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The Coming Era of Product Differentiation

Timothy J. Castle reveals the latest retail trends and some criteria for selecting the right strategy for product differentiation.

The basic formula used to be beans, knickknacks and drinks. Then came ambiance, something beyond the old burlap bags - something from exotic origins, an old pot, and antique ibrik, anything would do.

Then came brand identity. Chains began struggling with who they were, what was their "brand personality"? For years, the questionwas: brown or green? (Green won, first at Barnie's, then when it was adopted wholesale at SBUX - mermaids are green, money is green, coffee used to be green - and for a while, it seemed everyone realized that they'd always been green - oh, and Kermit is green, even though he says it isn't easy)

Then came the Italo/Euro look, led, again, by SBUX with flattering brush-stroke caricatures of their own customers emblazoned across everything (bags, packaging, walls), broad-shouldered, slim-hipped, obviously fashionable, obviously very, very smart. Now we're leaving that sleek, idealized, conflict-free yupsterland and doing the Casablanca thing, smarter, scruffier, older, and a little wearier (not that there's anything wrong with that - at least to the extent that a cup of coffee couldn't fix it).

Now it's the travel wizened urban trekker, as an ad for a Montero SUV in an issue of Civilization magazine noted two years ago, "When tracking down the elusive Grandé Nonfat Latté, you don't want anything to get in your way." (There's actually a picture in the ad of a couple standing on a big rock. The man is looking out over the landscape, presumably for the next SBUX, and the woman is clutching, in both hands, what appears to be at least a sixteen-ouncer.) Now the latte-slurping Indiana Joneses have finally found the Source. In Los Angeles, on any given day, most of the vehicles in SBUX parking lots are SUV's. As the road has gotten cushier and as the average latté-slurper has gotten a little older and a little chubbier they (we?) like to see them(our?)selves as grittier and leaner.

Diedrich's recently introduced a new look for their forthcoming stores that creates the lush, convivial setting and the sort of tropical bar where you almost expect to see Lauren Bacall sitting alone at a table for two. If there were a piano, undoubtedly Sam would be playing it. More recently, The Coffee Beanery also announced a new look incorporating the look of the tropics and references to the origins of an agricultural commodity playing now used to flavor steamed milk in locations across America.

What will distinguish tomorrow's coffeehouses and espresso bars? Service, of course, will be a critical area. Even the most ardent of product purists will avow that service is just as important as a great drink or a great pound of coffee. You can't have one without the other, in fact. But there are no magic bullets when it comes to employee training. What's more, all the training in the world cannot overcome the employee who does not love, or at least like, his or her job.

As the design concepts of the chains cross pollinate the look and feel of their respective stores, product lines will increasingly distinguish different coffee businesses. More and more, single store operations and chains are opting for exclusive, private label, issue-related or premium brands to separate themselves from the pack. Lines of decafs, estate coffees, syrups, and chocolates are all available in one or more of these possible versions. Many coffeehouses and espresso bars are adding line extensions as well, including wine and beer, distilled spirits and, of course, tea and tea-flavored beverages.

These extensions and amplifications of the beverage menu do not, of course, address the subject of food. With Starbucks again providing the most prominent example, many chains are slowly increasing their food offerings, going so far, as in SBUX's case, to open full fledged restaurants. The trick will be to extend the product depth and breadth without diluting the brand identity. This is evident with many single store operations that begin to offer anything and everything that the next salesman brings in the door. The result is a hodge podge of tacky signs, shelf talkers and point-of-sale displays offering everything from submarine sandwiches to lotto tickets. While this formula (or lack thereof) may work in some neighborhoods, in most it does not.

"Our customers are always looking for ways of being more competitive and we believe better quality products that are better marketed is not only a competitive stance but one that can work over the long term." Observed Cindy Eckart, vice president of R. Torre & Company, Inc., manufacturers of Torani syrups, Caffé Fiori coffee flavorings and Frusia smoothie bases, "From the marketing side we are attempting to establish brand identity in the minds of the consumers. This way we're not only providing top quality products to our customers but we are also helping them to sell our products. When a customer sees a bottle of Torani syrup on the counter or behind the bar, we hope they'll feel a little more at home and a lot more comfortable about ordering a flavored drink. They've seen the brand before, in advertising and in better grocery stores and, of course, other high caliber espresso bars and coffeehouses."

If one retail trend for coffeehouses and espresso bars can be identified over the last few years and forecast into the next couple, it would be the very energetic effort that is being made to differentiate product offerings. This is not only good for the individual businesses that do this but for the industry as a whole. Different strategies exist for this and the one that is most accessible to the average chain or independent is that of extending the line of product offerings, and this is probably the most problematic. It often necessitates new equipment and new training and has the added downside of confusing your customers about what business you are in. Other strategies for product differentiation include offering Exclusives, prominently offering products with their own brand identity, and arranging for privately labeled products.



Continued on next page...

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