Starbucks Launches an Experiment Worth Watching

A recent Bloomberg story reports that Starbucks, the ubiquitous American coffee chain, is looking to boost its evening sales by adding alcohol and wine bar-like food to the menu in thousands of stores. It seems that those plotting the firm's strategy see an untapped market in late afternoon and evening customers--a time of day where sales at typical Starbucks plummet. With most markets already saturated with Starbucks locations, one alternate strategy for growth (not coincidentally, Starbucks is trying to double its market cap to US$100 billion) would be to expand the market by offering new products to existing customers.Let's walk this one back a step or two to understand the origins of the strategic move. The typical coffee outlet does 70% of its business before 2:00 PM, leaving a bunch of relatively soft hours before closing. Offering something that appeals to customers in the 4:00 PM and beyond time space seems like a good strategy to grow against a mature market. And light bites and alcohol sell well, at least in their tests, after 4:00 PM.Whether this is a good strategy only time (and sales) will tell, but expanding one's portfolio of products is not without risk. Even when closely related within an industry (such as a couple of case studies of airlines buying hotel chains), the challenges of running a different type of business can be daunting. A number of experiments by restaurants of being one sort of place during the day and having a very different menu and atmosphere at night have not been successful (Cosi tried this in the eastern U.S. a decade or more ago--see this Chicago Tribune story about its unwinding). Starbucks acquisition of Teavana last year seems like a better bet--tea and coffee are very closely related.What makes an experiment of this sort interesting to us is that many of our independent and international school clients are thinking about doing something equivalent. Not entering the booze business, really, but fighting mature and maturing markets by selling the same customers (families) more services; e.g., language and technology courses on weekends and after school, or expanded day care programs for younger siblings. Other schools are pursuing the Holy Grail of nontuition revenue by considering less closely related products and services. As with Starbucks, only time will tell.