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Starbucks to launch portal site, report says

A Merrill Lynch report indicates that the coffee chain is building a site that combines content and commerce aimed at its core customer base: the young and affluent.

A Merrill Lynch report released today said that Starbucks is working on a destination Web portal, shining new light on the coffee retailer's hush-hush online strategy.

Merrill analysts Scott Waltmann and Peter Oakes said that they believe Starbucks is positioning itself to become an Internet contender by building a site on a combination content/e-commerce business model.

More specifically, Waltmann and Oakes said they believe the company will announce plans for a new portal next month to provide specialized content and commerce that can help boost the company's land-based retail business and Starbucks brand.

Last month, Starbucks chief executive Howard Schultz said that the company plans to create an online venture in a "multibillion-dollar" category that's not related to coffee sales. Schultz, who sits on the boards of eBay and Drugstore.com, said the venture will capitalize on the fact that about 70 percent of Starbucks' customers use the Internet and tend to be relatively young with high incomes--an attractive demographic for advertisers.

Last November, Starbucks launched its corporate Web site with information about the company, its coffee, and other Starbucks products, which include tea and ice cream. The site also sells coffee online.

With its new online strategy, the analysts said, Starbucks will be able to extend its brand name further outside the coffee-retail market. Whereas most existing Web portals are information-based with "little or no brand identity," Starbucks' brand name has "character" and "personality" that can offer a unique draw to its portal, according to the analysts.

The portal's e-commerce component is likely to be a combination of sales of existing product lines and links to external businesses, such as Drugstore.com and eBay. The content side would center on lifestyle and culture and include arts and music reviews, as well as message boards.

Although there have been speculation that the company plans to sell new products, possibly gourmet food, Waltmann said in an interview that the "multibillion-dollar" category mentioned by Schultz, is unlikely to include gourmet food and isn't necessarily a new product category.

The analysts have assigned Starbucks stock a "high-risk" rating, noting that the company must continue to nurture its core retailing business while promoting new online strategies. Waltmann said that the stock has recently been trading in tandem with Internet stocks and tech stocks, most likely linked to the company's investment in Internet chat company Talk City announced last week, but could also be a signal of acquisitions to come.

Merrill analysts reintroduced coverage on Starbucks stock with a "buy" rating and set a 12-month price target of 55 a share. The shares were up 1.3125 at 40 in late-morning trading today.

"After Starbucks rolls out its online strategy, it can go either way, but we're betting that they will execute the strategy very well and have a very good shot at executing market share," Waltmann said.