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The people who work in Seattle's tallest building face a tough decision: Should they get their caffeinated indulgence at the old Starbucks on the building's first floor or the new Starbucks, 40 floors up? And if those lines are too long, is it too far to walk across the street, where a third Starbucks awaits?
Starbucks' (SBUX, news, msgs) recently announced goal of having 40,000 stores worldwide isn't just about spreading green awnings through Middle America, the Middle East and other parts of the world not yet tempted by easy access to mocha Frappuccinos and pumpkin-spice lattes.
The coffee chain's aggressive growth also hinges on what the company calls infill -- adding stores in cities where its mermaid logo is already commonplace. In some cases, that means putting a Starbucks within a block of an existing store, if not closer.
While Starbucks knows there's plenty to lure people into its coffee shops, it recognizes that many people won't walk very far, or wait very long, for an optional and pricey treat.
"Going to the other side of the street can be a barrier," said Launi Skinner, a senior vice president in charge of Starbucks' store development.
As Starbucks adds six stores a day on average, the company says it continues to carefully consider everything from the direction of commuter traffic zipping by a potential drive-through site to how many people are pounding the pavement on a busy urban block.
As of Oct. 3, Starbucks had 12,440 stores worldwide -- 7,102 company-operated stores and 5,338 licensed locations. In addition to choosing its company-operated locations, Starbucks has a say in where its licensed stores will open.
In Vancouver, Canada, such planning has meant adding stores on either side of a busy intersection. In New York, there are two Starbucks in one Macy's store, as well as two in the 49-story Marriott Marquis hotel.
Starbucks also is flooding some smaller cities. In Spokane, Wash., two Starbucks sit across from each other in a strip mall and a grocery store, close enough that baristas could toss pounds of coffee beans at one another if they wanted to.
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Despite such saturation, and plans for much more, Starbucks insists that it sees very little cannibalization of its existing business when a new store opens. In fact, the company says, one reason would-be customers don't end up buying a Starbucks drink is because the line is too long. One solution is to open another store nearby.
Starbucks says about 60% of stores have a wait time of three minutes or less, but the company doesn't track specifically how long the wait has to be before potential customers decide to pass.
Chief Executive Jim Donald dismisses any notion that the company could experience over-saturation as it continues to plop Starbucks near other Starbucks.
"We haven't felt it yet," he quipped recently.
It takes co-workers Joshua Sanders and Megan Scott about one minute to reach the Starbucks shop just outside their downtown Seattle office. Sometimes, the two will walk another minute or so to a Starbucks about half a block away because that shop sells hot breakfast sandwiches and the closer one doesn't. On a recent weekday morning, both shops were bustling.
One thing Sanders and Scott won't do is stop for coffee at Starbucks competitor Tully's Coffee (ZYTC, news, msgs), even though it's in their building and they walk past it to get to Starbucks.
Asked why he favors Starbucks, Sanders said, "It's the coffee."
It's highly unusual for a company to add so many stores so close together and still see the kind of consistently strong sales growth that Starbucks can boast, said John Owens, an equity analyst with Morningstar (MORN, news, msgs).
"At some stage, there (are) limits to their expansion, but to date we really haven't seen any signs that they are near that point," Owens said.
Still, Owens said there are risks a company faces when it builds out quickly. He noted that McDonald's (MCD, news, msgs) suffered after an attempt to expand rapidly in the 1990s. McDonald's has more than 30,000 stores worldwide, compared with about 12,000 currently for Starbucks.
A tough lesson for Krispy Kreme
Major concerns could include anything from a drop in quality to the brand losing its luster.Krispy Kreme Doughnuts (KKD, news, msgs), whose store openings once drew carloads of doughnut-hungry masses, learned that lesson the hard way and has since sharply scaled back its growth plans. The doughnut maker also has suffered through an accounting fiasco and concerns over the healthfulness of its fatty treats.
For now, at least, Owens said Starbucks doesn't appear to have similar worries.
"We haven't seen any evidence of it, but that's certainly a risk," Owens said. "How can they continue to maintain such a strong connection with the customer as they become just basically a global giant?"
But executives say one main complaint they hear from customers is that Starbucks isn't convenient enough. Starbucks customers don't want to go too far out of their way to get a morning latte or afternoon pick-me-up. And once they have stepped into their vehicles, they don't want to bother to undo their seat belts for a caffeinated treat, either -- hence the explosive growth of Starbucks drive-through windows.
Besides adding stores, drive-throughs and kiosks throughout the world, Starbucks has plans to make itself ubiquitous even in places where it can't squeeze in a store. It is getting ready to launch Starbucks-branded vending machines, which will let people buy a warm latte or other drink in a 9-ounce can for $2.50. That's in addition to the business it already does selling bottled cold drinks and coffee beans in traditional food stores.
Sitting in Starbucks' Seattle headquarters a day after the company announced that it had increased its projected store count by a third, to 40,000 stores, company Chairman Howard Schultz said he thought the company had been vastly underestimating the worldwide demand for its coffees, teas, compact discs, coffee mugs and other items.
"This is still the opening act for Starbucks," he said.
By Allison Linn, The Associated Press
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