http://www.businessweek.com/magazine/content/11_18/b4226026215941.htm

Marketing

Starbucks Targets Folks Who Shun Starbucks


As a brand manager and later as global strategy chief at Starbucks (SBUX), Michelle Gass championed such popular innovations as green straws, domed frappe lids, and the Frappucchino. In August of 2009, Chief Executive Officer Howard Schultz handed Gass a challenge far removed from Starbucks's core: Remake Seattle's Best Coffee, the tiny brand the coffee giant had acquired eight years earlier.

Today Seattle's Best, which has 325 namesake cafes (vs. more than 17,000 at its larger sibling), is sold in more than 50,000 locations in the U.S. and Canada, 12 times as many as a year ago. While the brand remains several years away from Schultz's billion-dollar sales target, Gass has made progress repositioning it as a middle-market offering for folks who wouldn't be caught dead at a Starbucks. As president of Seattle's Best, she's put her coffee on passenger jets, into vending machines, on cruise ships, and in more grocery stores. This month the chain will open 10 cafes inside Wal-Mart Stores (WMT) in Canada. "She's brought a lot of energy and focus to a brand that had not been performing to expectations," says Starbucks board member Olden Lee.

A chemical engineer with an MBA from the University of Washington, Gass managed the Crest toothpaste brand at Procter & Gamble (PG) before joining Starbucks in 1996. She says her background has allowed her to pioneer new menu items while keeping a close eye on the bottom line. She quickly won cred inside the company for data-driven presentations. "When everybody was talking off the cuff, Michelle had the numbers," recalls Gerry Lopez, a former Starbucks executive who is now CEO of theater operator AMC Entertainment. She also was unafraid to deliver bad news during Monday afternoon meetings with Schultz, he says. In 2008, when testing of a new sorbetto beverage for Starbucks "didn't quite pan out," Lopez says, she had the numbers to prove it. After unraveling its higher shipping costs and how long it took baristas to clean the stuff up, Gass says she went to Schultz and recommended pulling the plug on sorbetto—which he did.

At Seattle's Best, Gass has tried a straightforward approach to selling. Gone are the stereotypical coffee scenes long featured on the bags: steaming mugs of joe, cats in windows. Instead, Gass placed Seattle's Best coffees into five levels—with numbered packaging designed to quickly explain the differences. No. 1 (gold bag; a light roast "for those who like to stare up at the blue sky, then drink it") suggests a far milder experience than No. 5 (purple bag; a dark roast requiring "courage and confidence to add to your own"). The idea, Gass says, is to appeal to Americans who drink generic brew and may be enticed by a premium brand minus Starbucks's class statement. "People don't drink no-name colas, but lots of people drink no-name coffees," she says. "That's because no one's come in and said, 'Don't accept a bad cup of coffee.' "

To reach Schultz's $1 billion revenue goal, Gass wants to put the brew in 100,000 retail locations. Prime targets: mass retailers and convenience, drug, and grocery stores, as well as mom-and-pop businesses. Gass persuaded Lopez to brew Seattle's Best in 300 AMC cinemas. In February, Delta Air Lines (DAL) agreed to serve it on board all flights. It's also sold at Subway, Burger King, and Royal Caribbean Cruises (RCL), and is being rolled out in vending machines in offices, hospitals, and college campuses nationwide.

Gass's relentless push is risky, says Jack Russo, an analyst at Edward Jones. "When you have company-owned stores, they're your stores, it's your baby," he says. "When you're essentially giving control to someone who's paying you a monthly royalty, you lose a little bit of control." Gass says she must scale up to compete with Starbucks: "With our big sister upstairs who owns coffee, the only way we have a chance to get a piece of that is to be disruptive."

The bottom line: Starbucks is trying to perk up Seattle's Best—and meet a $1 billion revenue goal—by targeting drinkers who never visit its flagship cafes.

Patton is a reporter for Bloomberg News in Chicago.

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