Starbucks tries going upscale

The company opens another 'incubator' store to test alcohol sales, gourmet cheeses and other concepts.

By Kim Peterson Apr 5, 2010 8:47AM
Kim PetersonThere's no question that some coffee shops are going upscale, with organic pastries and carefully-brewed lattes. But should Starbucks (SBUX) be one of them?

After introducing mainstream America to the cappuccino -- and then expanding so quickly and recklessly that quality suffered -- Starbucks is thinking seriously about a makeover. So seriously, in fact, that the company has opened two stores to test out some new concepts.

At the top of the list? Serving alcohol -- an idea that is quite normal at cafes in Italy, where Starbucks chief executive Howard Schultz shaped his vision for the company.

Also being tested are gourmet cheeses and meat plates, as well as better-tasting pastries, Reuters reports. The new Starbucks stores have different names, such as "Roy Street Coffee & Tea" in Seattle, and are trying to feel more like the small neighborhood coffee house than the sprawling, homogenized chain.

Another Starbucks experiment in Seattle, 15th Avenue Coffee & Tea, is being described by the company as an "idea incubator."

"The Starbucks brand has shifted over time from being a specialty brand to being more of a mass brand. There is a gap at the top of the market," one Harvard business professor told Reuters.

So as McDonald's (MCD) and the McCafe horn in on the low end of the market, Starbucks finds itself looking more closely in the other direction.

And Starbucks investors should be asking some tough questions about the company and its future. Will Starbucks continue to expand, milking its Frappuccinos and caramel macchiatos to the last drop, or will it cede the market for the artisanal niche it's currently exploring?

Starbucks clearly wants to retake the top end of the market. But it's extremely difficult to capture that at the scale the company is used to. Is there a way to bring the velvet-curtained incubator to the masses? And do Americans even want that, at this point?

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