Starbucks to open its largest location to date in Chicago

Dive Brief:

Starbucks will open a Reserve Roastery, its largest location to date, in mid-November in Chicago. It will be the sixth Reserve Roastery for the company, joining Milan, New York, the original Seattle location, Shanghai and Tokyo, according to NBC Chicago.
The concept will occupy 43,000 square feet in the four-story Crate and Barrel Building on the corner of Michigan Avenue and Erie Street on the Magnificent Mile.
The space will employ 200 people and will include on-site roasting, interactive tours, exclusive drinks and a full kitchen.

Dive Insight:

The expansion of the Reserve Roastery concept comes as many restaurant brands are trying to reduce their footprint, both as an effort to save on real estate costs and as off-premise channels like delivery and takeout rise. Starbucks itself even recently introduced an express format in China to compete with fast-growing Luckin, which operates almost exclusively as a pickup or delivery concept.

However, it also comes at a time when consumers are seeking more experiences. Euromonitor International predicts experiential consumer spending, which includes food service, will hit $8 trillion by 2030.

Offering a unique experience is the single biggest objective with the Reserve Roastery concepts. The recently-opened New York location, for example, features several different bars with different types of brewing techniques, offering customers the opportunity to try flights of espresso and compare how those different brewing methods affect the taste of the coffee.

In the past year, Panera, Dunkin' and McDonald's have all upgraded their coffee platforms, while Burger King launched a subscription service to promote habituation. As competition in the coffee space intensifies, these Roasteries are a very clear way for Starbucks to differentiate itself. It also allows the company to flex its coffee authority in showing off brewing techniques and selling options like Kenya Barichu and Sun-Dried Uganda Red Cherry.

Simultaneously, the location could win over customers seeking more than coffee. According to the Chicago Tribune, the store will offer curated cocktails developed by Chicago bartenders, as well as a full kitchen for desserts, breads, pizzas and salads.

The Magnificent Mile, one of the top shopping destinations in the world, will no doubt bring in customers. But as with such a prime piece of real estate comes challenging occupancy costs. Leases on North Michigan Avenue average $450 per square feet, for example. But, like many retail-heavy areas, those prices are actually lower than they have been in recent years because of empty storefronts affected by the rise of e-commerce. These empty storefronts could potentially affect some foot traffic at Starbucks Reserve Roastery.

Another potential challenge for this concept is a possible recession. The high-end concept will likely work well in a booming economy, but how will it fare in a challenged one? Nearly half of U.S. chief financial officers believe a recession is looming. If that were to happen in the coming years, can Starbucks easily sell a $23 cold brew with Veuve Clicquot champagne? Last year, Starbucks executives said it plans to launch 1,000 of these upscale stores, but CEO Kevin Johnson has since said the coffee chain will scale back on these plans, first testing to see if six to 10 reserve stores yield enough returns to fund new large-scale stores.