MONEY

Triumph of Starbucks & Fast Casual Over McDonald’s & Fast Food

Starbucks
Philip Toscano—PA Wire/Press Association Images

In the battle for consumer food and beverage dollars, upscale is winning out over cheap. Starbucks' sales, store traffic, and stock price are all booming, while McDonald's continues to flounder.

The quarterly results released at the end of the week from Starbucks and McDonald’s paint quite a picture of how America’s quick-serve consumption habits are changing. Namely, that we’re growing increasingly more likely to indulge in pricier on-the-go food and drink that’s deemed upscale, healthier, or otherwise superior in quality than we are on the stuff that’s tempting mainly just because it’s cheap.

Starbucks posted outstanding results that immediately juiced the company stock price, with store traffic up 2% (double the growth rate of the previous quarter) and same-store sales rising 5%, plus $1.6 billion added to Starbucks Cards (up 17% compared to the previous year) and a very impressive increase of 9 million sales over the same period a year prior. McDonald’s results, on the other hand, were disappointing, with same-store sales in the U.S. dipping 1.7% and quarterly profits dropping 21%.

Neither McDonald’s recent struggles nor the success of fast casual players such as Starbucks, Panera Bread, and Chipotle should come as a surprise. The core fast-casual pitch—food and drink that’s higher quality and yet only marginally more expensive than fast food—is one that consumers have been buying into for years. On the other hand, the attempts by traditional fast food giants to follow the fast-casual playbook and push quality and prices up and up haven’t gone over so well with consumers. And the costs of expanding menus and adding personalization options so that McDonald’s and its ilk can better compete with Chipotle or Starbucks have hurt profits, confused customers, and angered franchise owners.

What’s especially interesting is that all signs indicate that a broad swath of consumers have been plenty game to spend more on everyday eating ventures—and that they’ve grown increasingly likely to do so during a long stretch when the middle class has supposedly been gutted and incomes have largely been flat.

Using as a launchpoint the impending IPO of Shake Shack, Danny Meyer’s no-hormone, no-antibiotic $7 burger chain, business columnist James Surowiecki offers the long view of the fast-casual/fast food showdown in the latest issue of The New Yorker.

“For most of the fast-food industry’s history, taste was a secondary consideration,” Surowiecki writes. But in the ’80s and ’90s, the economy boomed, and the typical American employee was overworked—leaving him with disposable income and little time or interest to cook. Enjoying the finer things day-in, day-out came to be seen as the just rewards of one’s labors. The foodie movement hit the mainstream, with skyrocketing sales for products once deemed by the masses as snobby, elitist, and perhaps pretentious, including wine, craft beer, and, of course, organic foods sold by the likes of Whole Foods.

And yes, upscale coffee too. “In 1990, the idea of spending two dollars for a cup of coffee seemed absurd to most Americans,” Surowiecki explains. “Starbucks changed people’s idea of what coffee tasted like and how much enjoyment could be got from it.”

This once niche idea—that it’s a no-brainer to spend more money on superior food—is largely assumed to be the way to go by the kids born in the ’90s, the millennials, a generation that arguably loves food and restaurants more than any previous group. To a large extent, the shift to fast-casual has arisen hand in hand with the coming of age of millennials. As the Wall Street Journal pointed out last summer, the percentage of teens and 20-somethings who hit McDonald’s at least once a month has been falling for years, while the number of millennials who regularly visit Chipotle or another fast-casual restaurant steadily rises.

So no wonder McDonald’s has been having such a rough go of things lately, and no wonder company morale is down in the dumps.

TIME food and drink

Nearly 46 Million Americans Received Starbucks Gift Cards This Holiday

Starbucks coffee
Starbucks coffee Bloomberg—Getty Images

Coffee giant says 1 in 7 Americans received one of its cards

While much of the frenzy around the holidays invokes images of Wal-Mart door busters and Amazon warehouses, Starbucks is proving itself to be one of the kings of the season.

The coffee giant has announced that one out of every seven Americans received one of its gift cards this holiday season. That’s up from one in eight Americans in 2013. Doing a little math (based on the U.S. Census Bureau’s population clock of about 320 million Americans), that implies that nearly 46 million received Starbucks gift cards in 2014 versus about 40 million in the year-earlier period.

It isn’t exactly a surprise that Starbucks would do so well when it comes to generating gift card sales during the key retail shopping season. A National Retail Federation survey recently reported that one in five had planned to pick up coffee shop gift cards this holiday season, one of the most popular choices for gift cards.

A Starbucks spokeswoman told Fortune that nearly 2.5 million Starbucks cards were activated on Christmas Eve alone, implying the coffee company benefits greatly from those looking to scoop up a last-minute gift. And more than $1.1 billion were loaded on the company’s cards in the U.S. and Canada throughout the most recent holiday season. To add some perspective, Starbucks generated $16.4 billion in revenue globally in the most recent fiscal year.

Gift cards are a popular strategy employed by retailers to generate more traffic to their stores, and Starbucks is particularly good at incorporating those dollars into its loyalty program. The value of a gift card can be uploaded and combined with a java lover’s Starbucks card, which offers broader rewards and discounts, as well as promotions (including the recently announced “Starbucks for Life” promotion).

This article originally appeared on Fortune.com

TIME Food & Drink

Hipster Drink of Choice Gets Co-Opted By Starbucks

A serious coffee for the serious connoisseur

Not all medicine goes down better with a spoonful of sugar.

Starbucks is offering the new espresso-based “Flat White” coffee for the serious coffee drinker, perhaps in an effort to counterbalance the sugary faux-coffee blends so beloved on its menu like the Caramel Macchiato and the Cinnamon Dolce Latte.

The Flat White is is made from two ristretto espresso shots topped off with whole milk steamed to “micro foam,” Eater reports. It’s the drink of choice for hipsters everywhere, who enjoy it with a dot of milk in the cups center to create a ephemeral latte art.

The drink will join Starbucks’ core menu and will be available at American locations starting Jan. 6.

[Eater]

MONEY Shopping

5 Everyday Items You Paid More for in 2014—and 3 That Got Cheaper

A few of America's favorite items for snacking, cooking, and recaffeinating got a lot more expensive this year. Meanwhile, one big cost has gotten much cheaper.

Inflation causes the slow, steady rise in prices for all manner of goods and services. But the price hikes incurred by the five common expenditures below have far outshot inflation. Over the past year, chances are a much larger portion of your household budget has been allocated to the following expenses.

 

  • Olive Oil

    Bottle of olive oil
    Sue Wilson—Alamy

    Olive Oil Times noted recently that “2014 will go down as one of the worst years in recent history for olive oil production in Italy.” Production has slowed significantly in Spain and Portugal as well, thanks to a range of factors including a fruit fly infestation and a cold spring followed by a hot, humid summer—followed by hail storms. The end result is that global production of olive oil could be down as much as 27%, and prices for high-quality European olive oil are soaring: Recently, wholesale prices for extra virgin olive oil in Italy were up 121% compared to a year ago.

  • Beef

    T-bone steak on white butcher paper
    Foodcollection.com—Alamy

    Virtually all meat prices rose in 2014, thanks largely to long periods of drought in the American West colliding with increased global demand. Yet beef prices rose swiftest of all this year, with live cattle futures hitting an all-time high in November and retail prices being pushed up 18% to 20% compared to a year ago. And get this: Skyrocketing beef prices are being blamed for what appears to be the return of cattle rustlers, who presumably made off with 150 cows that were reported missing in Idaho, and that are worth over $300,000. Perhaps worst of all, bacon prices have been rising nearly as steeply as beef.

  • Chocolate

    Hershey's, Mr. Goodbar and Krackel chocolate bars.
    Kristoffer Tripplaar—Alamy

    Surging cocoa prices led both Hershey’s and Mars to raise prices by 8% or so on your favorite chocolate candy bars this year. And because the supply of chocolate appears unable to keep up with demand—which is soaring in particular in Latin America and Asia—chocolate prices are expected to keep rising going forward.

     

  • Airfare

    Airport planes
    Nicholas J. Reid—Getty Images

    The average round trip flight in the U.S. surpassed $500 in 2014, and the cost of flying domestically has been rising nearly 11% over the past five years, after adjusting for inflation. What’s puzzling—not to mention frustrating—for travelers is that base prices for flights have been soaring at a time when airline fees and airline profits are both sharply on the rise. Lower fuel prices have served to make profits even larger, and while the airlines have kept prices high thus far in the new era of cheap oil, costs have declined so dramatically that some are anticipating slightly cheaper airfare in 2015.

  • Coffee

    The Starbucks Corp. logo sits on carboard coffee cups inside a Starbucks coffee shop.
    Jason Alden—Bloomberg via Getty Images

    Starbucks, Folgers, and Dunkin’ Donuts are among the well-known coffee brands subjected to price increases in 2014. Persistent drought in Brazil, the world’s largest coffee bean producer, has been blamed as the main reason for the price hikes. And while it may seem as if coffee drinkers will pay any price to get their java fix, a recent report noting falling coffee sales from Smuckers, maker of Folgers, indicates that the demand for coffee has its limits. Meanwhile, Starbucks’ new plan focuses on a luxury retail concept, where a haute cup of Joe will run around $6.

    On the flip side, you paid less for these three expenditures in 2014:

  • Gas

    Mark Monaham, owner of the Raceway gas station in McComb, Miss., changes his fuel price billboard, Friday, Dec. 19, 2014. Gas prices throughout the region continue to fall as oil prices plummet.
    Daniel Lin—AP

    Thanks to an increase in supply and lower consumption due to more fuel efficient vehicles and other factors, gas prices launched into a slow, steady decline last summer that hasn’t really ended. The national average hit what was then a low for 2014 in early October, at $3.27 per gallon—a rate that seems quite expensive of late. Prices dipped under $2 per gallon in a few stations in Oklahoma in early December, and government forecasts are predicting a national average of $2.60 per gallon for 2015, down from $3.51 in 2013.

     

  • TVs

    A Walmart employee helps a customer with a 50" TV on sale for $218 on Black Friday in Broomfield, Colorado November 28, 2014.
    Rick Wilking—Reuters

    It’s no surprise that the price of most electronics drops year after year, thanks to increasingly lower production costs and the fact that any technology available for more than six months is deemed old and unhip—and therefore must be discounted. Even so, the dip in TV prices in 2014 has been pretty amazing. In October, the Labor Department reported that TV prices were down 14%, and that decrease of course occurred well before the rollout of super cheap TV deals on Black Friday and the rest of the holiday period. As Consumer Reports noted recently, it’s now pretty easy to find a 40-inch TV for less than the price of an 8-inch tablet.

     

  • Cellphone Bills

    Pedestrians pass a Verizon Wireless store on Canal Street in New York.
    John Minchillo—AP

    The past year brought with it more changes in cellphone plans than we’ve seen in perhaps the previous five years combined. In addition to a sharp shift toward more possibilities in “non-contract” plans, in which you’re not locked into a two-year deal, wireless providers have been especially aggressive this year in terms of rolling out new plans and bonuses in order to win over customers from the competition. In August, for instance, Verizon and Sprint both introduced significantly cheaper plans to new customers—potentially cutting one’s monthly bill by 50%. More recently, Sprint promised a new unlimited talk and text deal that would cut in half the bill currently paid by any AT&T or Verizon customer.

    None of this necessarily means that your household’s smartphone bill actually went down in 2014. But considering the increased competition and wide range of new individual and family plan offers on the table, you should be paying less. If you’re not, it’s time to start shopping around to get a better deal. You might not even have to switch providers. Sometimes it’s as simple as calling up and asking for a cheaper option.

MONEY Fast Food

2014 in Fast Food: A Year of Reckoning, Makeovers, and Waffle Tacos

Here's a look back at the strategies big and small, bold and sometimes bizarre, that sought to capture more of your fast food dollars over the past year.

In 2014, Ronald McDonald got a makeover, with the iconic clown mascot sporting supposedly hipper outfits including a vest, cargo pants, and sometimes a bowtie in order to—again, supposedly—win over new customers, especially younger ones. The makeover, widely decried as “desperate,” is symptomatic of a year marked with a wide range of alternately innovative and puzzling changes made by fast food players. In many ways, 2014 was a year of reckoning and upheaval in fast food, and not only for McDonald’s. Click through the gallery below and you’ll see what we mean.

 

  • Breakfast Wars

    141222_EM_FastFood_1
    Courtesy of Taco Bell

    The year in fast food got under way with the much-anticipated national launch of a Taco Bell breakfast menu, featuring the Waffle Taco. McDonald’s has thoroughly dominated the fast food breakfast world over the years, and Taco Bell’s encroachment on its turf was equal parts bold and nasty—including ads that mocked McDonald’s for being old-fashioned and outdated, and that used real-life Ronald McDonalds to endorse Taco Bell’s breakfast. The squabbles expanded into a broader war over fast food breakfast, which is the only traditional meal time that’s been experiencing sales growth of late. For its part, McDonald’s has introduced new breakfast options and rolled out free coffee offers twice in 2014 in order to win over customers. While McDonald’s remains the leader in fast food breakfast and chain restaurants overall, the expansion and increased competition from Taco Bell and other players in the fast and fast casual space are a big part why the Golden Arches has struggled mightily—a theme throughout 2014.

  • Personalization

    141222_EM_FastFood_2
    ZUMA Press, Inc / Alamy

    Higher quality ingredients and some level of customization in food ordering are highly prized by millennials. They’re also both central parts of the “fast casual experience and prime reasons that Chipotle, Panera Bread, and the rest of the restaurant category are flourishing. To try to stay competitive—and perhaps even hip with the youngsters—old-fashioned brands such as Pizza Hut and McDonald’s raised the bar on personalized orders in 2014. The former introduced a whole new menu featuring six new sauces, 11 new crusts, and four spicy “drizzles” that can be mixed and matched, while the latter has been frantically expanding a build-your-own burger concept to offset underwhelming sales.

  • Expanding Menus

    141222_EM_FastFood_3
    Alamy

    In addition to expanded breakfast and more personalization options, plenty of quick-service restaurants plodded on with a years-in-the-making trend of bolstering up menu choices in general. At the start of 2014, McDonald’s franchise owners were complaining about how large the menu had gotten—25 items for the “Dollar Menu and More” section alone, where most things cost $1 or $2. Expanded menus slow down service (especially at the drive-thru), but that hasn’t stopped many fast-food operators from trying to attract customers with more and more choices. The two most obvious examples are Starbucks, which has been adding tea and alcohol to menus left and right and broadly expanded its food selection and plans on doubling food sales in five years, and Pizza Hut, which simultaneously made its menu larger and more personalized to woo younger customers in particular. On a smaller scale, Wendy’s decided to add the highly successful Pretzel Bacon Cheeseburger to the menu permanently, and virtually every national fast food establishment keeps on rolling out limited-time offer items regularly.

  • Shrinking Menus

    141222_EM_FastFood_6
    Bloomberg—Bloomberg via Getty Images

    Shrinking Menus
    While the pressure to expand menus still exists, McDonald’s in particular has come to realize that there are limits to how big a menu can get before it hurts the business. Items like the McWrap, which comes with two choices of chicken and three sauce options and cannot be prepared in advance, slow service to a halt—making it virtually impossible to McDonald’s goal of getting orders to customers in one minute or less. After yet another report of declining same-restaurant sales in early winter, McDonald’s decided it was finally time to cut the menu, which had grown to 121 items, a 75% increase in a decade. The fast food giant is now testing the removal of some Quarter Pounders and other sandwiches to make the menu more doable (and profitable) for the company. Casual sit-down dining chains including Chili’s and Red Lobster likewise decided in 2014 to trim back menus, which had metastasized and proven unwieldy and not particularly popular with customers.

  • Digital Ordering and Payments

    141222_EM_FastFood_4
    Anatolii Babii / Alamy

    Burger King, Taco Bell, Starbucks, Chick-fil-A, Dunking Donuts, and McDonald’s are among the fast-food operators that advanced the options to pay for purchases—and often, order before ever setting food in the restaurant—with a smartphone in 2014. When you think about, it especially makes sense for fast food players to be at the forefront of the mobile payment sphere: These businesses are based on the premise of satisfying cravings in a hurry, so of course they love the idea of customers being able to order with the tap of a phone, before really thinking through what it is they’re ordering. The advent of Apple Pay, accepted at McDonald’s, Subway, and Panera Bread, among others, is good for business too because customers don’t need to have cash or even a credit card on hand to get their fix of food.

  • Worker Strikes

    141222_EM_FastFood_5
    Scott Olson/Getty

    Periodic walkouts by fast food workers around the U.S., combined with a big protest outside McDonald’s headquarters in Illinois in May, which led to hundreds of arrests, have brought various versions of the “Fight for $15″ (a campaign to boost all fast food employee wages to a minimum of $15 per hour) into the national spotlight in 2014. The movement appears to be growing, with walkouts in 150 cities in September, then reaching 190 cities during a planned strike in December. While it seems unlikely that the world’s biggest fast food companies will give in (and certainly not easily), they may not have a choice in some parts of the country: Seattle instituted a $15 minimum wage this year, and cities such as Los Angeles, San Francisco, Chicago and New York are considering doing the same—moves that would affect not only fast food workers, but all low-wage employees.

TIME Diet/Nutrition

7 Holiday Drinks With Way More Calories Than You Think

eggnog
Getty Images

7 sips you're better off skipping

Coffeeshops offer lots of indulgent holiday beverages, but don’t be fooled: you can make them in the cozy comfort of your kitchen, too. Watch out for these surprisingly calorie-laden cold-weather drinks.

1. Eggnog

Eggnog doesn’t pull its rich creaminess out of thin air. With all that milk, cream, sugar and eggs, just a cup is heavy with a whole lot of calories: 224, to be exact, plus about 11 grams of fat.

2. Hot chocolate

Just 16 ounces of homemade hot chocolate will run you 385 calories—and that’s without the whipped cream.

3. Gingerbread latte

The Starbucks holiday favorite clocks in at 360 calories for a grande, with whole milk and whipped cream—plus 17 grams of fat. You’d be better off eating the real thing. A homemade square has 263 calories and 12 grams of fat.

4. Fa La Latte

The creation from Caribou Coffee comes with espresso, egg nog, whipped cream, nutmeg—and a whopping 650 calories.

5. Ho Ho Mint Mocha

Another choice from Caribou’s holiday menu is espresso-spiked mint hot chocolate with whipped cream and crushed candy canes, all for 550 calories.

6. Dessert wine

A 3.5-ounce glass of sweet after-dinner wine has 165 calories. You can get more wine for fewer calories (and isn’t that always the goal?) by drinking a glass of regular white wine. A 5-ounce pour has 123 calories and just a gram of sugar.

7. Caramel Apple Spice

Far from counting as a serving of fruit, this Starbucks’ take on a hot apple cider—steamed apple juice, cinnamon syrup, caramel and whipped cream—costs 360 calories for a grande.

 

MONEY stocks

Everything You Need to Know to Give Stocks for Christmas

Rolls of stocks with gold bow wrapped around them like a present
MONEY (photo illustration)—Li Jingwang (bow); Kord.com/Getty Images (stocks)

Introducing a youngster to the world of investing via shares in a company they know and admire could start them on the road to wealth

Before you resort to the Starbucks gift card for the collegian in your life—again—or an Apple gift card for the hip techster in the family, why not consider giving a share of Starbucks STARBUCKS CORP. SBUX -0.8773% or Apple APPLE INC. AAPL 5.6533% stock? Looking for that je ne sais quoi for a Frozen fanatic/sports geek/theme park devotee? A share or more of Disney THE WALT DISNEY CO. DIS -1.3834% , parent of the ESPN Network, plays to those passions.

Anyone who had received shares of those stocks five years ago has more than tripled her money, making stocks one Christmas or Chanukah gift that can keep giving well after the holiday season is past.

It’s true that giving shares of a single stock violates all principles of diversification. But c’mon, it’s a heck of a lot more engaging for a child or young adult than some shares of, say, the Vanguard Target Retirement 2060 mutual fund VANGUARD TARGET RETIREMT 2060 FD VTTSX -1.0638% .

And maybe, just maybe, introducing a youngster or young millennial to the world of investing via some shares in a company they know—and like—tip the scale toward stocks when they eventually start investing in a 401(k) or Roth IRA. Millennials have been slow to embrace stocks. That’s understand given the fact they and their portfolios had to live through the financial crisis. But it also will make it harder for them to reach their long-term savings goals.

Your first gift-giving task is to choose one of these three ways to gift the stock:

1) Make A One-Time Gift, Stock Certificate Included. Sites such as giveashare.com and uniquestockgift.com allow you to purchase a share that comes with a framed stock certificate, which gives the recipient something more tangible than a brokerage statement to hang on to, and hang up. The certificate may be a real-deal stock certificate or a replica. For example, in 2013 Disney, with its fab animated stock certificate featuring Walt, Mickey Mouse, and Donald, stopped issuing the real deal, choosing instead to register owners only electronically. But you can still get a collectible version of the stock certificate:

There’s a steep price to pay for being able to hand over a physical gift. At giveashare.com a framed copy of one share of Apple was recently $214, a staggering $100 more than the share price of Apple. At uniquestockgift.com the pricing is more a la carte. On top of the share price, you will pay a $69 transfer fee, and anywhere from $2.95 to $48.95 for a frame. A customized engraved plaque will run another $6.

2) Transfer Stock You Own. You can have stock you own transferred to another account. Contact your brokerage and ask for a stock transfer form. For recipients under the age of 18 the transfer must be made into a custodial account with an adult (usually a parent) listed as the custodian.

3) Deal Directly with the Company Whose Stock You Want to Gift. Some companies, including Harley-Davidson, Mattel, and Nike, offer direct stock purchase plans, and you can have dividends automatically reinvested in more shares. FirstShare, an online site that offers dividend reinvestment programs (DRIPs) has a list of companies offering direct investment. Fees vary at each company. For example, Harley-Davidson HARLEY DAVIDSON HOG -0.3201% will let you get started with just a one-share purchase. In addition to the share price itself, there’s a $5 purchase fee plus another 10 cents for each share.

Once you’ve decided how to give the shares, you’ll want to pick a company that both taps into the recipient’s interests and has at least some potential to grow over time. Because the major indexes are at or near all-time highs right now, screaming deep-discount values are hard to come by these days. But the following gift-friendly stocks all offer value compared to the 1,500 stocks that Morningstar closely analyzes, which on average currently sell for 4% more than the estimated “fair value.”

Kids’ Play

Both Disney THE WALT DISNEY CO. DIS -1.3834% and Mattel MATTEL INC. MAT 1.7918% currently trade at small discounts to Morningstar’s fair value estimates.

Movie Buffs and Binge Watchers

Having shed about $100 in its share price since this past summer, Netflix NETFLIX INC. NFLX -2.5783% is currently priced at an 11% discount to Morningstar’s fair value price of $386.

Coffee Lovers

Starbucks STARBUCKS CORP. SBUX -0.8773% recently traded at about an 8% discount to fair value.

Budding Buffetts

If there’s someone on your gift list who has shown more than a passing interest in how stocks/markets/investing works, a share of Berkshire Hathaway is one of the best ways to learn through ownership. Anyone can read Warren Buffett’s annual shareholder’s letter, but reading it as a fellow shareholder will likely resonate more. Berkshire Hathaway B shares BERKSHIRE HATHAWAY INC. BRK.B -1.9438% recently traded around $150 a share, a slight discount to Morningstar’s $157 fair value estimate. (And if your gift goes to someone with a car, Berkshire Hathaway shareholders are also eligible for an 8% discount on GEICO insurance. GEICO is a wholly owned subsidiary of Berkshire Hathaway.)

Tech Enthusiasts

You know Microsoft MICROSOFT CORP. MSFT -3.4459% for its Windows and Office software. If you’ve got a gaming fan in the family they know Microsoft for its wildly popular Xbox console. In the most recent quarter, Microsoft sold 2.4 million more Xbox units. The stock recently traded right around fair value. Apple APPLE INC. AAPL 5.6533% requires a little bit more faith, as the current stock price is at a 14% premium to Morningstar’s fair value estimate. That’s not nose bleed territory, but whoo-boy, the time to buy Apple was last Christmas or Chanukah, when the stock price was nearly 40% lower and the price/earnings ratio was below 14. Today it’s a more expensive 17.4. Unless you have a crazed Android devotee, Google GOOGLE INC. GOOGL -1.6808% doesn’t have the tactile product-connection you get from Apple and Microsoft. But it’s actually the best value of the bunch right now, trading at nearly a 4% discount to its estimated fair value. (That said, a single share is north of $500.)

Social Media Mavens

Twitter TWITTER INC. TWTR -4.5478% trades a slight discount to fair value. Facebook FACEBOOK INC. FB 0.607% , by contrast, is near a 30% premium — not an easy price to “Like.”

TIME Retail

Go Inside Starbucks’ Wild New ‘Willy Wonka Factory of Coffee’

Founder Howard Schultz shows us his new concept for the future of the coffee chain

On Dec. 5, founder Howard Schultz debuted part of his new strategy for Starbucks: his first flagship “Roastery,” a 15,000 square foot space that is both a coffee roasting facility, and a consumer retail outlet. The place is to coffee what FAO Schwartz is to toys or Dover Street Market is to fashion—retail theatre. You can watch beans being roasted, talk to master grinders, have your drink brewed in front of you in multiple ways, lounge in a coffee library, order a selection of gourmet brews and locally prepared foods. (The entire store is crafted from Made in America materials, by regional artisans.) The architecture says “niche” not mass, as does the merchandise—copies of the New Yorker are scattered alongside top of the line espresso machines and bags of reserve beans marked with their crop year.

Schultz calls it his “Willy Wonka factory of coffee,” and it speaks to the fact that in retail, as in nearly every aspect of the economy these days, there seems to be two directions—up, or down. At the Roastery, a latte made from beans cut and roasted in front of you only minutes before can cost more than $6 bucks. And the truth is that they could probably charge a lot more. There’s little price sensitivity for the upscale consumer these stores—and the smaller “Reserve” stores inspired by the flagship, which will be coming to a town near you in 2015—will target.

For more, click here.

TIME Retail

Inside Starbucks’ Radical New Plan for Luxury Lattes

An employee pours milk into a cardboard coffee cup inside a Starbucks Corp. coffee shop in London on June 9, 2014.
An employee pours milk into a cardboard coffee cup inside a Starbucks Corp. coffee shop in London on June 9, 2014. Bloomberg/Getty Images

Your Starbucks is about to change radically—get ready for $6 coffee

If there is a retail proxy for America, it must be Starbucks. The company has 12,000 stores in the US, doing 47 million transactions per week, serving 70 million unique customers. One in eight people found a Starbucks card in their Christmas stocking last year. So when Starbucks founder and CEO Howard Schultz says something about consumers, people tend to listen. (Indeed, everyone from President Obama to the heads of major investment banks have been known to ring him for a cup by cup read on the state of the economy.)

At the company’s biannual investor conference this week, Schultz gave his take on the state of the recovery in the US. While Schultz is bullish, laying out some robust growth targets for his company, he also said, “We are living at a time when the world is very fragile, and that effects consumer confidence.” Just like the overall economy, Starbucks is bifurcated—stores in some affluent cities are doing more business than ever, while others have yet to spring back from the last several years of crisis and recession.

What’s more, the way people are shopping is changing profoundly. According to Schultz, the “seismic shift” in consumer spending from bricks and mortar retail outlets to online shopping that the company first noted last year has become “a tidal wave.” That’s going to change the entire nature of retail and public spaces. As Schultz put it, “I wouldn’t want to be a mall operator five to ten years from today,” referencing the fact that foot traffic in malls and in Main Street shopping areas throughout the country is way down from last year.

The problem is, that’s where most Starbucks today are located. Solution: a whole new approach to stores that mirrors this new economy. Just as fashion brands have “haute” couture and mass market lines, Starbucks will now have luxury “reserve” stores, and many more express kiosks, mobile coffee trucks and all kinds of specialized retail outlets purpose built for specific spaces. Think luxe roadside coffee pit-stops, or “hammerhead” shaped drive through outlets made out of used cargo containers that will sit in the entrance to highways or on small silvers of land near a bowling alley or another local attraction.

The idea will be to make Starbucks a destination in and of itself, one that’s not so dependent on foot traffic. “People are still longing for connection, and a sense of community, perhaps more so now that they are spending more time at their computers, or working from home,” says Schultz. But in order to preserve the “third place,” Schultz says the company will increasingly have to offer “experience, rather than just a product.”

On Dec. 5, Schultz debuted part of the new strategy—his first flagship “Roastery,” a 15,000 square foot space in Capitol Hill, Seattle that is both a coffee roasting facility, and a consumer retail outlet. The place is to coffee what FAO Schwartz is to toys or Dover Street Market is to fashion—retail theatre. You can watch beans being roasted, talk to master grinders, have your drink brewed in front of you in multiple ways, lounge in a coffee library, order a selection of gourmet brews and locally prepared foods. (The entire store is crafted from Made in America materials, by regional artisans.) The architecture says “niche” not mass, as does the merchandise—copies of the New Yorker are scattered alongside top of the line espresso machines and bags of reserve beans marked with their crop year.

Schultz calls it his “Willy Wonka factory of coffee,” and it speaks to the fact that in retail, as in nearly every aspect of the economy these days, there seems to be two directions—up, or down. At the Roastery, a latte made from beans cut and roasted in front of you only minutes before can cost more than $6 bucks. And the truth is that they could probably charge a lot more. There’s little price sensitivity for the upscale consumer these stores—and the smaller “Reserve” stores inspired by the flagship, which will be coming to a town near you in 2015—will target.

In America these days, there are two kinds of people: those that can buy lattes, and those who make them. Schultz is endeavoring to change both their lives.

Read next: How to Win Free Starbucks for Life

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