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February 26, 2009
Has Starbucks lost its way?
Starbucks has hit a rough patch of late. Growth has stalled; same-store sales are
down 9%. About 1,000 stores will be closed and hundreds of employees let go. The stock price has been in a two-year decline and hovers near $10, off from a high of $30 from this time in 2007.
At the same time, the company has been introducing a flurry of new products, including tea lattes and VIA, an instant coffee. Instant coffee from a company that helped deliver the masses from instant coffee? Say what?
Time will tell if this is a smart move or indicative of another lurch toward something it's not (i.e., a music label, in-store music CD creation, movie production, etc.)
Has Starbucks lost its way? In this video post, one of us says yes. The other says not quite. What do you think?
(RSS readers click here for the video.)
Other blogs that reference Has Starbucks lost its way?:
Starbucks has been living on borrowed time.
It popularized a delicacy that is best served homespun, and has always enjoyed the flavor of regionalism.
The factors that allow a chain to scale up involve activities that scale localism down.
We see this in rise of home-owned independent coffee shops, that allowed Starbucks to popularize over-priced coffee while they enjoyed the benefit of a bigger consumer base.
Starbucks, once the last of the shine is off the cachet, will be remembered as a pioneer, and will still be the largest. But it can't sustain its growth, and it can't even compete head to head with McDonald's half-priced blend.
Look for Starbucks -- if it is smart -- to sell off big swaths of territory to smaller regional interests. Ones that will stay local enough to understand their clientele better, but big enough to apply Starbucks' best practices at the limits of economy of scale.
I thought one of the better comments on Starbucks came from a blog called Church marketing Sucks: http://www.churchmarketingsucks.com/archives/2009/02/another_lesson.html
They say that they've lost their story - that they were the "3rd place" after work and home.
What I like about Starbucks is that I always know what I'll get. I get drip coffee and I'm convinced that it's pretty much the same cost per ounce as other places but with a taste I prefer
Instant coffee? It's a tradeoff between core values and brand development I suppose. Starbucks has never been impressive here (the UK), though I witnessed the 'third place' in a Starbucks in Boston and all of a sudden the success of the brand made sense. I believe Starbucks did indeeed lose it's way due to overexpansion however it can come back from this.
Lose the instant coffee and concentrate on a high-margin exceptional customer experience.
When they decided to only brew their Pike's Place coffee for most of the day they became Dunkin Donuts.
Oh and have you heard? Apparently decaf coffee will only be available until noon now each day. Does that make any sense?
Ben clearly hasn't been to an Argo.
I think that Starbucks may not have lost their way, but they are becoming frenzied in their attempt to regain their place of priviledge in the customer mind. I think they need to focus on their core values which lead to an exceptional customer experience -- and make sure all employees understand and live the values.
I recently wrote a post http://www.billhogg.ca/blog/2009/02/careful-where-you-cut/
about how onboard training needs to be focused on upholding their core values and the customer as much as how to brew coffee.
I believe that if the experience was as strong as it was when they started their steep growth curve, they may find that loyalty would stick today, but loyalty seems to be declining in line with the experience.
Marketers have long known that small indulgences/luxuries will weather an economic downturn, because we may not be able to afford larger indulgences. I can't afford an expensive dinner, but I can still treat myself with a great coffee "experience".
I can't comment on the US market, but here in Toronto, the quality of customer experience is slipping from my personal observation.
It is the times man. They launched too many stores, hired some SUB PAR employees who cannot get my drink right. Brought in too many lines and that hurt them. VIA is a sell-out and an attempt to make a buck. It will hurt them and underscores a stray from passion.
For me, there is definitely something lacking in the store experience at Starbucks. Quite frankly, I'm bored with them. I only went there because we lack any decent coffee shops where I live.
When a new independent coffee shop opened up the street, I went and haven't been back to Starbuck's since. The coffee isn't that much better, but the service and the atmosphere are.
For example, they took the time to learn my name and they serve coffee in ceramic mugs on a saucer with a metal spoon positioned at the same angle every time. At Starbucks I get a paper cup. I hate drinking coffee from a paper cup. For me, this cheapens the experience.
It sounds like a little thing, but the details make the experience beautiful.
Starbucks will be fine. Eventually, someone will pay attention and they'll right the ship. They may want to consider the customer in their efforts and take the time to learn newly about their desires. I'll assert that it has changed from what it once was.
By trying to appeal to people that don't care too much about their coffee, the enthusiasts started looking for new options. They are now being served by local specialiced coffehouses that gives them a combination of personal service and great coffee flavours.
So by trying to expand in too many directions the customer became confused and sought out new solutions. Starbucks can find it's place in the coffee business but must accept that winnie the pooh is a fairytale. You cant be both broad in appeall and attract coffee enthusiats. Choose a path and do that one better than anyone else.
Never understood why people wanted to pay a premium for a hot drink.
Ben, Jackie,
Schultz has forgotten how to have rabid fans: have rabid enemies. I personally have never had any interest in Starbucks, and I've always known that's perfect for the brand. They have something to push against.
Their machine-made store experience, their music and cheaper offerings and breakfasts and tea and instant, are just Starbucks' trying to be things to people who don't care. They aren't going to win me and they are going to lose people who remember fondly back to when it was their own secret source.
Goodbye, snob appeal, hello, failed mass appeal.
"Time will tell if this is a smart move or indicative of another lurch toward something it's not..." If I were consulting for them I wouldn't wait for time to tell, though. Time will do so much more damage to a company that's on the ropes already.
Regards,
Kelly
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Miriam
http://www.craigslistguide.info
As far as coffee vs. tea, Starbucks has had tea for a long long time. I don't see any conflict between coffee and tea. I think it totally makes sense for a coffee shop to have tea. All the other coffee shops have tea.
I think the issue with Starbucks is that the quality has gone down. I worked for Starbucks in the early 90's. Quality was VERY important. Now when I go there as a customer, I don't see the same kind of care that I used to see then. I don't know if they changed training, but quality is lower now and I think that's one of the biggest issues.
Starbucks has come back down to earth. I think they were busy building a store on mars and the economy has allowed them to actually make some difficult choices now.
I fell more in love with Starbucks years ago when I read Howard's book, "Pour Your Heart Into It." He was a leader I wanted to follow with a product I wanted to support, and I have defended Starbucks vigorously over the years - why shouldn't most people be able to get a decent cup of coffee and enjoy a 3rd space? But I agree the quality - more importantly, the consistency among stores - has declined. I find there are some locations I want to avoid as the barista can't make a decent latte.
I sort of agree and disagree with both of you. Agree they have lost their way, but think they can find it again. And I don't agree with not offering tea - how many times have you gone there and had a companion order tea instead? It's the experience of going to that 3rd place, and cozying up to a warm beverage, whatever your preference might be. I also don't know if I agree with the instant coffee opinion. I, too, was shocked when I read about it, but after a while, I thought it made sense from a brand extension standpoint - especially given the economic climate. People want the experience - but for less money - nothing wrong with that per se. That brings up a good question: how do you decide when product extension has gone too far? We talk about "sticking with your core" but that might stifle innovation as market tastes change? A good future blog post for you to think about!
Thanks for the video and the discussion. I'm with Jackie. When I first heard of instant coffee at Starbucks I wondered what the CEO was thinking. In what universe do instant coffee people (that is a segment who I'd guess might be older folks) want a Starbucks branded dried coffee product? They love the one they have been drinking for years. This seems like such a dead area - instant coffee - to expand into. I would never imagine anyone buying this new product (I admit, I'm a tea person). If they sell the instant coffee packets at Starbucks that seems pointless, and why spend all that time and money to get shelf space in a grocery store - nuts.
I think they should focus on other tea and coffee products. I like the idea of the tea lattes, yes in part because I like tea, but also because it offers more product variety. And variety is good when you go to Starbucks all the time (which is what they should want from me). If they focused more on coffee than tea I wouldn't be offended either.
I really want Starbucks to get back on track with good products and right size their business. While they are a premium product/experience and are focused mainly on coffee, they can do well considering various in-store products, in-store revitalization, etc.
Yes,Yes, Yes. I definitely think you could say they have lost their way. But I think they are desperate. Howard was good at growing the company when everything was going good, but he doesn't have the management skills to keep it going in an economic situation like the one we have. Now they are pulling at straws trying to find something that will work. I won't go into all the managerial flops they have had, but I think most of you know them. We'll have to see if they can get it together.
I like the video point / counterpoint format, you should do more of that. As an aside Argo Tea is a nice concept. Starbucks on the other hand was a nice concept and is now clearly only interested in salvaging same store sales year over year. They have totally forgotten the customer relationship aspect. All the talk coming out of Seattle about going back to the customer experience has been nullified by sophomoric marketing efforts culminating in the introduction of instant coffee. Jackie, I am with you on this one, I do not see how the customer experience is enhanced by the addition of Via.
Absolutely, Starbucks has lost their way - long ago. They can throw any misguided product offering they want at the problem, and it won't make a lick of difference. Here in Seattle - Starbuck's home town - we have coffee shops, carts and stands on nearly every street corner. The latte they make is at least as good as anything you can get at Starbucks, and at an equal or lower price.
What they can't provide is the Starbucks store experience. And that's where Starbucks has lost their way. They have allowed customers to bypass the store experience in the drive-thru lane. They have altered the store DNA with smelly egg breakfast sandwiches. They have allowed their products to be removed from the store context by selling their beans in grocery stores. And they've allowed their brand to be diluted by putting their name on everything from music to ice cream.
So, IMHO, Starbucks has clearly lost their way, and now their desperation has reached a fevered pitch. Powdered instant coffee is irrelevant. Focusing on providing customers with a unique in-store experience is what can turn things around.
Love all of the terrific comments. Thanks much.
It would appear that I'm in the minority that Starbucks hasn't completely lost its way but like commenter Maria points out, innovation from the core is fraught with risk.
Based on your comments, there would be little or no risk if Starbucks were to innovate the in-store experience.
Nice. I think they lost its way when they started hyper expanding and squashing the competition by opening stores across the street from independent coffee houses. I saw the writing on the wall then.
Starbucks uniformly created an "experience" by maintaining same great core qualities of a small coffee house. But by strangling the competition we as the public have nothing to compare the experience to.
Before I had the choice of seeing the quirky gal at the independent coffee house with her own unique style and different coffee or seeing the quirky girl dressed in a uniform at Starbucks who would get me a very specific order.
Now that I have nothing to compare it to. I just know Starbucks. I can't really make a choice at times because I don't have one. I just have Starbucks.
If they would have quelled their footprint just a little. I think they could have had a more exclusive brand and not fallen on such bad current times.
DavidKamatoy.com
Starbucks' failure in Israel a few years ago tells the whole story. They could not compete with local chains and independent coffee shops that serve high quality coffee and pastries, in real cups and lower cost than Starbucks does.
I remember the excitement I and my coworkers felt when a Starbucks opened walking distance from our studio, circa 2002. I'd been taking orders and driving to one. I spent a LOT of time in Starbucks over the years, but less and less these days. Why? The music is both bizarre and without any coherence and it is on so loud it is no longer background, it's foreground. I can't hear myself think and find it hard to read the paper, which is what I do at coffee shops. I want some peace and quiet, not a repeat of the noise at my apt complex.
The Pike's Peak brewed is HORRID, though I admit I've never liked any of the brewed coffees except the Verona. They all have a floral/soapy aftertaste to me. But at least they offered a choice. Explain how a company that prides itself on the vast array of beans now offers only ONE brewed coffee?
Then they had a really nice savory scone for breakfast, broccoli and cheddar. Loved it, b/c I don't like sweets for breakfast. Then they stopped offering it "because we want to promote our pastries." Gee, how customer-oriented.
They seem to have divvied up the duties for one order among 2 or 3 people, meaning one person mans the register, another calls out your order, a third gets your food item, a fourth makes the espresso drink. Ridiculous--your order gets lost in the cracks. This weekend, I ordered a breakfast sandwich along with my Americano. Sat down, read. Wondered what was taking so long, went to food counter, and the staffer says oh, are you waiting for your sandwich? And THEN proceeds to actually heat it. So if I'd never gotten up, guess I would never have gotten the sandwich. How is this good customer service?
All in all, I just go there less and less, though I will say their Americano is consistently the best, and there are now several coffee shops in my neighborhood. If I want to hang out with my Sunday paper, I tend to go to Panera, where it is quiet and their pastries and bread beat the pants off Starbucks, or a local shop.
