Starbucks: the bar?

Starbucks (NASDAQ: SBUX) recently announced plans to begin selling wine and beer in four to six of its Seattle-region stores. Starbucks has plans to later expand to Southern California, Atlanta, and Chicago. Beers will sell for $5 and a glass of wine will sell for $7 to $9. The transition for Starbucks from coffee and juice to wine and beer seems as thought it will be relatively simple. Starbucks already has a loyal customer base and adequate indoor seating at most locations. The interiors, however, will undergo some changes. Starbucks will make use of community tables and local art to make the space inviting for evening customers looking to unwind after work.

Clarice Turner, Starbucks' senior vice president for U.S. operations, explains the rationale behind the transition into wine and beer sales.

As our customers transition from work to home, many are looking for a warm and inviting place to unwind and connect with the people they care about. At select stores where it is relevant for the neighborhood, we are focused on creating an atmosphere where our customers can relax with a friend, a small bite to eat and a cup of coffee or glass of wine.

Some critics argue that Starbucks should just focus on what they do best: serving coffee. Others think it makes sense for Starbucks to move into this market. Given Starbucks broad appeal, it seems like a logical evolution of the brand. Current sales are concentrated in the morning hours (70% of Starbucks' sales occur before 2pm). By moving into wine and beer sales, Starbucks can grow its afternoon and evening business.

What will these changes mean for local bars located near a Starbucks that is serving beer and wine? For beer and wine-serving tenants in the same complex, Starbucks could draw some business away. Starbucks' prices are very competitive and they already have strong brand recognition. These factors could easily sway customers to choose Starbucks over local bars who cannot afford to charge only $5 for a pint of Rogue Ale.

In states with a local option for alcohol sales (meaning the local jurisdictions can vote to restrict the time and place of alcohol sales), there are often limitations as to how many establishments within a complex or city/county can have a liquor license. With Starbucks' now obtaining liquor licenses, it may be harder for local bars to move into these locations.

Starbucks isn't the only chain moving into this market. Sonic and Burger King are also exploring beer and wine sales as a way to expand their current market share. Burger King now has "Whopper Bars" where customers can order a beer along with their burger. Locations include Miami, New York City, and Las Vegas. Sonic plans to sell bottled and draught beer and wine in two South Florida locations. These fast-food chains may need more capital investments than Starbucks, however, to get their locations ready to serve beer and wine. Sonic, with mostly outdoor seating and in-car service, will definitely be making some upgrades before alcohol can be served.

So why is Florida so popular for these new fast-food bars? Perhaps it's because Florida is not an alcoholic beverage control state. Alcoholic beverage control states are states that have a wholesale and/or retail monopoly on some or all forms of alcoholic beverages. In Florida, as a non-control state, the state does not have a monopoly on retail sales of liquor, including wine and beer. Only a liquor license is required in order for an establishment to serve alcohol on a regular basis. This would be easily obtained by large fast-food chains where over 51% of their total sales is from food. Starbucks, however, will need to up their food sales to reach this threshold as required by many non-control states.