Tuesday, August 17, 2010

Potential impact of Starbucks entry into the wine market

Starbucks has entered the wine market.  Its first steps have been small, and calculated, but they have landed with resounding force in the wine-purveyor arena.  Some see Starbucks entry into the wine market at this time as a way to bolster slowing domestic growth while others see it as a shrewd, opportunistic move in a market with conditions similar to those of the pre-Starbucks coffee market.  Regardles of the reason, this formidable market-creator is now in the wine business and has to be accounted for.  In this post we will examine Starbucks capabilities and the potential impact of its entry on Orlando-area wine purveyors.

The elements that render Starbucks a feared competitor in the current fragmented wine marketplace are as follows?
  • Its demonstrated brand-building capabilities
  • Its market-moving potential, given its size and buying power
  • Its in-place infrastructure, to include: prominently located stores; name recognition; centralized ordering; centralized information systems; common policies and procedures; and institutionalized training regime.
  • The ability to cut across market segments; on-premises, retail
  • Its potential to establish a "wine lingo" of its own that will have current players on the outside looking in
  • Its potential to capture/create wine newbies.
I attempted to guage the impact of a Starbucks entry into the Orlando wine market by interviewing selected market players on the topic.  The most striking aspect of the conversation was that none of the individuals that I spoke to was aware, prior to my introducing the topic, that Starbucks was preparing to compromise their viability.  After Adam's-apple-bobbing pauses, they then launched into their feelings on the topic.  Only one of the interviewees was entirely enthusiastic about the potential entry of Starbucks into the market (and I still can't understand why).  The overwhelming sense among the others was of uncertainty.  The general consensus was that it was a good move for Starbucks but would not be helpful for independent wine stores.  The feeling was that Starbucks would be able to lock up the product stream of some boutique wineries and marry the buying power of a Total Wine with the demographic, name recognition, distribution chain, and foothold of a Starbucks to the detriment of the independent wine store.

Did consumers benefit when coffee went from 75 cents at the gas station to $5 at a Starbucks.  Consumers seemed to think so, because they kept the cash registers ringing at neighborhood stores.  Will we see this same type of cost-benefit tradeoff in Starbucks' wine marketing as we move forward?  Most likely not because the floor for a glass of wine begins at the ceiling for a cup of Starbucks coffee.  It is quite likely that Starbucks will be successful in this venture, however, because of the strengths that it can/will bring to bear on this problem.  Independent wine retailers will have to study this problem carefully in order to develop relevant survival/"thrival" strategies.


  1. Well, you had one interviewee that got it right. This will be a positive thing for area wine retailers because SBUX isn't going to retail any wine -- just sell it by the glass and possibly by the bottle for on-premise only consumption. It will most likely expand the base of wine consumers in the Orlando area, benefitting local retailers. Regarding "locking up the product stream of some boutique wineries" -- it ain't going to happen. SBUX is going to need to work with large wine companies in order to maintain control of the selections (they're going to want a fairly homogenous offering around the country), and ensure a reliable channel of distribution. I doubt SBUX will ever have the passion for wine that they have for coffee -- they are merely trying to bolster a weak daypart in their current business model. All this said, I'll bet it's at least a year or two before we even see the first SBUX in Orlando offer wine, if ever. They are very, very early in testing.

  2. Thanks for the comment. My last sentence gave an erroneous impression as the market under consideration is the on-premise/wine-bar space. Towards that end, I only intervieweed players in that space. I agree with your comment regarding the need for Starbucks to work with large wineries but feel that the opportunity is too large, and the wall-street penalty too large, for this to be a cursory pass at the market on thier part. I have no idea when the concept will be introduced into the Orlando area but given the fact that we get visitors from all around the country, there would seem to be some benefits to having one or two early stores here. In addition to a passion for wine, Starbucks will also have to bring some cred to the table and that may point to wine people being brought in to the address the issue that you raise.

    Given the fact that Starbucks did sell coffee for home consumption in their stores, I am not sure what would prevent them from some time in the future seeking to enhance their revenue stream from the venture by selling wines from a web site or at the stores.

    Again, thanks for the comment.

  3. Since it's likely that SBUX will be using widely available wines, it's unlikely they will be able to price them competitively for retail sales. So even if they did decide, down the road, to offer them for take-home, I really doubt they'd put a dent in the retail wine market. I see nothing but a potentially positive outcome for the Orlando wine market if they proceed here.

  4. Even though Starbucks may potentially use widely available wines, those wines may be private-labeled and, with Starbucks' buying power, will have been procured at prices below the prices available to the regular retailer. This would give Starbucks pricing flexibility. The question then becomes whether Starbucks uses that advantage for profit or for predation. Further, Starbucks has non-wine products in the store which can be brought to bear in a whole-store pricing strategy that accords even greater pricing flexibility re wines. The market will be positively impacted by Starbucks presence -- total sales will increase because of its number of outlets and new customers -- and if the pricing differentials are not vast, people introduced to wine in Starbucks are potential customers for all players. My concern is that the market is not growing at a rapid enough rate to absorb a huge new player like Starbucks while continuing to support existing players at similar or increased rates of growth.