| LOS ANGELES/NEW YORK
LOS ANGELES/NEW YORK Dec 6 Starbucks Corp
co-founder Howard Schultz's plan to build a new
prestige brand is a bet that moving upscale can raise the
profile of the world's largest coffee brand with millennials
like Megan Sauers.
Schultz in April will step down as chief executive to focus
on building 1,000 new "Reserve" brand stores. Over time there
also will be as many as 30 large, showcase Reserve Roastery and
Tasting Rooms in major cities around the world.
Starbucks last week announced that Schultz was moving into
the role of executive chairman in April to focus on the project.
Analysts expect more details at a meeting in New York on
The transition marks a turning point for Starbucks, which
introduced millions of people around the world to higher quality
coffee and espresso drinks and now must find a way to avoid
being labeled pedestrian when compared with upscale rivals like
Blue Bottle and Intelligentsia, which are popping up in U.S.
"Starbucks is the millennials' parents' coffee house and
Starbucks is acutely aware of that," said Ric Rhinehart,
executive director of the Specialty Coffee Association of
Starbucks' Reserve projects are "a reminder that they did
this first and they do this best," said AB Bernstein analyst
The company already has added Reserve bars to a handful of
Starbucks shops in major cities including New York.
Reuters visited one such cafe on Manhattan's Upper East
Side, which offered $10 cups of coffee made in glass siphons,
$10 "flights" of Reserve brews and nitro cold brew via a
separate Reserve menu.
Twenty-four-year-old Sauers came in for her standard
Starbucks caffeine jolt and discovered the new brand.
"I'd probably just stick to the regular, I'm not too picky,"
said Sauer, a recent transplant from Ohio. But she showed the
kind of aspiration that Starbucks seeks.
"If I had the money to spend more towards coffee I'd do it,"
she said, calling the Reserve bar a great idea for the
neighborhood. "I think people want it, too."
Reserve stores will exclusively sell and serve exotic,
small-lot coffees that can cost $50 per 8-ounce bag. Executives
expect customers to stay longer and spend more, driving twice
the financial returns of typical Starbucks stores, which have
average unit sales of about $1.6 million annually.
Reserve likely has room to set prices higher than Starbucks.
Blue Bottle and Intelligentsia shops in Los Angeles charge $4.50
for their 12-ounce lattes, versus $3.25 at Starbucks.
Starbucks' 1,000 Reserve stores could boost company revenue
if they hit targets, said Bernstein's Senatore, who cautioned
that Schultz's new project has investment requirements that
could become less attractive in a slowdown.
And as Starbucks has already learned, moving upscale carries
its own risks.
"There is always a market for what is different, special and
rare, but the minute you become so available that anyone can get
what you are selling, you lose your cachet," said market
researcher Robert Passikoff, president and founder of Brand
(Reporting by Lisa Baertlein in Los Angeles and Tim Baysinger
in New York; Editing by Peter Henderson and Leslie Adler)