Starbucks pours it on in Indiana

December 4, 2006

Seven years ago, Starbucks was an eager Indiana newcomer serving cafe lattes and caramel macchiatos to its first local customers.

Since then, the Seattle-based chain has inundated virtually every corner of the Hoosier landscape.

And the company has no plans to slow down.

Several Indiana towns-from Gas City to Angola, Batesville to Bluffton--will get their first Starbucks in 2007. And a handful of the 50 Indiana towns that already have one of the ubiquitous coffee shops will get another.

Starbucks announced this year that it wants to grow worldwide from 12,000 stores to more than 40,000--a strategy that requires rapid expansion outside densely populated metropolitan areas.

Indiana has become a headquarters for that strategy. Two years ago, Starbucks opened a regional office in downtown Indianapolis that supports coffee shops in 18 states. The company also has used Indiana to test new products including warm cereal and desserts, breakfast sandwiches and a new kind of whipped cream.

Already, Indiana has 159 Starbucks locations and employs more than 3,000 people, said Rick Herbertz, the company's regional director of operations.

In 2007, the company will open at least 18 stores in Indiana, including five in Indianapolis.

The company recently signed leases for locations at 161st Street and Springmill Road, on West 16th Street near Speedway, on East Washington Street in the Irvington area, and on Illinois Street north of downtown.

And it has many more locations in the works, including one at Michigan Road and Kessler Boulevard, along with a new regional headquarters and coffee shop on Capitol Avenue downtown.

Other Indiana towns scheduled to get new stores by the end of next summer include Muncie, Gas City, Angola, Auburn, Westfield, South Bend, Brownsburg, Batesville, Plainfield, Shelbyville, Bluffton and Lafayette.

Many of the towns will be getting their first Starbucks.

"They're pursuing a frontier strategy," said Bryant Simon, a professor of history at Temple University who studies Starbucks and is writing a book, "Consuming Starbucks." "They're trying to regenerate their cool factor in the Heartland, on the edge of the American consumer world. They're filling in the country basically."

Simon has visited more than 400 Starbucks in eight countries to observe customers and figure out what their enthusiasm for the coffee brand says about America. He spent a few days at the Starbucks in Franklin and was struck by the generational range and constant stream of customers.

Towns campaign to get a Starbucks store, much like they pursued factories in the 19th century, he said.

"Starbucks in a sense becomes an emblem for a town, that they've entered into the modern consumer universe," said Simon, who typically orders a tall coffee on his visits. "It literally puts places on the map."

There are few towns that aren't on the Starbucks map. The company opened 2,199 stores worldwide in fiscal year 2006, which ended Oct. 1.

Starbucks in 2006 saw a 22-percent increase in revenue, to $7.8 billion, and posted profit of $564 million. Same-store sales jumped 7 percent.

The company is predicting 2007 will bring another 20-percent jump in revenue, along with same-store sales gains between 3 percent and 7 percent.

The company is making good progress on two keys to revenue growth: building more locations and developing new products to propel increases in same-store sales, said Richard Feinberg, director of the Purdue University Retail Institute and Center for Customer-Driven Quality.

He said the Starbucks expansion into smaller towns is wise because plenty of space and good lease rates are available.

Larger stores also allow room to try out new concepts. Indiana stores are offering warm baked goods now, and they offered granola and cinnamon apple cereal a few months ago. Stores nationwide are carrying breakfast sandwiches that were tested first in Indiana and a few other markets.

The state is attractive as a test market because of its tight geography and variety of store types, including mall stores and drive-throughs, Herbertz said.

"The customer base is asking us to be innovative," he said. "Our organization is really looking to enhance the food side of our business."

Indianapolis is historically a town where chains perform well, said Mark Perlstein, a partner with The Linder Co. who represented Starbucks when the company entered the market.

While Starbucks has found success virtually everywhere it has put down roots, one thing the company learned from the Indiana market was the value in building stores with drive-throughs, Perlstein said.

Local coffee shop owners don't seem to be sweating the arrival of more Starbucks stores, at least not as much as when the company arrived in Indiana in 1999.

Some believe Starbucks has attracted new customers to local shops by spreading enthusiasm for coffee. Also, Starbucks tends to locate on the outskirts of small towns, away from the local shops.

At The Coffee Shop on the square in downtown Shelbyville, Lisa Gaines has been serving regulars gourmet coffee, along with homemade soups and sandwiches, for four years. Gaines was born and raised in Shelbyville.

"I'm not worried about it," Gaines said of the arrival of Starbucks. "They're going to be clear at the other end of town."

People in Angola at the northeastern tip of Indiana already are looking forward to having their own Starbucks, said Mayor Richard Hickman.

Hickman expects the coffee shop will generate more development interest for the town, which has a population of 7,890.

"I think it's excellent," Hickman said. "If someone like Starbucks is willing to invest in your community, you know the future looks bright."

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