From Starbucks to Barbucks: A Venti Chardonnay, Anyone?

Hard hit by the recession, lagging sales, and fast-food competitors at its heels, the coffee giant is testing a new approach: Sell local wine and beer. Will the scheme help open new markets and revive sales, or will it turn off core customers?

Starbucks, which faced a sales decline in the third quarter 2010 and had to close hundreds of stores since 2008, has embarked on a bold move to revitalize its business.

The action comes none too soon, as McDonald's has lowered its Wi-Fi fees from $2.95 for two hours to zero in an attempt to encourage customers to linger, just like Starbucks has done for years.

The experiment in brand rethink, dubbed "Olive Way" internally, will change from its iconic green-and-tan color scheme and will offer not only alcohol but a broader food menu and plush seating too.

Starbucks founder Howard Schultz said: "This is a time when every business can no longer embrace the status quo and do everything they can to get as close as possible to the customer."

For now the company is testing its new "Coffee Theater" approach in a few selected locations only. But there have already been strong reactions to the pilot program. Basically there are three kinds:

The first view: Morning coffee sales alone cannot carry the business anymore. McDonald's and Dunkin' Donuts have been increasingly competitive, so the Starbucks plan, although controversial, makes sense. The good news is that Starbucks knows it must keep innovating.

The second view: The new push could easily backfire. "Personally," says Dave McGurgan in PhillyBurbs.com, "I feel if i want to have a glass of wine, I'll likely do so at dinner or at home. I know Starbucks for one thing and one thing only: Coffee."

Starbucks is a place where you can engage people socially without fear of offending them, and "I don't see them bringing in new customers with booze without offending their core coffee customer base."

The third view: Worry about the redesign, not the alcohol, says Carol Tice on BNET.com, since "lots of poeple hang out at Starbucks to do business--working on laptops or calling clients from cellphones." Will the new store design leave no quiet space for that proposal you're writing?

What do you think? Will Starbucks' gamble on alcohol work as a brilliant move to re-energize the chain? Or will it be a fiasco? Or what else? I look forward to reading your comments on my blog.

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