Just when you thought Starbucks Corporation (NASDAQ:SBUX) was done opening its cafes on practically every street corner, CEO Howard Schultz has found another way to put up a few more. It’s a situation that could mean big things for Starbucks stock.
Starbucks is now going after the upscale crowd, opening a coffee shop in New York City where plain black coffee costs twice as much as its widely available “Pike Place” roast.
The café is called “Starbucks Reserve,” named after its new premium line of coffee, and it’s one of about 500 reserve-only coffee stores Starbucks plans to open globally over the next several years.
According to one Yelp reviewer, “This is not your regular Starbucks. This is Starbucks on crack.” (Source: “Starbucks is opening upscale cafes where plain black coffee costs $4,” Business Insider, February 8, 2016.)
With the new venture, Starbucks hopes to lure in aficionados of the high-end coffee market. The company will be competing with coffee chains like Stumptown Coffee Roasters, Dilanos Coffee Roasters, and Blue Bottle Coffee, whose customers generally shun the big-business image that Starbucks embodies. To separate the new stores from its regular stores, Starbucks is not incorporating its brand logo into its Starbucks Reserve stores, opting for an entirely new logo instead.
So why is the coffee so expensive?
Such coffees Starbucks and its competitors are selling come from a single farm that is typically located in a remote location, so production is limited and only available at certain times of the year.
The opening of reserve-only cafes follows Starbucks’ December 2014 opening of its similar café, called “Starbucks Reserve Roastery and Tasting Room.” It’s a massive 15,000-square-foot coffee house in Seattle that has been dubbed the “theatre of coffee.” (Source: Ibid.) It’s also the site where Starbucks roasts its reserve coffee.
Starbucks’ gamble on reserve coffee is paying off so far, since it introduced reserve coffee into its cafes.
According to Trefis estimates, the beverage spend average per customer rose 10% year-over-year in 2015 to $5.22. But this was expected since reserve coffee is much more expensive. (Source: “Starbucks Reserve Stores & Accelerated Expansion Drive Q1 2016 Top-line Performance,” Forbes, February 1, 2016.)
If the Starbucks Reserve stores take off the way the company’s regular stores have, Starbucks will have a new growth driver of which current and prospective investors of SBUX stock may want to take note.