COMMENT: Starbuck’s northern exposure

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Starbucks is to pitch its coffee as a gourmet delight in Canadian grocery stores in a bid to attract those consumers who would never normally venture into its cafes. This is yet another clever move by the chain in its home North American market: on current evidence, it seems there really is no stopping Starbucks.

Seattle-based Starbucks is adding to its empire. The beverage purveyor has announced plans to distribute eight blends of Starbucks coffee to grocery stores in Canada through a partnership with Crossmark Canada. The extension of Starbucks' brand beyond its Canadian coffee outlets marks its first major entry into that country's grocery channel since it opened its first cafe there in 1987.

This latest announcement follows a series of major developments within North America for the coffee company. Starbucks recently announced the formation of its own music company, Hear Music, to market recordings of music played in its cafes. The company also partnered with XM Satellite Radio to cross-promote each other's brands, and recently moved into meal service by adding salads and sandwiches to the menus of all of its US cafes.

It is doubtful that the availability of Starbucks coffee in Canadian groceries will cannibalize sales from its cafes. Indeed, Starbucks has not seen any decrease in in-store sales in its US cafes since it began offering its coffee in US grocery stores in 1998. In July 2004, US same-store sales climbed 10% against the year before.

Starbucks director James Peters agrees that Starbucks will reach new consumers, and is not looking at the new distribution agreement as converting business from one to the other. Rather, as Mr Peters told the Vancouver Sun, "it's going to take our coffee into new places for new customers to have easy access to." The new grocery store offerings are meant to appeal to gourmet coffee drinkers who might otherwise never visit a Starbucks, allowing the company to increase market penetration.

By continuing to position its brand as a gourmet alternative to regular coffee as it moves into Canada's grocery channel, Starbucks is ensuring that it will not have to compete with non-gourmet Canadian coffee brands such as Maxwell House and Nabob. Taken in the context of its other recent strategic moves in North America, Starbucks is going from strength to strength.

Sectors: Soft drinks

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