Monday, January 23, 2012

Starbucks to Sell Alcohol at More Locations. 75 Percent Mark-Up on Starbucks Beer and Wine Will Keep Profit Margins Healthy.

Starbucks (NASDAQ: SBUX) is going to add alcohol to more locations in an effort to increase afternoon and evening traffic in its stores. Starbucks first began selling alcohol in 2010 in Seattle, and it hopes to sell beer and wine to a wider audience. Stores in Atlanta and Chicago will be among the first locations to enjoy the new additions to the menu.

Currently, there are six stores that offer alcohol, and prices range from $5 for a beer, to $9 for some wines. The bar menu is meant to reflect local tastes and preferences, and it will not be standardized. Initially, there are 25 locations that have been selected. Most alcoholic drinks have a 75% profit margin, according to Sara Senatore of Sanford C. Bernstein & Co., which is about the same as coffee. This means that they are not at risk of depressing margins. The incremental costs associated with this concept would primarily be staffing and licensing, but it is a great way to utilize the existing locations for more hours.

For the Intelligent Investor, this should be taken as a healthy sign of innovation at Starbucks. They are thinking of more ways to make money from existing store locations, much more cost effective than simply cramming more stores on the same block, which caused them significant amounts of trouble in the United States.

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