Starbucks Changes Direction with Big Drive-Thru Plans
Let's say you want a Macchiato without having to step out of your Mustang. Or perhaps you want a Java Chip Frappuccino, but don't want to find a parking spot for your your Fiat.
Well, Starbucks (SBUX) has you covered.
One of the bolder initiatives announced during last week's quarterly conference call was that 60 percent of the 1,500 new stateside locations that the barista-tended chain plans to open through the next five years will have drive-thru windows.
It's a big departure from the Starbucks concept that most of its customers currently experience, but the company's been seeing strong sales at the handful of stores that already offer drive-thrus. So it's plans its expansion with an eye toward cashing in on hurried drivers.
Brews Over Burgers
Would Starbucks be aggressively pursuing drive-thru locations if McDonald's (MCD) -- and now even Burger King (BKW) -- hadn't beefed up their coffee offerings?
Mickey D's introduced McCafe drinks five years ago, allowing diners to opt for lattes or iced caramel mocha brewed drinks to go with their Big Macs and fries. Other fast food chains have been following suit.
Starbucks hasn't missed a beat, despite the burger flippers pushing into its bean business. Beyond a brief stretch early in the recent recession, comparable-store sales have remained largely positive at Starbucks. However, as rushed morning commuters grow accustomed to being able to grab a caramel hot chocolate or premium roast coffee without having to leave their cars, Starbucks knows it doesn't want to be left behind -- even if means becoming something that it's not.
Redefining Coffee Culture
Starbucks prides itself on its cozy confines. The aromatic scents of freshly brewed java are so important that the chain scrapped several breakfast items a few years ago after they were making the place smell like -- well -- a McDonald's.
Now Starbucks wants to take a page out of the Mickey D's playbook.
It won't be easy. For starters, most of its existing locations can't play along. It's just not possible to add drive-thru windows when you're smack dab in the middle of a suburban strip mall or on the ground floor of a metropolitan high-rise building. Some corner locations could be adapted, though the ideal solution for a drive-thru is a standalone store where drivers can circle around as they order and pick up their beverages.
It's not just about real estate. This transformation may also make it harder for Starbucks to justify its price premium. How do you compete with a McDonald's coffee on the dollar menu? Without the upscale in-store experience of relaxing scents, sights, and sounds to set a concept apart, will folks pay nearly twice as much for a Frappuccino than they do a for a caramel frappe at BK?
Putting the Pedal to the Caffeinated Metal
However, Starbucks can't go back now.
Stores with drive-thru access currently account for a third of its U.S. restaurants but contribute nearly 45 percent of the chain's operating profit.
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"We are investing in this high-margin store format with innovations that will elevate the customer experience of our brand by enhancing drive-thru efficiency and consistency of service," founding CEO Howard Schultz explained during last week's call.
It's hard to argue with Schultz when his company is on a roll.
Starbucks posted strong results for the holiday quarter. Revenue and earnings climbed 11 percent and 14 percent, respectively. Comparable-store sales rose 6 percent globally, and an even heartier 7 percent closer to home. The baron of baristas has now come through with 12 consecutive quarters of comps exceeding 5 percent.
Starbucks estimates that one in every 10 people in this country got a Starbucks gift card this holiday season.
Drive-thru windows were probably far from Schultz's mind when he dreamed up the Starbucks concept 42 years ago after experiencing the rustic coffee houses of Europe, but it's now the way that the game needs to be played.
For better or worse, drive-thru windows are part of the company's future.
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Motley Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide, McDonald's, and Starbucks. The Motley Fool owns shares of McDonald's and Starbucks.
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