Is Starbucks Brewing Up Trouble With Its Alcoholic Drinks?

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Earlier this year, Starbucks Corp. (NASDAQ:SBUX) announced plans to sell beer and wine in as many as 12 cafes in Atlanta and Southern California by the end of 2012. Starbucks launched alcoholic beverages in a Seattle cafe in 2010 with success and wants to expand the concept. The coffee giant also plans on adding savory snacks, cheese plates and hot flatbreads to menus. While investors have cheered Starbucks this year, not everyone is pleased with the company’s latest beverage moves.

Although selling alcoholic beverages at its stores would differentiate itself from McDonald’s (NYSE:MCD) and Dunkin’ Brands (NASDAQ:DNKN), Starbucks is stirring up emotions in Coronado, California. The city sent several letters of protest to the company over its Orange Avenue store, which was scheduled to add alcohol to the menu. U-T San Diego explains, “In its letter to Starbucks, the city noted that a number of young people congregate at the coffee house and would be discouraged from doing so if alcohol was served. The Coronado Police Department also protested, based on what it believes is an over-concentration of establishments serving alcohol in the area.”

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Due to the backlash, Starbucks has decided to pull its liquor license application for Coronado. In an email to City Manager Blair King, Starbucks Senior Manager of Government Affairs, Kim Winston, said, “Based on our due diligence process and our respect of the Coronado community, Starbucks took self-selected and proactive actions to pull its application,” according to eCoronado. Starbucks is still considering adding another alcohol coffeehouse outlet in San Diego County, but no decision has been finalized yet. The company has also already applied for liquor licenses at three other Southern California stores.

The incident in Coronado shows that expanding its business and gaining alcohol sales from companies such as Constellation Brands Inc. (NYSE:STZ) and Boston Beer Co. (NYSE:SAM) may be harder than previously thought for Starbucks. However, the alcohol market still has a huge upside for Starbucks. According to a report by the Centers for Disease Control, about 17 percent of the US population binge drinks at least four times a month. The average number of drinks during each sitting is eight. Although Starbucks does not plan on offering alcoholic drinks in all of its 17,000 cafes around the world, the move will likely broaden its appeal to customers and give sales a boost. It would also give customers an incentive to choose Starbucks over other coffeehouses such as Dunkin’ Donuts and Caribou Coffee Co. (NASDAQ:CBOU).

Starbucks explained previously that “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. We’re pleased with the response of our customers to the introduction of wine, beer and premium food at several of our stores in the Pacific Northwest.” If Starbucks can continue to expand its alcoholic offerings, even by trial-and-error based on city residents and officials, the hassle of dealing with the backlash will most likely be worth it and lead Starbucks to a much larger alcohol market than just the Pacific Northwest.

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