From the June 1999 issue of Entrepreneur

Something's brewing at Starbucks. Never content to rest on its laurels, the Seattle coffee giant that made a splash with grab-and-go coffee has quietly premiered a new concept.

Through its latest venture, Circadia Coffee House in San Francisco, Starbucks is experimenting with a completely different approach to java. A swift departure from Starbucks' sparse, no-nonsense ambiance, this 3,100-square-foot coffeehouse is graced with antique furnishings, red velvet curtains and well-worn couches. More than just a place to grab a cup of joe, Circadia also boasts complete breakfast, lunch and dinner menus; a full liquor bar; live music; Internet access from many tables and a private meeting place called the Green Room. This cross between a neighborhood coffeehouse, a restaurant and a bar caters to a hip, urban crowd, many of whom have shunned Starbucks in the past. It's also a place where customers can sink into a comfy couch, sip a mocha or martini, and stay awhile.

Why develop such a distinct offshoot? Starbucks won't spill the beans as to how the new venture fits into its overall corporate strategy, nor will it discuss any of its future plans for expanding the Circadia concept. What it will say is Circadia is an experiment of sorts, an attempt to test new waters and expand its customer base. "We were looking for an environment that would [attract] a different kind of customer," explains Gail DiSantis, Circadia's concept manager. "We wanted to bring customers in at different times of the day and not just be about [coffee] to all people."

Circadia doesn't use any corporate branding. Nor does it leverage Starbucks' name in any way. In fact, there are no outwardly visible signs that the place is even linked to Starbucks, and many patrons don't have a clue it's owned by the coffee powerhouse.

Within industry circles, it's not exactly clear what Starbucks is attempting to achieve with this strategy. But the fact that Circadia resembles a neighborhood coffeehouse, yet has Starbucks' massive marketing clout and brain power to support it, raises speculation as to its possible effect on small coffeehouses, bars and restaurants, should Starbucks choose to expand the concept. Some insiders, however, wonder about its chances for success. "It's kind of an oxymoron for a large chain to go after a local neighborhood concept like this," says Ted R. Lingle, executive director of the Specialty Coffee Association of America. "Local independent coffeehouses exist because [the owner] truly wants to create a community watering hole for people. That's a big motivation for them to be in business and a big factor in their success. I'm not really sure of Starbucks' motivation for doing this."

So far, analysts have greeted Starbucks' new Circadia concept with a collective yawn. They feel its "all things to all people" approach is spreading the company too thin.

Ron Paul, president of Technomic Inc., a restaurant consulting firm in Chicago, sees Café Starbucks, the cozier "coffeteria" style venture Starbucks launched in Seattle and Chicago, as a more significant industry trend. "It's more of the next generation of the Starbucks brand, and that sounds to me closer to where Starbucks should be focusing," he says.

At Circadia, however, customers look anything but bored. The place is abuzz with people sipping and socializing, and most view it as a comfortable place to spend their time, morning, noon and night.

Is Circadia the start of Starbucks' next big venture? As far as we can tell, it isn't shaking up the industry. But whatever Starbucks does, it always makes people sit up and take notice.

While some may view Circadia as a natural next step in the company's evolution, it can also be seen as a step back in time, a chance for Starbucks to get in touch with its entrepreneurial roots.

"We really wanted to create a true European or New York coffeehouse," DiSantis says. "So we just started there, and everything kind of evolved naturally. The whole venture has been very entrepreneurial."

Babies On The Board

When it comes to business, kids say the darndest things.

In The Portable Business- aurus: A Treasury of Insight, Wit, and Wisdom from Tomorrow's Captains of Industry (Chandler House Press), Steve Bennett seeks counsel from candid kids on running a hypothetical company. One situation involves the company's popular dinosaur puppet. When another company starts selling dinosaur puppets that are larger, cost less and even make a roaring sound, the young board of advisors respond:

"Maybe you should add stuff like three more legs--no, five more legs, and six heads and antennae. Then you could sell them as something really different, like `alien dino puppets.' I think many people would come back to buy them." --Alyssa, 8

"Maybe put TWO T-Rexes in a pack, and when you rub their tummies, they would roar AND they would fight. Maybe they would watch FOUR T-Rexes fighting. I think you could sell a lot that way." --Aaron, 6

"If you copy somebody, you have to ask permission. Did they get permission to copy your store? No, they did not. So call the police immediately." --Audrey, 8

"If they make a bigger T-Rex, you make a smaller one and talk about the benefits, like, it would fit in your pocket."--Nathaniel, 10

"Make all of our puppets have sound effects. Then lower our price to match their price. Don't go lower, though, because then they'll go lower and we'll go lower and then they'll go lower and we'll go lower and then . . . the dinos will be free." --Dylan, 9

One For The Books

By G. David Doran

Starbucks, Barnes & Noble, Circuit City--they're not called category killers for nothing. So imagine bookstore entrepreneur A. David Schwartz's surprise upon learning that the big guys aren't always the bad guys.

When the president of Milwaukee-based Harry W. Schwartz BookShops learned late last year that his biggest supplier, Ingram Book Group, was being bought by his biggest competitor, Barnes & Noble, he was certain his days were numbered.

But nearly six months later, Schwartz's four-store chain is still going strong. That's due in part to a business deal with his former Goliath--as Schwartz now receives a credit toward service usage fees. Although he's grateful, Schwartz knows Ingram/Barnes & Noble isn't being friendly for the heck of it--Schwartz happens to be one of the distributor's better customers, and severing the relationship would probably harm the parent company's bottom line.

"It's a difficult emotional issue to have the success of your number-one distributor rely on the success of your number-one competitor," says Schwartz. "But this is capitalism, and there's no room for emotions."

Contact Source

Harry W. Schwartz BookShops, (414) 270-3434, http://www.schwartzbooks.com