McDonalds executives in Illinois must be partying today – their premium coffee and McCafe’s have beaten the once venerable coffee brand Starbucks.
Proof comes in today’s Wall Street Journal article detailing the whys and hows Starbucks will market a beverage and breakfast item for $3.95 nationwide. That would have been unthinkable a couple years ago. Now Starbucks execs feel they don’t have a choice.
The bloom is off the rose; mark today’s date: 2/9/09. Starbucks actions today are a cautionary tale of trying to please Wall St investors for the short term.
“Few companies embody the consumer spending boom of the 1990s and 2000s like Starbucks. Mr. Schultz helped Starbucks grow from four stores to a global chain of nearly 17,000 outlets by transforming coffee from a commodity drink into what he billed as an affordable luxury. But Starbucks’s sales have been in steep decline during the recessionary era of penny-pinching. As the economy worsened, executives began plotting a new strategy to portray the company as offering value.”
Starbucks was never selling value. They were selling upscale, premium, a third place away from home and office. McDonalds is value – heck they perfected the value meal. It’s desperate times when you have a bunch of stores in a slow economy.
What makes it particularly incongrous is this quote in the article, “A spokesman for McDonalds, William Whitman, declined to specifically address Starbucks new promotions, but said: “Affordable luxuries are in greater demand today.”
Starbucks is launching a media blitz to say that most of their drinks are under $4. Is that missing the point? To me it is. They are the affordable luxury.
The practice of opening multiple locations within blocks of each other served Starbucks well when they were riding the new coffee trend. They knew people could figure out each person in line ahead of them represented at least a minute. Too long a line and they left to a competitor – hence multiple locations in a tiny trade area.
Now you can get pretty good coffee at McDonalds – it’s no longer new. And service at many of the Starbucks locations is about as good as McDonalds. In a way, Starbucks itself has become a commodity.
Starbucks realistically can’t shutter stores quick enough to match demand. Desperation leads to discounting. That’s where Howard Shultz used to hold the line to maintain image. He wrote a great book on what made Starbucks Starbucks, Pour Your Heart Into It.
A crack developed in Starbucks facade last year when,through much PR, they closed their stores to train all their employees how to make espresso drinks. Uh, wasn’t that the point of training a crew to begin with?
Was it a desire to do even better? Or were they trying to live up to the Starbucks heritage because they had run so many people through their system, they didn’t make good drinks consistently? (Which is the advantage a large chain has to newcomers – the same crispy french fries at the McDonalds in Paris as in Peoria.)
We heard it last fall during the presidential campaign, “putting lipstick on a pig” – that’s what Starbucks new value meal and the fancy PR campaign around it saying they are not very expensive is. Starbucks is in the trough trying to feed. It isn’t pretty. It isn’t Starbucks. It isn’t where they want to be but they feel they have no choice.
Isn’t that much of American business right now? When will we have the fortitude to say, “Yes, we do have a choice and we aren’t going to take the short view of things?”
I submit a recovery will come for many when we regain footing as to what a premium or quality or luxury brand constitutes; it is how it makes us feel, not how it is priced.
If Starbucks doesn’t feel special to a customer anymore, shaving a couple dimes off a combo won’t fix it. The very culture that once inspired and brought people back time and again now is in danger. It’s still a choice.
