Starbucks Changes Direction with Big Drive-Thru Plans

StarbucksLet's say you want a Macchiato without having to step out of your Mustang. Or perhaps you want a Java Chip Frappuccino, but don't want to find a parking spot for your your Fiat.

Well, Starbucks (SBUX) has you covered.

One of the bolder initiatives announced during last week's quarterly conference call was that 60 percent of the 1,500 new stateside locations that the barista-tended chain plans to open through the next five years will have drive-thru windows.

It's a big departure from the Starbucks concept that most of its customers currently experience, but the company's been seeing strong sales at the handful of stores that already offer drive-thrus. So it's plans its expansion with an eye toward cashing in on hurried drivers.

Brews Over Burgers

Would Starbucks be aggressively pursuing drive-thru locations if McDonald's (MCD) -- and now even Burger King (BKW) -- hadn't beefed up their coffee offerings?

Mickey D's introduced McCafe drinks five years ago, allowing diners to opt for lattes or iced caramel mocha brewed drinks to go with their Big Macs and fries. Other fast food chains have been following suit.

Starbucks hasn't missed a beat, despite the burger flippers pushing into its bean business. Beyond a brief stretch early in the recent recession, comparable-store sales have remained largely positive at Starbucks. However, as rushed morning commuters grow accustomed to being able to grab a caramel hot chocolate or premium roast coffee without having to leave their cars, Starbucks knows it doesn't want to be left behind -- even if means becoming something that it's not.

Redefining Coffee Culture

Starbucks prides itself on its cozy confines. The aromatic scents of freshly brewed java are so important that the chain scrapped several breakfast items a few years ago after they were making the place smell like -- well -- a McDonald's.

Now Starbucks wants to take a page out of the Mickey D's playbook.

It won't be easy. For starters, most of its existing locations can't play along. It's just not possible to add drive-thru windows when you're smack dab in the middle of a suburban strip mall or on the ground floor of a metropolitan high-rise building. Some corner locations could be adapted, though the ideal solution for a drive-thru is a standalone store where drivers can circle around as they order and pick up their beverages.

It's not just about real estate. This transformation may also make it harder for Starbucks to justify its price premium. How do you compete with a McDonald's coffee on the dollar menu? Without the upscale in-store experience of relaxing scents, sights, and sounds to set a concept apart, will folks pay nearly twice as much for a Frappuccino than they do a for a caramel frappe at BK?

Putting the Pedal to the Caffeinated Metal

However, Starbucks can't go back now.

Stores with drive-thru access currently account for a third of its U.S. restaurants but contribute nearly 45 percent of the chain's operating profit.

"We are investing in this high-margin store format with innovations that will elevate the customer experience of our brand by enhancing drive-thru efficiency and consistency of service," founding CEO Howard Schultz explained during last week's call.

It's hard to argue with Schultz when his company is on a roll.

Starbucks posted strong results for the holiday quarter. Revenue and earnings climbed 11 percent and 14 percent, respectively. Comparable-store sales rose 6 percent globally, and an even heartier 7 percent closer to home. The baron of baristas has now come through with 12 consecutive quarters of comps exceeding 5 percent.

Starbucks estimates that one in every 10 people in this country got a Starbucks gift card this holiday season.

Drive-thru windows were probably far from Schultz's mind when he dreamed up the Starbucks concept 42 years ago after experiencing the rustic coffee houses of Europe, but it's now the way that the game needs to be played.

For better or worse, drive-thru windows are part of the company's future.

Motley Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide, McDonald's, and Starbucks. The Motley Fool owns shares of McDonald's and Starbucks.

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Ledodo Loco

June 26 2013 at 1:22 AM Report abuse rate up rate down Reply
you old fart


January 31 2013 at 8:03 AM Report abuse rate up rate down Reply

In our community of about 80,000 residents', our 2 Starbucks are located inside the grocery store. I've spoken w/ the manager regarding a drive-thru and the increase in revenue, it truly is a hassle having to park the car, walk in the rain or snow just to get my 'mocha grande' 7 mornings a week. But I'll tell you something, there is something special about Starbucks espresso beans, deep, rich, robust flavor that just can't be duplicated. I alone, spend over $150.00 a month. It would be worth the investment for all franchise owners' to speak w/ an architect and anti-up.

January 31 2013 at 5:03 AM Report abuse rate up rate down Reply

OMG! I had to drink McDonald's coffee when I was down in Benton,IL. for a funeral because the closest Starbuck's was at least 30 min. away in Marion. McDonald's coffee was nasty. How I kept from regurgitating is beyond me. I drank it out of sheer desparation. U can bet UR sweet Venti Quad Pumpmkin Spice Latte that I made it a point 2 find the 1/2 way point (or close 2 it) from home 2 Benton & vise/versa which ended up being in Champaign/Urbana. Good ol' college towns...U know they need their caffeine fix for studying. I have 2 thank the Starbuck's workers in Matteson, IL. for locating that store for me & a thanks to the Urbana store for making sure I didn't get lost on my way there ;- )

January 30 2013 at 10:45 PM Report abuse +1 rate up rate down Reply
2 replies to HOT 1's comment

There are Starbucks -- with drive-thrus -- in both Effingham and in Charleston. The one in Marion is inside Target, which is behind the mall and an expedition to get to. Sorry that you had to go all the way to the Starbucks in Urbana when there was one -- with a drive-thru -- on Prospect Avenue in Champaign, which would be easier to get to from I-57 than going all the way to Urbana. I hope this help the next time you have to drive downstate.

January 31 2013 at 5:21 AM Report abuse rate up rate down Reply
you old fart

I'Drather make my own at home than put up with that overpiced weak stuff their trying to pass off as coffee

January 31 2013 at 8:14 AM Report abuse rate up rate down Reply