An Israeli startup is uniting New York City’s independent coffee shops in an attempt to introduce a Netflix-style subscription package to the beverage industry. The company, called Cups, has set its sights on taking on the larger chains like Starbucks (NASDAQ:SBUX) and Dunkin’ Donuts (NASDAQ:DNKN) by offering users flexible membership options, numerous shops to choose from, and even free coffee.
Cups plans to meet the larger coffee chains head on — not only in selection, but also in size and scope. Having been first conceived and launched in Tel Aviv, the company quickly expanded to more than 100 locations in Israel, and it has now brought its unique business model to New York City. Co-founder Gilad Rotem told Slate that Cups hopes to have roughly 200 cafés in New York sign up for their system, rivaling the number of Starbucks in the same area.
So how does Cups operate, exactly? Similar to Netflix, customers choose a subscription package, which grants them an allotted amount of beverages at participating cafés around the city. Users simply need to select a café, order their drink, and have the cashier enter a unique payment code. Customers can do it all from their smartphone using the Cups app.
Pricing and packages range from five drinks for $7 to unlimited drinks for $45. There are rules, like a 30 minute waiting time between purchases and more expensive plans for pricier items, like espresso.
Armed with a promising idea and dozens of caffeine-addicted cities across the country, Cups looks primed to make a real dent in the marketplace. But does it really have what it takes to stand up to the likes of Starbucks, Dunkin’ Donuts, Tully’s, and others?
While Cups does offer independent shops definite advantages, can it really bring its alliance of small businesses into the same? The fact of the matter remains that a company like Starbucks is an international leviathan; a recognizable brand around the world. Showing no signs of slowing down, Starbucks recently announced the addition of 1500 new international locations, extended evening hours, and a host of new food and even alcoholic beverage options. It also posted second-quarter profits of $427 million, up 9 percent from last year.
With Starbucks turning its attention toward new items and targeting new customer markets, it’s hard to imagine it feels threatened at all. Even if young startups like Cups did start to make a splash in the coffee scene, couldn’t the big guys just offer the same type of subscription options with even lower prices? It’s definitely a possibility, but that is only one of many obstacles Cups will need to circumvent if it hopes to truly challenge for the crown.
That doesn’t mean that what Cups is doing will be fruitless, as gaining traction and offering a new economic scale to small businesses is certainly a positive thing. Depending on how successful their New York launch is, cafés in other cities should be champing at the bit for the opportunity to jump on board.
Can Cups sneak up on Starbucks and send it into futility much like Netflix did to Blockbuster? Probably not. Moving people away from à la carte coffee purchases, which many people cherish as part of their morning routine or as a chance to socialize, will be tough. But with Tel Aviv already a successful proving ground, New York City is the biggest domino to knock over.
If New York does prove to be a success and Cups starts an aggressive expansion, perhaps it will be enough to keep Starbucks looking over its shoulder.