Reaction to Burger King's (BKC) decision to replace its own BK Joe coffee brand with Seattle's Best Coffee -- a brand owned by Starbucks (SBUX) -- has mostly focused on Burger King's attempts to revive sagging sales by upgrading its java offerings. Overlooked has been the huge upside for Starbucks. The Seattle coffee giant achieves the neat trick of shutting out other competitors from more than 7,000 locations it will now service, while not diluting the gourmet branding of its own Starbucks name.
In the years since Starbucks bought SBC in 2003, the company has slowly grown but not fully maximized the SBC brand. The number of SBC locations quietly increased from the 131 units it had at acquisition to more than 500, many of them small kiosks. Now, Starbucks can deploy SBC in Burger King without seeming to lower its own brand profile, since the public for the most part remains blissfully unaware that SBC is part of Starbucks.
The Burger King deal follows hard on the heels of Starbucks' similar move to put SBC into the Subway chain last year. Together, the two deals give Starbucks a virtually instant 16,000-plus new locations, radically increasing its national presence and transforming SBC into a brand that will soon be well-known to a vast swath of middle America. Possible bonus: An education in good coffee via SBC could lead some fast-food customers to wander in the doors of a Starbucks store at some point.
Sure, it's a great deal for Burger King, too. The burger brand jumps from having coffee that was consider an also-ran to McDonald's (MCD) McCafÃ© brand to offering a brand with a 40-year success record. But Starbucks busts the SBC brand wide open here. The deal provides a stealthy way to fire back against McDonald's big drive to infringe on Starbucks' morning-coffee turf, while creating a big, wholesale-coffee cash cow Starbucks can milk while it revamps its namesake brand.
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