Starbucks Is Betting Chicago Wants a Five-Floor Coffee Shop

(Bloomberg) -- Starbucks Corp. may be thinking small with its micro-cafe in New York, but the company is going big -- five floors big -- in Chicago.

The world’s largest coffee chain is poised to open a location that’s about the same size as a Whole Foods Market in the pricey Magnificent Mile shopping district. Formerly home to a Crate & Barrel, the store will be Starbucks’ sixth Reserve branded roastery, which are larger locations that serve as a testing ground for higher-end products and new drinks, food and even cocktails.

The store will be a “brand amplifier” and “innovation hub,” Chief Executive Officer Kevin Johnson said during an interview in Chicago Tuesday. He noted that the cascara and nitro cold brew drinks, which now have wider distribution, got their start in the chain’s other roastery locations.

Starbucks’ ability to test new drinks has been key to its broader strategy. The Seattle-based chain has seen brisker sales growth recently as it accelerates their rollout. And it reported higher customer traffic in its most recent quarter -- a notable feat in the restaurant industry, where many companies are struggling to attract more diners.

The Chicago roastery opens Nov. 15 and will be the biggest yet for Starbucks, which has also opened locations in Seattle, Shanghai, Milan, New York and Tokyo. The Reserve roasteries sell products like whiskey-barrel aged coffee beans for $40 for an eight-ounce bag. In Chicago, there are also hazelnut-praline lattes and gelato for sale.

Priority Market

Along with China, the U.S. is a priority market for Starbucks. Johnson has pushed hard to boost sales there since taking the helm in 2017. In addition to getting new drinks into stores faster than before, he has also closed underperforming locations and moved away from projects that haven’t caught on -- like selling alcohol in the evenings.

Investors have applauded Johnson’s moves, driving the stock up almost 30% this year. That compares with the 23% gain for the S&P 500 Index. On Tuesday, Starbucks rose 1.1% to $83.32.

Along with the bigger location, Starbucks just opened a pick-up only spot in New York’s Penn Plaza that’s only 1,000 square feet. While that smaller format may be replicated, the chain isn’t planning any more roasteries in the foreseeable future after Chicago, Johnson said.

“It’s a significant endeavor to design a 35,000 square-foot roastery on Michigan Avenue,” he said. “Right now, we’re just committed to six.”

That would be a narrower focus than in the past: Last year, the company said it expects to eventually have as many as 30 roastery locations around the world. The concept was something that Howard Schultz had worked on before stepping down from his post as chairman in June 2018.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Jonathan Roeder

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