A Starbucks Solution—Get Another Chain

Can the cure for what ails the Starbucks (SBUX) coffee chain be ... another coffee chain?

Even as Starbucks is closing locations and cutting jobs, it is expanding the presence of Seattle's Best Coffee, the chain it purchased in 2003.

The company is looking for new franchisees to operate stores and kiosks. That will allow it to expand without increasing operating costs.

Seattle's Best generally offers milder (and cheaper) blends of coffee than Starbucks does, and it sells more foods, such as hot sandwiches and ice cream, that attract a wider audience than do Starbucks' pricy pastries and complicated juice drinks. This "could help Starbucks pursue two distinct streams of the coffee market simultaneously," writes Lauren Shepherd of the Associated Press.

The expansion plans seem to support the view that Starbucks founder and CEO Howard Schultz is fixated on growth. If Starbucks can't grow, maybe Seattle's Best can. The growth fixation, of course, is what got Starbucks into trouble in the first place. Even Schultz has admitted as much. But it seems he can't help himself.

There are only about 550 Seattle's Best outlets, compared with about 15,000 Starbucks stores.

In its financial statements, Starbucks lumps Seattle's Best in with its Tazo Tea beverages and bottled drinks under the heading "specialty operations," so it's hard to know how well or how badly the chain is doing. Starbucks purchased the chain for $70 million.

Still, the fact that Seattle's Best is a franchise operation keeps operating expenses off Starbucks' books. Some analysts told Shepherd that expansion could boost the bottom line.

But given that one of Starbucks' core problems is that there are just too many Starbucks around, adding more coffee stores of any kind is bound to carry risk, especially as McDonald's (MCD) starts selling premium coffee drinks and Dunkin' Donuts continues to take on Starbucks directly in many markets.

But for Schultz, it seems, growth is everything.