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Starbucks eyes high end of QSR market with new line


After years of hitting the snooze alarm, Starbucks Corp. is finally arising for breakfast.

Amid an industrywide scramble to feed the demand for quick morning meals, the Seattle coffee-chain operator is rolling its new breakfast sandwiches into Los Angeles, Boston and other markets at a rapid clip.

The warm sandwiches — Starbucks' answer to the Egg McMuffin — are now in 1,200 locations, up from 225 a year ago. In late January the company started making the line available at drive-thru windows in Chicago and other markets.

Jim Donald, Starbucks' president and chief executive, said that based on "strong customer acceptance" the company has "aggressive plans" to continue rolling out the program over the next few years.

The sandwiches add approximately $35,000 dollars in incremental average annual sales to each store, Donald told investors following the company's release of its first-quarter earnings on Jan. 31.

Starbucks is facing increasing competition in the morning as rivals at different levels of the market launch gourmet coffee and at the same time rev up their own breakfast offerings. Wendy's, until now dark in the morning in most stores, has plans for a major breakfast expansion, with perhaps as many as 2,000 units sporting a new morning menu by year-end. Burger King's new value breakfast menu boasts 10 items for $1, including the new Hamlette sandwich.

Mark Kalinowski, a restaurant analyst for the Buckingham Research Group, predicts Starbucks eventually will add its sandwiches to virtually all domestic company-owned stores. He calculates that the revenues from the program boost sales by about 3 percent. Starbucks has some 6,000 company-operated stores, plus about 3,400 licensed locations in the United States.

Until recently, the rollout has been slow as molasses. The sandwiches first were introduced in 2003, in Seattle and Washington, D.C. Last May they were rolled out into 100 stores in Chicago, and hit New York, a major market with 200 locations, in October 2006.

The line, with five choices, seeks to give an upscale twist to typical quick-service breakfast fare. The sandwiches are sourced from two outside vendors in the United States and delivered to stores. Offerings include a sausage, egg and aged Cheddar cheese sandwich on a toasted English muffin. That sandwich is the best seller, according to Lisa Passé, a Starbucks spokeswoman.

Other choices include eggs Florentine with baby spinach, egg, Havarti cheese and herb spread; Black Forest ham, egg and Cheddar and a reduced-fat sandwich with turkey bacon, cholesterol-free egg and reduced-fat Cheddar on a multigrain English muffin.

Just as Starbucks charges more for its coffee than its quick-service rivals, it also is charging more for the sandwiches. Prices range from $2.95 to $3.25, depending on the market.

Part of Starbucks formula is that it does no cooking in its locations, so to pave the way for the warm sandwiches, the company has had to purchase ovens, which can both warm and toast the product. It takes about one minute to heat the sandwiches, Passé said.

The ovens also are being used to heat up pastries, such as chocolate croissants and chocolate chip cookies, as well as lunch sandwiches.

In addition, Starbucks has tweaked the menu a bit. Gone is a potato bagel, which was used for a Virginia ham and egg sandwich in New York. It has been replaced by an English muffin.

-- By Louise Kramer

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