August 20, 2010 / 12:56 AM / 7 years ago

Sales strength of Starbucks' Via coffee questioned

4 Min Read

LOS ANGELES (Reuters) - Better-than-expected sales of Starbucks Corp's (SBUX.O) Via coffee are being clouded by concerns that some employees have given customers free drinks in exchange for buying the fast-growing instant-coffee brand.

The world's largest coffee chain has reported strong business for the brand, which Chief Executive Howard Schultz is betting could become a billion-dollar business and galvanize growth for the chain.

When asked if the company was aware of the situation, Starbucks spokeswoman Sanja Gould said: "There have been limited instances where some beverage sales have been rung up as Via sales."

Via currently accounts for a small portion of sales at Starbucks, but reported numbers suggest it is rapidly gaining traction with customers. Gould said the activity had no impact on Via reaching $100 million in global sales in 10 months.

"With more than 16,000 stores around the world, isolated incidents and mistakes do occur. However, we do take this seriously and are working with our store partners to ensure accuracy for all purchases," Gould said.

Even so, it potentially is a black eye for the Seattle coffee giant, which only recently turned its business around after a long and painful restructuring.

Tyler Swain, a barista in Omaha, Nebraska, said his store is under intense pressure from its district manager to deliver Via sales. Swain said he has given out complimentary drinks to persuade customers to buy Via and that he has been coached to teach others to do the same.

"It is a never-ending pressure," said Swain, who is involved in a movement to unionize Starbucks employees. "I don't feel like a barista anymore. I feel like a salesman."

Two business school students, who asked not to be named, told Reuters that a Manhattan barista this week gave them two free drinks in exchange for buying a package of Via.

A Los Angeles office worker, who said she spends a lot of time studying at Starbucks in the evenings and wants to keep her options open to work at the company one day, said she witnessed the practice multiple times in March.

Starbucksgossip.com -- a site frequented by Starbucks devotees and employees -- has gotten similar complaints on the issue for several months from some posters, who use screen names to protect their identity.

Store checks by Reuters in Los Angeles, New York, San Francisco and Chicago on Thursday did not turn up the behavior, which is not sanctioned by the company. Other employees told Reuters that their stores do not engage in the practice.

Starbucks launched Via in September 2009 to a skeptical investment community. It has aggressively marketed the product, and store managers are under pressure to deliver on Via sales goals.

For context on the pace of Via sales, consider the trajectory of Frappuccino, which is widely viewed as Starbucks' most successful customer launch.

That blended product, which now accounts for $2 billion in annual sales, took three years -- adjusted for inflation -- to reach $100 million in sales.

The bulk of Via sales so far has come from the United States, where it is most widely available but where instant coffee is not as popular as it is in parts of Europe and Asia.

Starbucks said it expects Via to have a "slightly positive contribution" to earnings in the fiscal year ending October 4, even as it puts significant marketing and advertising dollars behind the coffee brand.

Reporting by Lisa Baertlein; Editing by Gary Hill

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