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!
Mike MacLeod says:
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.
Merrill Dubrow says:
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
janet says:
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!
Steve Runfeldt says:
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.
Kelley Styring says:
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.
Bill Neal says:
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.
kelly mangum says:
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.
Jerry says:
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.
Merrill Dubrow says:
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
Merrill Dubrow says:
Here is a recent article that I thought I would share.
Why Starbucks Has Ground To A Halt
Competition? Sure. Rotten economy? No doubt. But there’s a larger, deeper reason the green giant is drinking the dregs: It ignored everything that made its customers loyal.
Nov 10, 2008
-By Robert Passikoff
Maybe you haven’t read Moby-Dick, but you’ve surely read about a character named Starbucks. It’s not a happy tale. These days, most of its brand awareness is based not on the perfect brew, but on ill-considered breakfast sandwiches, falling stock prices, store shutterings and various attempts to boost sagging profits. Of course, Starbucks has by no means disappeared—it still boasts thousands of stores in 44 countries—but the brand is facing the danger of obsolescence.
Much has been written about how the brand that, at one point, had an expansion schedule of one new store per day has come to be sipping such a bitter brew. And it’s a safe assumption that the current economic picture won’t bring many more smiles to the Starbucks boardroom. But there’s another reason for Starbucks’ woes, and it’s got nothing to do with the vagaries of the Dow Jones. The real reason for the green giant’s troubles is that management ignored all the things that made customers loyal to the brand.
Consider the following. In January 2006 my firm’s Customer Loyalty Engagement Index for the coffee category demonstrated Starbucks’ dominance over Dunkin’ Donuts. And McDonald’s? Not yet even a blip on the java radar. Today, of course, both of these brands have lured many Starbucks drinkers away with comparable cups of joe at average-Joe prices. But only 10 months ago Starbucks reigned supreme in its category, especially when it came to a loyalty and engagement measurement we call “Service and Surroundings”—something Starbucks created by bringing the trappings of the European-style cafe to U.S. soil.
But by the end of 2006, not only had Service and Surroundings moved up in terms of importance to customers on our Index, Starbucks had surrendered its dominance, slipping by a significant margin while Dunkin’ Donuts stepped into the breach.
The question here is obvious: How could the brand masters in Seattle have let this happen? Well, to continue our Moby Dick metaphor, it seems that our intrepid sailors were slain by a double-edged sword. Starbucks stores were popular—and packed. So, out went those cool, comfy couches (how better to make way for lines of loyal customers?). And of course, the service had to get faster, so why take time to grind all those annoying coffee beans? Hand-pulled shots also held up the clock, so they went bye-bye, too.
The only problem was, once the grinders stopped grinding, the shops lost that nice coffee smell (you know, the kind that real coffee shops have). And without hand-pulled shots, the sense of theater was gone from the visit. Vanished along with it was the reward of the custom experience. Pretty soon, customers began to think the inevitable: Hmmm. That other chain down the street can give me more or less the same cup of coffee, but they don’t charge as much.
In an internal company memo leaked to the press in 2007, Starbucks chairman Howard Schultz himself admitted the streamlining that enabled the chain to grow to 13,000 units had “watered down” the brand. “Stores no longer have the soul of the past,” Schultz wrote.
By December, Starbucks’ shares had fallen by 43 percent. Part of the reason Starbucks dipped again in 2008 had to do with the fact that, in some coffee-deprived state-of-mind, it had walked away from a successful brand position and a differentiating recreational experience and toward a door marked “Lifestyle Brand.”
It’s not that headquarters has just watched the results in horror. It’s taken corrective measures. They’ve just been the wrong measures. For example, mistaking “variety and selection” for “service and surroundings,” the brand introduced a new blend. When that didn’t work magic, management turned to some of the usual promotional devices to perk up sales. It stopped short of offering a dollar menu because, according to a spokesman, the chain didn’t want to clash with Starbucks’ luxury image. (After all, nothing whispers “luxury” like a $1 discount coupon good for an iced drink after 1 p.m., right guys?) This past June, the company announced it would close 600 stores.
I wish that were the moral of our story, but there’s more. Neither categories nor consumers are constant. Reasons for customers’ loyalty change, as do customers themselves. Starbucks failed to remember than the interaction that takes place between customers and categories is not static, but sophisticated and evolutionary. Not only did Starbucks help to create its category, it was responsible for educating the public about using it. Yet as “large” became “venti” and those customers grew more sophisticated, the category morphed as well. Competition from other brands increased. Soon, a Starbucks-comparable mocha latte could be had most anywhere in the United States (see related story, page 022).
And so our story ends. What had once been a treat is now an expectation. That’s exactly why, now, people won’t think twice about walking in for a really swell morning brew—at McDonald’s.
Robert Passikoff is the founder and president of Brand Keys in New York. He can be reached at (212) 532-6028 or at robertp@brandkeys.com.