November 8, 2009 in Business

Starbucks teams up with Subway

Seattle Times
 

Starbucks is backing away from its long-held dislike of fast food to partner nationally with Subway. Its Seattle’s Best Coffee brand will be in 9,000 Subway stores in the U.S. by the end of this year, and will move into more of the sandwich shops next year, CEO Howard Schultz told analysts during a conference call about its quarterly results Thursday.

“Candidly, given the fact that fast-food players have gone after the breakfast business – specifically McDonald’s – in such a big way, and made such a big push into coffee, their core competitors want to compete directly with them in that space,” Schultz said. “SBC is in the infant stages of what it could be domestically and internationally.”

The company declined to give details, pending a news release planned for last Friday. Subway said almost a year ago that it would test SBC brewed coffee in about 1,900 locations.

Starbucks has long recoiled at the thought of being a fast-food player. Schultz said in his 1997 book, “Pour Your Heart Into It,” that he was pained by comparisons to fast-food businesses.

The company stuck by that a few years ago when McDonald’s approached Starbucks about supplying coffee for its new espresso program.

“We passed because it simply was not a good brand fit, and we’re confident that was the right decision,” Starbucks spokeswoman Deb Trevino said earlier this year.

It hasn’t always been as cautious with the Seattle’s Best Coffee brand, which it bought in 2003. SBC supplied some McDonald’s stores in the Pacific Northwest until a couple years ago, and it has traditional franchises that Starbucks does not.

But there’s a difference between being in some fast-food stores in the region and partnering nationally with a company that will soon pass McDonald’s in total locations worldwide (about 32,000).

“It’s certainly a change in attitude from what they’ve said in the past,” said R.J. Hottovy, a restaurant analyst who follows Starbucks for the research firm Morningstar. “McDonald’s probably would have been a stronger partner, given that they still have some company-owned locations, a stronger brand name and a better relationship with franchisees.”


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