business that grew quickly and eventually overtook the restaurants. Today, the company (which is owned by Nestlé) is the leading producer of frozen foods in the U.S., while the restaurants have long since closed.
Ben & Jerry’s is another quick-serve brand known more for retail than for restaurants. Though the company started as an ice cream parlor and runs Scoop Shops around the world, it decided early in its history that it wanted broader distribution. So Ben & Jerry’s partnered with ice cream maker Dreyer’s to get its brand to market.
“When Ben & Jerry’s wanted to go in the grocery stores, they hired—it wasn’t a license—Dreyer’s to be their distribution agent,” Stibel says. “There are several ways to get to retail if you’re a restaurant.”
Now owned by Unilever, Ben & Jerry’s ice cream is distributed to grocery stores, gas stations, and other retail outlets.
There are several reasons companies choose to develop retail products, one of the biggest being the financial benefits. Jeff Hansberry, president of Starbucks Channel Development and Seattle’s Best Coffee, says in an e-mail to QSR that even a chain of Starbucks’ size has yet to capture much of an enormous global market.
“Today, Starbucks captures only a small portion of the $100 billion coffee, tea, and ready-to-drink beverage market globally,” Hansberry says. “We are working to build a greater share of that global opportunity with our [consumer packaged goods] business by growing across channels, categories, and countries where our products are sold.”
That strategy hinges on finding new markets. Vending machines, grocery and convenience stores, gas stations, and other retail outlets can be located in places quick-serve brands can not and offer new opportunities for growth.
“One of the key differentiators of the Starbucks brand is that we are uniquely positioned to serve our customers wherever they want us,” Hansberry says in his e-mail.
Julie Washington, chief brand officer for Jamba Juice, says finding new channels of distribution is the raison d’etre for the company’s retail line. The chain has only 750 stores, but more than 30,000 points of distribution for its retail products.
“How do we reach more consumers across a larger terrain here in the U.S.?” Washington says. “We meet consumers where they are.” Befitting Jamba Juice’s healthy image, the company offers a line of at-home smoothie kits with flavors similar to the in-store smoothies, along with completely separate products like trail mix and fruit cups.
Steve Sklar is senior vice president of marketing for Inventure Foods, which produces and distributes some products for Jamba, as well as for T.G.I. Friday’s and Burger King. He says to-go snacks like Burger King–branded Onion Rings or Hot Fries bring the products to new audiences. “Basically you can sell snacks anywhere,” Sklar says. “If a product works, we’re going to go to all the channels of distribution.”
Expanding into consumer goods also offers brands an additional chance for branding and marketing. While it takes significant capital to open a restaurant in a new area, distributors are easily able to get branded consumer goods on store shelves around the country. For example, though Dunkin’ Donuts is concentrated mostly on the East Coast, its popular coffee is sold in grocery stores even in Starbucks’ hometown of Seattle.
In spite of the strong opportunities presented by retail, though, many chains are not involved. Stibel says with the exception of Taco Bell, Starbucks, and Jamba Juice, most quick serves have not done a good job expanding in this direction.
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