February 27, 2009
Desperate Times for Starbucks
Last summer Starbucks announced that it would be closing five percent of its U.S stores. That was back when the global economic outlook was not great, but not nearly as pessimistic as today. It comes as no surprise then that Starbucks is trying to come up with a variety of new ideas to increase revenues and get back on track.
At the moment there are three kinds of coffee shops that one can go to. The first are your brightly lit, fast food like, low costs providers like Dunkin' Donuts. The second are your dimly lit, crunchy hang outs for art/music lovers. The last is Starbucks who pretty much dominates their niche by offering a place where white collar people can meet with associates, read the newspaper, or get some work done. Unfortunately for Starbucks upscale brands are having a tough time given the current economic climate.
One of Starbucks' new ideas is to begin offering value meals for $3.95. Obviously the logic here is that prices must be cut to accommodate those who are enduring economic hardship. The problem here lies in the fact that the word "value" carries with it a lot of baggage; especially for food and beverage companies. When I think of value or value meals for example I think of McDonald's artery clogging meals. An upscale brand like Starbucks must be extremely careful when it comes to the language it uses in developing its new menu. In fact I would stay away from the word value altogether even if that word best describes the new offering. The other question that this change has me asking is "Do people really want to eat at Starbucks?". Apparently the marketing people at Starbucks seem to think so, but I remain unconvinced.
Another plan is to begin offering Starbucks coffee in instant brew packets. I think in this instance Starbucks has completely misunderstood the value of its brand. The majority of people don't go to Starbucks for their great tasting coffee. What people love about Starbucks is the quiet, and professional atmosphere they provide their customers. I think that by offering an at home version they've made the assumption that people prefer the taste of Starbucks coffee to say Folgers, which I think may not be the truth. There is also the risk that by offering twelve servings of coffee for ten dollars (in instant form) they may actually be convincing their customers that their coffee is not worth the high prices they've historically charged. The prices are coming down now, but eventually Starbucks is going to want to raise them. A plan like this could make it very difficult for Starbucks to re-convince customers a cup of their coffee is worth more than Dunkin' Donuts'.
Personally I think Starbucks needs to focus more on the appealing environment rather than trying to sell the taste or value of their coffee. Right now Starbucks is an experience; buy your coffee, hook up your laptop, do a little work, read the paper, say hello to a couple friend you run into, and head back to work. By focusing on the tangible (taste and price) instead of the intangible (experience) Starbucks making its own survival as as a luxury brand even more of a challenge.
Seattle Times - Starbucks
Starbucks - Ready Brew
ABC - Value Meals