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Starbucks Adds Alcohol to Its Usual Caffeine Fix

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Next to a bagel or danish, what single item goes better with coffee? If you said “beer,” you share company not only with the Red Bull and Four Loko-swilling college demographic, but also the top brass at the largest coffeehouse chain on Earth.

On Monday, Starbucks (SBUX) announced that it will start adding beer and wine to the menu in up to a half dozen locations in both Atlanta and Southern California by the end of the year. This news piggybacks on similar plans recently reported for a number of stores in Chicago. In all, the initiative will be carried out in roughly 25 of its nearly 11,000 US locations

Move over friendly neighborhood pub. Or, if the local mom and pop java shops around the country are any precedent, move out.

Having captured 33% of the $26.5 billion US coffee and snack shop market, with Dunkin’ Brands (DNKN) Dunkin’ Donuts chain trailing at a 16% distant second, Starbucks is hoping to gain a wider customer base by attracting non-coffee drinkers and giving its current customers a reason to visit after work. That clientele will be able to start getting its non-caffeine buzz on at 2PM on weekdays and noon on weekends, local regulations permitting.

“It makes sense if you think of the way that McDonald’s (MCD) grew its business by going into breakfast,”
said Bill Chidley, senior vice president at brand consulting firm Interbrand, a division of Omnicom Group (OMC). Still, Chidley called the strategy “controversial” since it risks alienating families with children.

Starbucks’ into the alcohol market has been in the making since October 2010 when it first experimented with the concept in a Seattle store. Since then the chain added four more locations in its headquarters city and one in Portland, Oregon.

The wine and beer lists will be somewhat regionally dependent. The Pacific Northwest stores -- AKA the microbrewery capitals of the US -- serve Newport, Oregon-based Dead Guy Ale and Anheuser–Busch’s (BUD) Stella Artois lager for $5, as well as a Pinot Noir from Oregon, an Italian Prosecco, and an Argentinian Malbec for between $7 and $9.

Those prices seem reasonable enough for now but just wait until Starbucks suddenly starts charging $10 a beer in the face of the next hops shortage.
POSITION:  No positions in stocks mentioned.