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Innovation Jan-Feb 2008 > Cover Story
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HOW RTD INNOVATION KEEPS THE BUCKS FLOWING

By Aliyah Baruchin

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4. Try new delivery venues.

For Gerry Lopez, president of Starbucks Global Consumer Products Group, the job for the past three years has been to take the company’s act on the road. “Our mission is building brand equity by allowing our customers to enjoy the Starbucks brand outside our stores,” he says. “If we can in any shape or form remind our customers about Starbucks when they are someplace else, we think that’s a win.” That’s already succeeded, with Starbucks’ RTD reach firmly established in supermarkets, warehouse stores, and convenience stores. “We have RTD coffee products in something north of 50,000 convenience stores,” says Lopez. “So these stores already have a much bigger footprint than our stores.” In the U.S. alone, the company added over half a billion servings of bottled Frappuccino outside its stores in 2007.

RTD is also part of the Center Store Café supermarket launch, a non-branded coffee-aisle redesign that has been installed in 850 supermarkets nationwide. The installation has already driven a total coffee-aisle dollar increases of 9 percent and a premium coffee segment increases of 26 percent in the Midwest. “We want to inform the coffee aisle, to make it be more of a destination,” says Wendy Piñero-DePencier, vice president of Global Consumer Products. “The explosion in RTD coffees as well as packaged coffees has been immense, and sometimes when you’re down that aisle and your behavior is to explore, it can be a bit overwhelming. The Center Store Café makes it be a more inviting environment and a more organized environment, so the experience can be more enjoyable.” On Center Store Café shelves, Starbucks RTD varieties are available in four-packs, and many displays also incorporate a RTD cooler for chilled single servings.


But the newest Starbucks RTD innovation isn’t about chilled: it’s about hot. Hot Vending, the company’s premier new RTD initiative, will offer 9 oz. servings of six warmed Starbucks varieties – one brewed variant, four espressos, and a hot chocolate, priced at either $2.00 or $2.50 – at vending machine sites to be located in all the usual places: colleges and universities, office buildings, airports, train stations.

The company is thrilled about the project, which went into commercial tests in 2007 and will launch into a broader market in the first half of 2008. “This is the finest quality coffee, heated on demand at convenience locations. It’s a transformational innovation,” says Doucette. The system uses fully recyclable pull-tab steel cans that keep the product warm without burning the consumer’s hands. Warming time is 47 seconds, and all six varieties have the same shelf life as bottled Frappuccino.

Both Doucette and Wirtanen stress that in and of themselves, the machines and cans, which are proprietary, represent a giant step. “This is never-been-done-before kind of technology; we’ve had to redefine the way that you do hot coffee vending,” says Wirtanen. “We would not be doing this if we didn’t feel like we could do it in the highest quality way, that would match the Starbucks equity.” It must have been an irresistible impulse for Starbucks to want to address the grim flavor experience that is the average American hot-coffee vending machine. “There are over a quarter of a million hot-coffee dispensers out there. These people are suffering!” says Lopez. “We want to transform them, and give people an opportunity to enjoy Starbucks-quality coffee.”

5. Try new countries.


Howard Schultz’s return as CEO brings a new push toward increased international growth. Analysts agree it’s the right direction for the company to take overall, and RTD is no exception. For all its success, Starbucks’ U.S. RTD market has been dwarfed by the company’s success in Asia. There, RTD coffee was already a frenetic category – 1 billion U.S. vs. 12 billion in Japan – and with convenience stores in Japan sometimes taking RTD coffee deliveries twice a day. Starbucks’ primary RTD product in Asia, a fresh-dairy chilled-cup beverage called Discoveries that is offered in four flavors, launched in Japan in September 2005. On its first day, the product sold out entirely in Tokyo by 3:00 PM.

The company has since expanded into Taiwan and Korea, and Korea now features both Frappuccino and DoubleShot, in slightly different formulas than the U.S. originals, in addition to Discoveries. In November 2007, Starbucks also reached out to China, launching bottled Frappuccino in Shanghai, Beijing, and Hong Kong. Though the company has no plans to try to market a product like Discoveries in the U.S., Wirtanen says that their success in Asia will inevitably have an effect on U.S. innovation. “We will gather inspiration from wherever we can find it,” she says. “And we definitely look to the international markets to see what’s happening there, to see if it’s something that we can translate for the U.S. consumer.”

For the moment, Hot Vending will doubtless occupy much of the company’s RTD-innovation-related time, energy, and enthusiasm. And if other Asian countries are any predictor, the RTD expansion into China will be huge. After that, we’ll have to wait and see what emerges in RTD as a result of Schultz’s promises of new category-building initiatives. In the meantime, back in Seattle everything buzzes along – the coffee cuppings, liqueur and ice cream and premium chocolate ventures, the newest roasts and exotic blends, the general caffeination. Amid all the current unrest, there’s still a particular flavor of success here: unprecedented, unreplicated, and continuing. The big, calm building hums with it.

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There are currently 1 comments on this article
On 5/2/2008, scum1 said:

Shock Coffee Triple mocha is a much better RTD than Frappuccino. It has better natural ingredients, better taste, and 3 shots of espresso per 8 oz can. It is just like Red Bull dominates by name recognition and distribution. Starbucks name is huge so 99% of the time your average person buys based on name. Try a Shock Triple mocha and get back to me.

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