New Starbucks menu items aim to win afternoon, evening business
With Starbucks (NASDAQ: SBUX) already having more than 12,000 locations in the United States, in many markets its best path to growth involves increasing same-store sales.
That might be a challenge in the morning, when the chain already has long lines and many of its customers simply want to get their drink and/or food then be on their way. The rest of the day, however, specifically the middle of the afternoon into the evening represents a big opportunity for the company.
Starbucks does not break down its sales by time of day in its earnings report, but an often-quoted line from Starbucks executive Kris Engskov noted that 70% of the chain's sales came before 2 p.m. That quote was delivered to TIME back in 2010, when the company had begun testing beer and wine at a handful of its cafes. That plan began expanding in 2014 with a goal of about 2,000 U.S. locations serving beer, wine, and a special food menu at night, so it's likely that the 70% before 2 p.m. number has changed.
What hasn't changed is that Starbucks has many stores with excess production and sales capacity in the later parts of the day. To combat that and try to lure in more customers after lunch, the chain has launched a new menu that will be offered only after 3 p.m. The new treats are granitas (shaved ice sweetened and topped with espresso, white tea, or limeade) and trifles (scones or a brownie topped with whipped cream and flavored drizzle).
What is Starbucks going after?
Having busy mornings, and slower afternoons and evenings is not a problem unique to Starbucks. It also plagues other coffee shop rivals including Dunkin' Donuts (NASDAQ: DNKN). In the case of the coffee and doughnuts chain, Dunkin' has experimented with everything from expanding its sandwich line beyond breakfast to offering pizza and apple pie. At various points the chain has sold soup, chicken salad, and steak sandwiches -- all with the goal of getting people to come in later in the day.
That's a sort of holy grail for coffee chains because being open longer means there are more hours to make sales without increasing fixed overhead. Of course, labor can be adjusted and other expenses like heat or electricity vary during operating hours compared to when a store is closed, but as long as a store can cover its cost for being open longer, any money it makes goes right to bottom line.
Unfortunately, as we have seen with Dunkin's ever-changing efforts to find an afternoon product line that works, changing consumer habits is not easy. That has not stopped that chain from trying (like it's attempt to sell chicken parmigiana flatbreads) and now Starbucks is following its rival.
How is Starbucks taking on the challenge?
With no advance fanfare, Starbucks sent its loyalty program members an email June 14 touting its new "Sunset Menu," which was available after 3 p.m. that same day at participating locations. The new offering consists of granitas, which are a scoop of finely shaved ice that is lightly sweetened then topped with espresso, white tea, or limeade. The new frozen treat comes in three flavors, Caramel Espresso, Teavana Youthberry White Tea, and Strawberry Lemon Limeade.
"We wanted something that was cool, but light," said Michelle Sundquist from Starbucks' beverage development team in a press release. "Our Sunset Menu is a refreshing way to jump-start your evening and take you into a long summer night."
The chain will also be selling trifles, hand-prepared desserts featuring layers of whipped cream and a mocha or strawberry drizzle. Those come in two flavors, Chocolate Brownie and Strawberry Shortcake.
Will it work?
In order for Starbucks to increase sales during its slower hours it needs to persuade consumers to change their behavior. It's easy to see how beer and wine might do that, as they make the chain a sort of slower, quieter after-work option than a bar, with the added bonus of still serving alcohol.
Adding new icy treats and desserts seems like less of a sure bet. The granita is not all that different from a Frappuccino (though they are less sweet) and the chain already offers pastries, cookies, and other desserts.
What might help the chain is the possibility that offering a time-specific menu piques the curiosity of the morning crowd. That might persuade a percentage of those customers to make an afternoon visit to sample the new items, which could be the first step toward changing people's habits. This is not going to be a quick or easy road for Starbucks, but it might eventually be a lucrative one.
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