Starbucks ventures into US liqueur market

The coffee liqueur will be tested in two undisclosed US markets later this year, and will initially be available at licensed establishments, including restaurants and bars, as well as at retail outlets throughout the US. The company stressed that it would not be sold in any of Starbucks' 7,500 outlets.

The Seattle-based company developed an in-house coffee liqueur brand over a decade ago, but has been unable to find a suitable long-term partner to roll the project out to the wider trade, until now.

"Extending the Starbucks brand into new channels is part of our long-term growth strategy. Many of our customers already enjoy coffee liqueur and would consider a Starbucks-branded coffee liqueur to be best-of-class,"​ said Orin Smith, Starbuck's president and CEO.

This is not the first time that Starbucks has put the weight of its brand name behind a new product to exploit a potential market. In 1995 the company formed an alliance with Dreyer's Grand Ice Cream and the product quickly became the best selling coffee ice cream in the US. In 1999 the company entered a joint venture with Pepsi to develop Starbucks Frappuccino coffee drink which today enjoys almost a 90 per cent share of the US ready-to-drink market.

The link up with Jim Beam Brands will give Starbucks access to a nationwide sales and distribution network, and a partner with its own proven track record in product development and marketing, including recent launches DeKuyper Pucker and Vox Raspberry Vodka, one of the best selling spirits in the US in 2003.

"Fortunes Brand is strategically committed to positioning our businesses for even stronger growth and higher returns, so we see exciting potential in working with Starbucks, one of the most recognised and respected brands in the world,"​, said Norm Wesley, chairman and CEO of Fortune Brands, the parent company of Jim Beam Brands. But despite the obvious strength of the Starbucks brand, tackling the established players in the liqueur market will be a challenge, even with Jim Beam's assistance. The US liqueur market is dominated by Baileys, the Irish cream liqueur owned by Diageo - indeed, it is the largest single market for the brand, accounting for a large share of the 6.2 million 9-litre cases sold every year - and making any inroads into this dominant position will be lengthy and expensive.

Furthermore, the fact that the leading coffee liqueur brand Tia Maria, made by UK-based Allied Domecq, is only a very minor player in the US market suggests that consumers may be just as hard to win over. Tia Maria is the leading coffee liqueur brand in the UK and is also a major brand in Spain, the Benelux and Argentina, but has never taken off in the US, despite the strength of other Allied Domecq brands there.

But Aaron Brost from Jim Beam Brands is confident that the product will perform well in the sector:

"In the US, cordials and liqueurs represent a $4-5 billion opportunity and approximately 20 million cases. Liqueurs flavoured with coffee or often mixed with coffee represent a substantial segment of the liqueur market. Additionally, US speciality coffee consumption is on the rise. Research indicates that there is a significant overlap between consumers of liqueurs and consumers loyal to the Starbucks brand."​

Nevertheless, there is a certain amount of risk still involved in the project. It is not clear that the increase in speciality coffee consumption in the US will necessarily translate into successful coffee liqueur sales, even with the Starbucks'brand backing - although Brost remained confident.

"The Starbucks coffee liqueur will be the first of its kind, using the highest quality beans, for which Starbucks is well-known. Our goal is to bring the 25-49 year-old consumer a unique offering in the category. The product could very well have appeal to consumers of existing coffee liqueurs and consumers who may not have tried coffee liqueur but are looking for something unique",​ he concluded.