Making the 'Discovery'

November 1, 2007
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Making the ‘Discovery’

As Starbucks expands its coffeehouse business abroad, it also is expanding its CPG business. In fact, the ready-to-drink coffee segment is far more mature in some international markets than it is in the United States. The Japanese market for RTD coffee, for example, is 10 times the size of the U.S. market. Working with Suntory, Starbucks has made Japan its model for expanding into the rest of the world.
“The market seems to be big for coffee because coffee tends to be another product that you can drink that’s more natural, like tea and water,” says Rich DePencier, vice president of international consumer products at Starbucks. “In that particular market in Japan, they tend to stay away from sugary beverages like sodas. So really what you find is most of the people are drinking things that are good for them, more functional-based drinks. And that’s where coffee comes in because it has such an authentic flavor to it.”
Japan’s ready-to-drink coffee business is close to $10 billion, and more than 80 percent of that is in bottles and cans. It also is a highly competitive market for new products, where many products fail within the first year and some within the first few weeks, the company says. That led Starbucks to try a different approach when it launched an RTD offering in 2005. It developed a “chilled cup” product using locally roasted coffee and milk. Rather than glass bottles or cans, the chilled cup products are packaged in covered plastic cups designed to look like the cups Starbucks uses on-premise, complete with an expandable straw attached to the side.
“Our inspiration was to be reminiscent of the coffees of our coffee shops, of a fresh latte that you could get at our store,” DePencier says. “That’s our benchmark when we do product development.”
The company called the product Discoveries based on the concept of flavors from far-away places. That, too, was a result of the overall Starbucks business, DePencier says. “We’ve got hundreds of farms all over the world that we’ve constantly got buyers going to, and traveling and talking to farmers,” he says. “What happens is lots of times in those markets, they’re inspired by the flavors and the culinary work of the marketplace, and what we were finding was they were coming back with great ideas that mix well with coffee.”
The Discoveries lineup includes Milano Espresso, Seattle Latte, Qandi Caramel and Paris Café au Lait, each with graphics that represent those locations. Unlike bottled products, which have a shelf life of several months, Discoveries has a 14-day shelf life and carries a premium price that is more than twice that of bottled products. The fresh quality of Discoveries was essential to launching the product in Japanese convenience stores, which unlike c-stores in the United States, have a reputation for carrying fresher products than other retailers, the company says.
“That element of freshness really is the key to Discoveries,” says Gerry Lopez, president of Starbucks Global Consumer Products Group. “The mating of the coffee with the fresh milk is really what makes it quite a unique product, and quite candidly, what makes it such a challenge to bring to a country like the U.S., where the distances are a lot greater. You cannot produce it in a couple plants and ship it all over; you’ve got to produce it locally and distribute it locally.”
In addition to Japan, Starbucks has launched Discoveries in Taiwan and Korea, working with Dongsuh in Korea and Uni-President in Taiwan. It turned to its North American partner, PepsiCo, for its RTD rollout in China this month. Using Pepsi’s bottling network in China, the companies have launched bottled Frappuccino in Beijing, Shanghai and Hong Kong.
The companies chose a unique marketing venue to advertise the new products — a sponsored soap opera that plays on flat-screen monitors in Shanghai’s subways. According to a report in The Wall Street Journal, the “subopera” will be shown in daily segments of a few minutes each and will be replayed throughout the day and on the Internet.
Starbucks bases is international expansion of CPG products on its coffeehouse presence in each market. The company must have a certain number of stores in a given country before it will consider launching products into take-home channels. Last year, the company marked its 10th year in the United Kingdom with the introduction of packaged coffees in that market. As it does in the United States, Kraft Foods handles distribution of Starbucks packages coffees in the United Kingdom and in Canada.
Unlike its experience in Japan, where competition was its biggest hurdle, the company’s challenge in the United Kingdom was steering consumers away from their traditional instant coffee to a relatively new premium segment. The company used coffeehouse personnel to promote the take-home products, sent out postcards that told consumers they could also find Starbucks coffee at their supermarket, and teamed with U.K. retailer Tesco for a sampling program.
“It is an instant [coffee] market, but what we’re finding is, just like in the wine industry, as people become more and more familiar with coffee, they want to grow and they want to experiment and they want to discover new flavors and forms,” DePencier says. “The premium segment is the one that’s growing.”

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