A management assignment

January 6, 2006

'Fill 'Er Up -- With Latte' Will Starbucks's Embrace Of Drive-Through Service Undercut Its Hipster Image?

By STEVEN GRAY Staff Reporter of THE WALL STREET JOURNAL January 6, 2006; Page A9

RANCHO CUCAMONGA, Calif. -- As the company that popularized the $4 cup of coffee pushes beyond its urban roots to caffeine freaks in the suburbs and rural America, a big question is brewing: Can the upscale Starbucks image -- painstakingly cultivated with strong coffee, soft chairs and hipster music -- survive the drive-through window?

Starbucks Corp. is building hundreds of new Starbucks cafés this year with drive-through windows, a fast-food industry innovation pioneered by McDonald's Corp. decades ago. To many car-bound customers, it's an innovation whose time has come. "I wouldn't have stopped at Starbucks if it wasn't a drive-through," said Dan Fachner, president of the Icee Co., a convenience-store beverage supplier, who had just picked up a "Grande" black coffee at an Ontario, Calif., Starbucks not far from his office.

But other customers aren't enthusiastic. Laura Kanter, a 41-year-old legal recruiter in downtown Chicago, says she goes to Starbucks to sit down and talk with friends over coffee. A drive-through window, she says, "takes away from them being coffee-shoppy."

"In a way," Ms. Kanter continues, the company has "cheapened the brand. There are so many, and half the time the line's out the door and there's no place to sit." She recalls walking with a colleague on a recent morning to a Starbucks near their office, taking one look at the long line and continuing on to another Starbucks two blocks away.

Drive-through windows nudge Starbucks into closer competition with McDonald's, Dunkin' Brands Inc.'s Dunkin' Donuts and other fast-food chains offering lower prices and faster service.

"We are flattered that Starbucks is beginning to follow in our footsteps," says John Dawson, Dunkin' Brands' chief development officer, noting

that his company has served drive-through coffee for more than 25 years.

Starbucks is set to make the windows a fixture at more than half of the 700 company-owned stores it is slated to open in 2006 in Seattle, Chicago and other U.S. markets. Currently, out of 7,450 existing Starbucks outlets in the U.S., about 1,000 have drive-through windows.

With so many markets already blanketed by Starbucks outlets, the company is eager for ways to wring out more growth. The average annual volume at Starbucks stores with a drive-through window is about $1.3 million, or about 30% higher than stores without.

Drive-through service is also an important component in Starbucks's bid to increase its breakfast business with the introduction of hot breakfast sandwiches in some markets. Morning

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Starbucks plans to open hundreds of new outlets this year with drive-through service.

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commuters and others buying breakfast on the run contribute as much as a quarter of some fast- food chains' sales. Still, Starbucks executives steadfastly maintain their stores aren't "restaurants" -- fast-food or otherwise -- and swear there is no "cooking" going on, despite the ovens used to warm up sandwiches.

"The drive-through is only an added convenience, such as warming the sandwiches for our customers," says Chief Executive Jim Donald. "That's never been our intent, to be a fast-food restaurant."

On average, drive-through customers get served in about three minutes, Starbucks says -- about the same amount of time it takes in the cafés. "The [drive-through] customer has the same service expectations as someone in the store," says Jim Alling, president of Starbucks U.S. Company research indicates the drive-through windows are popular with customers, he says. "They feel it enhances the Starbucks image. ... Our customers say this is something they want."

But for some customers, the drive-through windows aren't fast enough. The bottleneck of cars and trucks waiting at a Starbucks drive-through window can be far worse than any line inside a Starbucks store. "In the store, it's an issue of queuing -- someone can have a complex order and step aside while it's being made," says John Glass, a restaurant industry analyst at CIBC World Markets, in Boston. But at a drive-through window, a car waiting for five lattes, two espressos and a cappuccino can't step aside; all that the cars behind it can do is cool their engines.

At the drive-through window at the Starbucks in Rancho Cucamonga, peering out at Highway 15 connecting Los Angeles and Las Vegas, jazz played over a loudspeaker on a recent afternoon. Employees hand out pastry and beverage samples to customers lined up at the drive-through "chute." As the line grew to eight cars, some people waited more than three minutes to get their orders. Others were served in less than two.

"We fill up the café in the evenings," said Jenna Bailey, the store's manager, "but we're [mainly] a drive-through store." More than 60% of total sales at Ms. Bailey's store come from the drive-through window, she estimates.

Starbucks began opening drive-through outlets in 1994 in Southern California partly to cater to parents with young children and maybe a dog in the car. The concept brings certain risks, such as higher costs for prime roadside real estate. Some communities have mounted opposition to them. Conrad Rybicki, a Northport, N.Y., attorney, recently got 800 local residents to sign a petition to block an effort to attract a Starbucks with a drive-through window to the upscale Long Island community. "I like Starbucks," Mr. Rybicki says. "But to construct a drive-through in this area, at this location, is ridiculous. It would be detrimental, as far as traffic congestion goes. It's a major intersection. We're a small village."

Starbucks is taking steps to improve its drive-through service. At the California stores, service times are measured by digital timers placed near the window where employees can plainly see them. And the company is installing "order confirmation" screens along the drive-through chute -- a feature executives say helps keep accuracy rates high. Additional pastry racks have been installed, in many cases exclusively for the drive-through, and the company may add ovens dedicated to warming drive-through orders. Some locations have awnings to shield cars in the drive-through chute from rain or snow.

It often takes up to four people to operate a Starbucks drive-through window: One to take orders, one to operate the cash register, one to work the espresso machine and a "floater" to fill in among the other three roles. All wear headphones that "ding" whenever a car pulls into the drive-through chute.

Drive-throughs complicate Starbucks' efforts to sell whole-bean coffees, CDs and other merchandise that together account for a growing slice of sales. "I think you'd lose some of that spontaneous, add-on purchase at the drive- through," says CIBC's Mr. Glass. At the Rancho store, Ms. Bailey says she keeps bags of whole-bean coffee handy and does some "suggestive selling" by asking customers, "Do you brew coffee at home?"

Write to Steven Gray at [email protected]

Starbucks drive-through

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