What’s Brewing at Starbucks?

Sipping coffee while enjoying stimulating conversation, reading a good book, or just plain relaxing has been a coffeehouse tradition for years. These days, music is being added to the mix, and one of the nation’s most recognizable coffee brands is using entertainment to take its business to the next level.

On May 24, seasoned corporate executive Kenneth Lombard accepted a position with Seattle-based Starbucks Coffee Co., overseeing the $4.1 billion company’s fledgling entertainment division. In the newly created post of president of Starbucks Entertainment, Lombard, 49, will be challenged with expanding Starbucks’ music and entertainment interests. (He is also senior vice president of the parent company.)

Since acquiring music company HearMusic in 1999, Starbucks, with more than 7,500 locations worldwide, has been slowly getting into the music business. First, it sold record compilations alongside its coffee brands. Now the company has teamed up with Hewlett-Packard Co. to let its 30 million weekly customers burn CDs from a selection of 250,000 songs while sipping lattes. You can download music for little more than what you pay for your favorite Starbucks beverage — five songs for $6.99, $1 for each additional song.

“Music has always been part of the Starbucks experience,” says Lombard. “This new service is a win-win situation. … And now our customers will have more reason to come and stay longer. The longer they stay, the more they buy,” he predicts.

The first fully integrated Starbucks HearMusic store opened in March in Santa Monica, California. And according to Lombard, “We’ll test 10 stores in Seattle by August and put the technology in 200 stores by year’s end.” It is estimated that by 2006, the service will roll into 2,500 stores.

“Over the last five years, many people within Starbucks have worked with Ken [through a previous venture] and have developed strong relationships with him based on mutual trust and respect,” states Starbucks Chairman Howard Schultz in a press release. “The knowledge he brings will help Starbucks continue to innovate and enhance the Starbucks Experience.”

Alyce Lomax, a Motley Fool analyst, says the new downloading service goes hand in hand with the Starbucks brand. “It’s the ambience as well as the traditional idea that coffeehouses go with socializing and with music. That’s a big synergy.” Lomax also believes it will stand out under Lombard’s direction. “Lombard’s forte is taking multiple entertainment ideas and helping them successfully work together — not to mention envisioning underserved market opportunities and building a fledgling business,” she says.

During his professional career, Lombard has worked as a consultant to former New York State Comptroller H. Carl McCall, a commissioner for the Los Angeles Department of Water and Power, and vice chairman of the board of OneUnited Bank (No. 2 on the BE BANKS list with $438.6 million in assets). He has also worked with several entertainment and restaurant chains.

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