Starbucks (SBUX) is about to go into the record business, perhaps with former Beatle Paul McCarthy as its first artist.
One source explained the coffee company’s thinking to The New York Post: "They have a very targeted, efficient distribution channel that allows them to be profitable in a limited way with music."
With McDonald’s (MCD) moving into the higher-end coffee and breakfast business, having hit music that is only available in Starbucks stores may actually be a stroke of genius. But, that could be undermined by the report that these albums, produced by Starbucks, will be available in other retail outlets.
If the wider distribution portion of the plan actually goes through, that is where Starbucks record label probably goes the wrong direction. The key to the overall success of Starbucks is traffic to the retail store level. It can sell its ground coffee in supermarkets and its bottled drinks in grocery stores, but without foot traffic, Starbucks stops growing. Resale of its products in other outlets will never be a big business.
If the coffee chain can get artists of the stature of Paul McCarthy, it should make the albums available in its own stores. Period. That might make it a loss leader, but the traffic it would create should make the "music label" model worth it.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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