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The Honolulu Advertiser
Posted on: Saturday, March 4, 2006

Starbucks tries something new

By Elizabeth M. Gillespie
Associated Press

Barista Christopher Brown greets morning customers at a Starbucks cafe in Seattle. As McDonald's and Burger King begin to offer premium coffee, Starbucks fights back with breakfast sandwiches.

TED S. WARREN | Associated Press

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SEATTLE As no-frills breakfast kings like McDonald's Corp. and Dunkin' Donuts have gotten more serious about their coffee, Starbucks Corp. has gotten more serious about its breakfast. It started selling toasted egg sandwiches alongside its scones, muffins and other breakfast breads three years ago, and the effort is expanding.

Offering such trimmings as peppered bacon and Black Forest ham, Starbucks added the English muffin sandwiches to stores in Washington, D.C., last year, and in Portland, Ore., last month. San Francisco stores will get them in early April, and Chicago outlets will start selling them later this year.

By the time its current fiscal year ends in October, Starbucks says it will offer breakfast sandwiches at roughly 600 stores up from about 250 today.

Industry analysts say it's a sensible move that doesn't involve much risk.

"If Starbucks can get food right, it gives them a whole new leg of growth," said Linda Bannister, an Edward Jones analyst in St. Louis.

The biggest gamble is whether hot food can be served without slowing down service.

Vendors prepare the breakfast sandwiches daily and deliver them first thing in the morning. The sandwiches are heated up in countertop ovens about twice the size of the average microwave, a process that takes about three minutes, Starbucks spokesman Alan Hilowitz said.

So far, the system seems to be working. "The last time I got a sandwich and a latte at Starbucks, I waited longer for the latte," said Sharon Zackfia, an analyst with William Blair & Co. in Chicago.

Starbucks has not disclosed exactly how its growing sandwich business is affecting its bottom line only that on average, it boosts same-store revenues by about $30,000 a year, or roughly 3 percent.

Drinks remain its primary and fastest-growing revenue source, accounting for 77 percent of $5.4 billion in sales at company-run retail stores for fiscal 2005. That's up from 61 percent since fiscal 1996, when company-run retail store revenue was about $599 million.

As a percentage of revenue, fresh food has remained relatively constant over the past decade, 12 percent to 16 percent of annual company-run sales.