Starbucks could be onto a corker of an idea

In the past I’ve been pretty scathing of some of café giant Starbucks’ strategic choices.

They under-estimated the sophistication of the Australian coffee market, leading to large numbers of store closures.

They have since embarked upon a pretty risky expansion into the instant coffee market, that I have argued could be cannibalisation.

But, their latest move I can see a lot of merit in.

According to this story, Starbucks is experimenting with offering wine, boutique beer and hors d’oeuvres in their cafés:

“After 4 p.m., customers will be able to order wine chosen from Pacific Northwest vineyards …and local craft brews with prices … only slightly more than a Venti specialty coffee. Appetizer inspired platters ranging from Mediterranean plates to artisan cheese plates (brie, Gouda, cheddar, almonds) and Italian selections (prosciutto, mixed olives whole wheat crackers)…will be brought to your table.”

This has only been rolled out in one store thus far, but it seems a logical and complementary fit.

It addresses a particular weak spot in their retail model – that fewer people want coffees late in the day, and thus the firm’s valuable real-estate is underutilised at a time when many shoppers are still out and about.

It also plays to the firm’s strength as a provider of  a ‘third space’ where customers feel at home. Wine and beer are clear complementary products that appeal to some of the same customers, and in group situations, will bring in some new patrons also.

The interesting challenge/opportunity for the firm, is build some sense of community and excitement around the wines and beers on offer. The focus on local producers is logical and a nice way to overcome some of the growing distrust around their ‘big business’ status (e.g. in Australia). Such a buying policy also aligns well with the fair-trade coffee approach (smaller local beer and wine labels will have lower food miles and are more likely to offer organic fare also).

Exciting  also is the prospect that some brewers and wineries might be able to substantially boost sales through signing on as suppliers to what in many locales is a vase network of stores.

Much is made of Starbucks ‘education’ of US palates – perhaps wine and beer will be next…

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Fostering a Chinese wine giant?

While we all wait eagerly to see who might buy up the soon-to-be-untangled Foster’s beer business (see this piece for a recent update of the contenders), it is possible that the more fascinating and globally significant acquisition might actually occur on the wine side of the company’s separation.

An Australian article last month got me looking into the prospect of a Chinese takeover of some or all of the forthcoming wine business (renamed as Treasury Wine Estates).  The article mentions that China’s Bright Foods, failed bidder for CSR’s sugar business, has sounded out Foster’s about the firm’s “Hunter Valley operations focused on the blue-chip Rosemount brand”.

I was a little unclear on the size and scale of China’s wine market.  I have certainly heard the usual extravagant claims that it could be an enormous untapped opportunity for Australian exporters, but what I was unaware of was the actual scale of existing domestic production.

According to this academic study China is already the 6th largest producer of wine in the world (at 13,005m hectalitres in 2008).  That’s more than Australia (11,700m), South Africa (9,890m), Chile (7,860m) and NZ (1,700m).  Chinese production grew 17% between 2004-8, while pretty much all ahead and around them on the list experienced pretty hefty declines in volumes (e.g. Australia fell 20%, France 25%).

Certainly China is not currently a significant exporter of wine (unlike most of the other major producer nations), and the initial focus of any foreign acquisitions will likely be on servicing the Chinese market with higher quality imports.

The longer-term picture is where it gets interesting, however. Picking up a firm with strong international brands (which Bright Foods would certainly be doing if they secured some/all of Treasury) would allow the Chinese firm to build up much-needed expertise in marketing and distributing beyond Chinese shores.

This could well be the birth of a new wine giant.

(As an aside, there is an unfortunate irony to the possibility of a big chunk of Foster’s shifting into Chinese hands, as the firm had a very torrid time from 1993-2006 trying to build a beer presence in the country).

Squeezing some value out of Twitter…

I have been avoiding mentioning Twitter on here on the basis it may well prove to be a passing fad. My chief concern with the businesses attempting to network or communicate via 140 character messages (other than the sheer time-wasting aspect), was that I couldn’t see much value in it from a competitive advantage perspective.

This story about small-scale wine-makers does shed light on one potential productive use. Several wineries have found it a very effective mechanism to connect with wine-buffs, and open up new markets and retail channels.

Making such connections is crucial for differentiating oneself in this very noisy and overcrowded marketplace. Trying to communicate a message about the subtle points of difference of your wines can be expensive and time-consuming if it requires engagement with the wine media (let alone broader mainstream media). This scenario represents a considerable barrier to expansion for new entrants and smaller players.

Twitter may serve to break down this barrier. It seems especially promising with respect to connecting independent retailers and small wineries. The former have a strong incentive to find less accessible but marketable wines (as a point of differentiation from bigger chains and their buying power). If small wineries can communicate consistently about the progress of their winemaking, about successes, customer feedback, special deals etc, this can only help.

Twitter will work best for any business when it reduces the costs of doing business, increases information flows and learning, and if it can serve to replicate (or capture sufficient elements of) existing selling points in that market.

I just spent a couple of days visiting cellar doors in the Barossa. Engaging directly with the winemakers (and the wines of course) is a huge bonding mechanism. Regular tweets could go some way towards simulating that experience.

What other businesses could benefit from this sort of customer engagement?

Microbrewers?

Bands?…