Starbucks Takes on Alcohol
Following tests that apparently blew away even already high expectations, Starbucks and Jim Beam Brands formally launched their new coffee liqueur.
The product, made by the unit of Fortune Brands and carrying the Starbucks moniker, is a dagger aimed straight at the heart of market leader Kahlua. Kahlua has dominated the category for decades and currently enjoys a better than 80% share by dollars, more than 70% by volume.
Perhaps not for long, however. "We have never seen numbers that high on a purchase intent test," said Tom Flocco, CEO of Jim Beam Brands, "and neither has Starbucks."
The drink is similar in look and texture -- and identical in alcohol content -- to Kahlua, but at a higher price point: $23 and change for a 750ml bottle versus about $17. Starbucks liqueur is distilled in Ohio, and a 1.5oz. serving has about a fifth the caffeine of a tall coffee.
It will be sold at bars, restaurants and liquor outlets but will not be on the menu at Starbucks retail stores, nor will it be promoted in them. No television campaign is currently planned, he said, but ads will appear on the Internet, in magazines and newspapers and on billboards and bus shelters, along with plenty of tasting.
Flocco declined to disclose financial details but said the introductory budget is the biggest in the company's history.
Initial trade reaction has been enthusiastic, he added. "The orders out of the gate on this were the strongest we have ever seen on a new product."
Though there is no hard sales target at present, Flocco stressed that the brand is aimed not just at taking share but at building the whole category. The companies will not reveal specifics of their development and distribution agreement, but Starbucks is in line to make more than a straight license fee.
"The more we sell, the better we both do," Flocco said.
Coffee-flavored liqueurs are a big piece of the estimated $4 billion to $5 billion U.S. cordial-and-liqueur market. Kahlua, marketed by British alcohol and fast-food giant Allied Domecq, sold 1.3 million cases in 2004. Its volume grew by 2.4% in the 52-week period ended January 4, a rate that dramatically accelerated to 22% in the last four weeks.
Allied does not seem too worried that the new arrival will cut into their action.
"We are actually very excited. It could bring some new interest into the category," said Adrienne Nagy, brand manager for Kahlua. "And they seem to have different target. From a pricing and positioning perspective, they are going closer to a Bailey's (Irish Cream) target."