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Target, Starbucks partnership brews up perfect blend

Starbucks and Target are each well-positioned to weather a slowdown in consumer spending, market watchers say. .
Starbucks and Target are each well-positioned to weather a slowdown in consumer spending, market watchers say. . Global News

Michelle Lin is sipping a Starbucks latte.

It’s become the “usual” beverage of choice for the 36-year-old stay-at-home mom when she slips away for her semi-frequent trip to browse the aisles at her local Target Corp. department store.

This time, on a warm but not too warm day in early August – roughly five months to the day her Toronto location opened replacing the comparatively unkempt Zellers that existed there before – Lin has indulged, springing a few bucks more for a thick slice of chocolate loaf.

“I don’t usually buy something to eat,” she says. “But I was at the cash and said to myself, ‘who cares, I’m going to treat myself to this.’”

Lin’s brief time-out from her busy life of raising kids and generally managing the affairs of the family is precisely the kind of experience Target, a Minneapolis-based retail giant now rolling out shops across Canada, wants to foster.

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And Starbucks rather than other big franchises who have traditionally provided the in-store “quick serve” presence among big Canadian retailers – namely Tim Hortons and McDonald’s – fills that role for Target to a tee.

“If your target demographic is someone looking for a bit more premium quality, but also the good deal on home essentials, like the Target consumer is—the moms—Starbucks ties really nicely into that,” says Robert Carter, executive director of food and fashion trends at NPD Group, a market research company. “They’re looking for quality experience as well as deal-finding.”

The partnership comes at an opportune time for both. Consumers have begun addressing record debt levels, something that threatens to take a toll on retail spending and trips out to eat. But there’s two things they still love: A premium experience, or at least the perception of it, and coffee.

Read more: Target takes aim at Canadians, but are we too tapped out?

With a licensed Starbucks being installed in the vast majority of the 124 stores Target will open between British Columbia and Nova Scotia by year-end, the coffee chain, which saw a slowdown in Canada during the recession and closed some cafes, is back in growth mode.

In fact, the Seattle-based coffee empire’s Canadian arm is embarking this year on its biggest expansion since opening the doors on its first café outside the United States in Vancouver 25 years ago.

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“This is a record-breaking year for us,” Carly Suppa, a spokesperson for the chain said. “We are still very much a growth company in Canada.”

The wave of openings will push the number of locations to more than 1,350 across Canada—or about 50 shy of the number of McDonald’s restaurants here. That compares to a network of 3,000 outlets at Tim Hortons, which still outsells Starbucks by a sizable six to one coffees.

That ratio has held for some time “but Starbucks is growing more rapidly,” Keith Howlett, a stock analyst at Desjardins said in a recent note to clients.

When the retailer announced plans to push north in 2011, it was an open question among industry watchers who Target would select as its in-store partner.

Analysts thought a possible suitor may have been McDonald’s, which has been aggressively trying to win over customers to its McCafé lineup of lattes and mochas since introducing the menu items in 2009.

“Target surveyed the Canadian landscape and explored our options,” Lisa Gibson, a spokesperson for Target, said. Ultimately, the brand fit with Starbucks, which has a presence of 1,100 cafes in Targets across the United States, won out.

“Our goal has always been to bring the true U.S. Target brand experience,” Gibson said. “Expanding the relationship to Canada was a natural fit.”

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Beyond the perfect blend of branding Starbucks brings to Target, there’s another reason the partnership works so well: In Canada, coffee gets people through the doors.

NPD survey data puts coffee as the No.1 consumed ‘out-of-home’ food item in the country, with $6 billion a year spent on the caffeinated beverage, or roughly $3 a cup.

“When you are a new retailer coming in and you want to attract customers outside of just your branding, a good strategy is to put in a coffee [shop],” Carter said.

And unlike other food categories of “quick serve” – industry speak for fast or ready-made food and beverages – coffee sales continue to climb.

Like in other areas of the economy showing signs of a slowdown, likely in response to the historic amounts of personal debt consumers and households are lugging around, the number of overall trips by consumers to quick-serve restaurants is flattening.

For the first time since NPD began taking survey data in 1993, net sales growth is stalling at fast-food outlets everywhere in Canada. The exception is cafes.

“Even with budgetary constraints, people still want to have an out-of-home treat experience. They view going to a Starbucks as that treat-based occasion,” Carter said.