What Happened To Starbucks? You Tell Me!
When you travel around, you see them all over the place. They are on every street corner, in lots of hotels and even in airports.
They were growing fast. Real fast. Maybe some would say it was at light speed. Recently Starbucks announced they were closing over 600 stores and their growth over the next few years will be slowing down considerably.
For those of you who don’t know, I don’t drink coffee. I will have an occasional cappuccino after a nice meal but I am not a regular coffee drinker. I do go to Starbucks, but mostly as a meeting spot or for a marshmallow Rice Krispie treat. Ok I have a sweettooth and love them. Each and every time I went to Starbucks there was a line–usually a big line and it never mattered what time it was. I for one was very surprised that Starbucks decided to close over 600 stores.
The question is what happened to Starbucks?
- Did they grow too fast?
- Are their prices too high?
- Is the economy hurting their business?
- Do people all of sudden not like Starbucks?
- Is their marketing missing the boat?
- Is their competition making all the right moves?
What do you think?
I really look forward to having your share your comments!
July 23rd, 2008 at 11:11 am
54% of the stores being closed are within 2 miles of another store. Also, 100% of the stores are company-owned. Stores owned by others (bookstores, etc.) are all staying open. Sounds like Starbucks overestimated the need for a store on EVERY corner.
July 23rd, 2008 at 2:24 pm
Mike,
Thanks for your comments and clarifying some of the closings. I was wondering what would happen to all the Starbucks stores at places like the airport and hotels but it sounds like they won’t be touched……. at least for now.
Merrill
July 23rd, 2008 at 2:32 pm
I think it was cheaper competition that arrived on the scene at just the right time. I have heard many people say in these economically hard times that they have had to give up their starbucks. It’s hard to justify that daily $4-$5 for a cup of coffee. In the meantime McDonald’s and Dunkin’ Donuts cashed in by advertising and offering cheaper versions of coffee drinks. I have actually heard they are not bad (even on MSNBC’s Morning Joe), although I have not tried them. I am a Starbuck’s devotee, but I have avoided the daily outlay of cash by investing in a Starbuck’s machine and buying the beans and syrup from one of the Starbuck’s stores. I have become a pretty good barista I must say!
July 28th, 2008 at 10:38 am
1. They expanded too rapidly.
2.Their prices are just too high.
3. Their coffee is not as good as it used to be, at least not at the Starbucks I have been to recently. I make better coffee at home and even our office coffee maker does better most of the time.
I also think that Starbucks has became a symbol of the excesses of the early 80s. Does anyone watch “Weeds” on Showtime? The show opens with the song “Little Boxes”, showing all the identical SUVs leaving the driveways of the identical suburban homes, and then all the identical men emerging from Starbucks at the same time carrying their lattes and getting into those SUVs. I think that Starbucks is going the way of the SUV as gas prices go up and the economy becomes unpredictable.
Hopefully they will stay around, but their prices will come down and their coffee will improve.
July 28th, 2008 at 10:46 am
Actually, they’re following a tried and true model of retail stock inflation and collapse. Basically, their overall growth numbers are inflated for the first few years because they’re building new units. There’s little to no organic growth per unit and year over year sales are soft. So, when you reach the point of diminishing return with unit growth, then you start to show soft numbers and the stock weakens. To tighten the bottom line, you close units in hope that you can show that the units you keep open are growing organically. Rarely works. Your only hope is to dump the stock and run from your investors. The stock will no longer be a darling and you’ll end up one big heap of Krispy Kreme.
July 28th, 2008 at 11:40 am
Kelley is correct. You see this all the time with many retail operations. Also, there is another dynamic. The founders’ vision is almost always eventually compromised by the bean counters (pun intended) and short term investors. The “MARKET” demands improved financial performance from quarter to quarter, and when that is not realized, the financial types tend to take control and do what they always do - rely on their out-dated and inadequate financial reporting systems to cut expenses - often in innovation and customer service. This process puts the company on the road to depreciating and eventually destroying their brand equity. The only way to stop this downward spiral is great and inspired leadership at the top - which I think Starbucks has lost - and get out of the “MARKET” - go private, where you don’t have to be beholding to a fickle investment community and can afford a long term strategy.
Not to plug anything I have written lately, but in order to overcome this vicious cycle, companies need to better understanding and measurements of the value of their brand equity and how that equity is the most valuable asset they own. Bean counters don’t understand that.
July 28th, 2008 at 1:33 pm
A competitive difference between Starbucks and other companies in their space is that they are about coffee and their competitors are about convenient and fast food…which most of us consume more of. Food is less of a splurge than coffee.
August 5th, 2008 at 8:18 am
The other big problem with Starbucks is their dilution of their product line. I’m sitting here in one right now and looked up “what ahppened to starbucks” because I was suddenly struck by how many products they sell - it is like a 99 cent store of coffee but nothing is less than two dollars. Vivvanno drinks? Huh? Music CDs? Books - a messy pile of roasted nuts - confusing menu items and the smell of black burning cheese from overcooked breakfast sandwiches. Reminds me of when Fast Food burger chains start selling pizza and tacos - too much product, too much diversity, and a loss of focus on the core product line Also they are pushing this “come back with your receipt after 2 PM for a two dollar cold drink” special - which reeks of desperation.
August 5th, 2008 at 12:29 pm
Jerry,
Appreciate your comments. Now that I think about it the store does sell a ton of things that may have led to a lack of focus.
I wonder is the 2:00pm promotion will work ?
More to follow for sure.
Merrill