Now Testing: Coffee With Ice Cream At Starbucks

by Trefis Team
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Starbucks
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After a successful pilot in Seattle, Starbucks (NYSE:SBUX) is introducing affogatos (an ice cream based Italian dessert) to its menu in 100 stores across the U.S. The company plans to introduce Classic Affogatos at its Reserve bar locations and a slightly cheaper version at 100 traditional Starbucks stores in Orange County, California. As the company looks at future growth via its premium Roastaries, Starbucks is experimenting with innovative high price menu items to attract customers. Affogato became a top five menu item at its Seattle Roastery, even in the winters. Starbucks is now looking to offer this upscale Italian dessert at a larger scale, in an attempt to drive revenues both for its Roastery stores through a premium version and at its traditional stores through a cheaper variant.

Roastery Stores Can Drive Growth In The Long Term

Starbucks is looking at its Roasteries to become the next growth engine for the company. These premium stores serve gourmet coffee and high priced premium menu items, leading to a higher average spend per customer. The company is looking to introduce new menu items in these stores with premium ingredients which can be priced higher. For instance, its Roastery Affogato  menu will feature ingredients such as small-lot cold brew, bumping up their prices by $1-$2. The company appears to be adopting the strategy of introducing premium menu items at its Roastery stores and then rolling them out at other stores with slight modifications to make them cheaper.

According to our estimates, the beverage spend per customer at a Starbucks’ company owned store will increase steadily and reach nearly $6 by the end of our forecast period.

This metric is a key value driver for Starbucks and a rapid increase in this number can impact the valuation of the company positively.

As Starbucks looks to drive revenues, serving a higher volume of customers is an operational challenge for the company. Its stores are not geared to handle volumes and hence a strategy which leads to higher customer spend per visit can drive revenues for the company in the long term. This can be achieved by introducing innovative premium menu items which customers fancy. A new ice-cream based coffee which became immensely popular in its pilot run can be one of those “high priced” menu items which can aid in driving this revenue growth.

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