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Starbucks Fends Off Dunkin', McDonald's with Square, Passbook Mobile Moves

Posted by Mark J. Miller on October 5, 2012 10:31 AM

Starbucks is facing increasing competition from all quarters, including Dunkin' Donuts and McDonald's, so the giant of the coffee biz is hoping to increase its market share with innovative new products and brand extensions, with a major focus on mobile going forward.

On the brand extension front, the java giant just started selling its single-serve coffee and espresso maker Verismo online. The caffeinated masses are apparently into it. Cliff Burrows, president of the Americas for Starbucks, says that sales of the machine have “exceeded expectations.” Starbucks is now rolling the product out to 4,300 stores and should finish having them in place in the next few weeks.

“Innovation is so important to us,” Burrows told the Houston Chronicle. “In 2009 we introduced ready-brew instant coffee. This summer we introduced Refreshers, energy drinks made from green coffee extract. We make them hand-crafted, sell them in cans and as instant beverages. Our innovation is ongoing.”

In the stores that the machine has already appeared, sales are brisk according to S&P Capital IQ analyst Jim Yin. “Our research indicates that interest for Starbucks Verismo coffee machines is high,” Yin wrote. “We believe these machines initially will be complementary to Keurig machines because they use high pressure needed to prepare espressos. We forecast sales of single-cup coffee pods will double in FY 13, as SBUX establishes itself as the premium label in the high-end of the market. We think operating margins will expand in FY 13 on lower coffee prices.”

That innovation will continue in November when Starbucks customers can start paying for their purchases with their mobile phones via the Square Wallet system, with Square founder Jack Dorsey attending the Starbucks global leadership conference this week in Houston to talk up the mobile commerce integration.

The deal comes after 18 months of customers being able to pay using their iPhones and Androids with a different system, and was a highlight of the conference, which was all about mobile this year.

On Wednesday, Starbucks “rolled out an update to its iOS app which allows Starbucks Card holders to store their information in the iPhone and iPod touch digital asset repository,” AppleInsider.com reports. When Apple unveiled its Passbook app back in June, Starbucks was “one of the few companies included in a demonstration." The Next Web believes that Starbucks' Passbook integration "nails it." And if customers are happy with the service you're getting in-store, the company plans to add a digital tipping function to its mobile app.

Getting in on the Starbucks digital innovation is Facebook, which is set to run a small trial that will let its users send pals actual presents such as Starbucks gift cards. The recipient of the gift enters his or her address and the gift is then sent to them. 

And, of course, as part of the company’s innovation push, it is looking to open up a few more drive-through or walk-up locations, just in case you can’t seem to find a Starbucks on your way to work as it is now. Rather than finding locations to place the stores, Starbucks is simply sending the stores to the locations. These 500-square-foot babies that are only big enough to fit three or four employees are completely constructed before being packed up and shipped off to their final locations, expanding on a test location by Starbucks in its Seattle stomping grounds.

The moves all come as Starbucks seeks to maintain its dominance in the U.S. (not to mention the global) coffee market, because there are plenty of rivals that want to tip their cup over. After all, coffee is a $5.6 billion business in the U.S. alone. Who wouldn’t want a piece of that?

Dunkin’ Donuts last week applied for the trademark “Best Coffee in America,” hoping to recapture how, back in 2004 as the Boston Globe notes, the chain was given that honor by NBC “Today” show food trends editor Phil Lempert.

Since then, though, Starbucks has been named the top fast-food coffee in Zagat’s annual survey and McDonald’s knocked Dunkin’ Donuts out of the second position in a BIGresearch survey in 2009. Still, that’s not changing anything: “As a company with a more than 60-year heritage that is proud to be an American icon, Dunkin’ Donuts sells more than 1.5 billion cups of hot and iced coffee globally every year,” said Jessica E. Gioglio, a Dunkin’ spokeswoman, to the Globe. “We are simply going through the trademark process.”

McDonald’s, it seems, is doing the same thing. The fast-food giant has “filed a trademark for its own brand of ground and whole-bean coffee,” Nasdaq.com reports.

Someone who is throwing her quarters into coffee maker’s wallets is former Disney star Demi Lovato, who is now a judge on NBC’s The X Factor. The 20-year-old is a self-proclaimed Starbucks junkie and tweeted the other day that she’d know she’d made it in Hollywood when the baristas there didn’t have to ask her name to write on the cup. Fast-forward to her next pitstop at a Starbucks, when the barista was ready for her with a special cup designed just for her. 

Now how does she get her own personalized Verismo? No doubt Starbucks has a mobile app in the works for that, too.

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