Harvard Business Review
The Idea in Brief
The success of Starbucks cafés has been good for coffee distributors all over the United States. Why? Because Starbucks has given coffee a new cachet. All coffee. Not just the product sold by Starbucks (which represents only a minute fraction of the coffee drunk in the country) but also the 80% sold in supermarkets—and all the rest.
What’s more, Starbucks’ creativity has set off a chain reaction of innovation in the once-sleepy industry. Kraft’s Maxwell House now markets a slew of new brands, including Italian Espresso Roast, Rich French Roast, Master Blend, and Colombian Supreme, and it has also successfully expanded its upscale mail-order business, Gevalia.
Coffee’s greater cachet has had a big effect on the bottom line. Ten years ago, only 3% of all coffee sold in the United States was priced at a premium—at least 25% higher than value brands. Today, 40% of coffee is sold at premium prices.
Over the past decade, we have tracked the cachet of 39 categories of fast-moving consumer goods measured as the percentage of the product category sold at a premium over value brands. We’ve found plenty of evidence of the Starbucks effect. When individual companies increase the perceived “premiumness” of a product through innovations in the product itself or the way it’s delivered, the entire category can reap higher prices and profits.