As CEO Schultz eyes a huge overseas market for instant coffee, will the new Via product damage the Starbucks brand? Enter the late Don Valencia
As Howard Schultz contemplated introducing a Starbucks instant coffee last year, he knew he would face all sorts of skeptics—chief among them, his own employees.
Starbucks (SBUX), however diminished it might be these days, is still supposed to be about the experience of coffee: the ritual preparation, the sense of comfort, indulgence, and sometimes community. The company already sells packaged coffee and has opened drive-throughs. But to some, the notion of instant coffee seemed to threaten the brand in a different way altogether.
"It took a lot of courage to say that even though instant coffee is the worst cup of coffee you can have, we are going to reinvent it," Schultz said in July, as he was carefully planning the Sept. 29 launch of Via Ready Brew. "We've taken a lot of time with it because we know it could undermine the company if we don't do it right."
Researchers at Starbucks have been tinkering with instant coffee for almost two decades. The quest began elsewhere, though, with an immunologist named Don Valencia, who liked to experiment with coffee in his free time. Working in his own lab, Valencia managed to create an extract that proved flavorful enough to impress Schultz. By 1993, Schultz had hired him to run Starbucks' research and development effort. It was Valencia's extract that made it possible for Starbucks to develop its bottled Frappuccino and coffee ice cream. He spent years trying to create an instant coffee that passed the taste test and could be produced on a mass scale, but left the company a few years ago without having succeeded.
Premium Pricing for Instant Packets
When Schultz reclaimed the position of chief executive in January 2008, sales were slowing for the first time in the company's history and he was looking for new products. Coming up with an instant coffee became a priority. Most coffee drinkers outside the U.S. use instant—a $20 billion global market with no Starbucks presence. Schultz also figured that Americans, who account for just 4% of worldwide sales of instant coffee, might appreciate a good, quick cup when stuck in places without a Starbucks cafe—say in a plane, bus, or some remote office or location. (He wanted an instant coffee that could be sold in individual packets and made with hot or cold water.)
Starbucks is looking for new growth opportunities while it faces down low-priced competition from outfits such as McDonalds (MCD) and Dunkin' Donuts. For some analysts, the test will be whether Via impresses consumers enough to justify paying a significantly higher price than commanded by such instant brands as Nescafé's Taster's Choice. At Starbucks, three single-serve Via packets will sell for $2.95; a box of 12 will fetch $9.95.
About a year ago, company researchers came up with what they call a micro-grinding technique (patent pending) essential to making an instant coffee good enough for Schultz. He began serving it to his wife and friends on the sly and said none discerned that it wasn't brewed. "I've been fooling people for the past year," Schultz told BusinessWeek in a Sept. 29 interview.
It came time to persuade the company's self-proclaimed—and sometimes officially trained—coffee experts that the instant was not just drinkable, but as good as regular Starbucks brew.
First Move: Convincing the Baristas
"There were a lot of doubters who said we were going downmarket. But the proof is in the cup," said senior executive Michelle Gass during a June interview. (Gass was then chief marketing officer but has since been promoted to run Seattle's Best Coffee, a division of Starbucks.) Gass and Schultz made sure employees in every store had a chance to try Via before their customers did in the test markets of Seattle, Chicago, and London.
Sometimes executives conducted blind tastings at the stores. Schultz claims most baristas couldn't tell the difference. "The only way a product like this will succeed is if the people representing it trust it and believe in it," he says.
Schultz and Gass quickly realized that telling the story of Don Valencia would be one of the best ways to get people at Starbucks to believe that instant coffee wasn't a desperate betrayal of the company's culture.
"It was a 20-year journey and he was the inspiration," said Gass. "We thought it would be great if Don (who died two years ago) could play a role in some way, even if we were the only ones who knew it." When it came time to name the coffee, Gass and her colleagues went through thousands of possibilities. "The day we heard 'Via,' we knew. It speaks to the mobility and has a V for Valencia," she said.
"Will that story be in an ad campaign? No, but we know it."