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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.
McDonald’s is far from a “great company.” But the company is positioned right for the biggest recession anyone alive can remember. It’s taking advantage of that position – and in the process will likely crush Starbucks. When people are ready for a cozy chair and soft jazz with their coffee they won’t want to stay with McDonald’s. But very likely Starbucks will have killed itself by inviting head-on competition with “value meals” that allows McDonald’s to crush them. Read more at http://www.ThePhoenixPrinciple.com
I think you missed the whole transformation of Starbucks that has taken place in the last decade: every corporate decision that has opted for quantity and volume and ubiquity over quality.
It sounds like you represent the large group of consumers who still suffer from the image of “their father’s Starbucks” from a dozen years ago… like the father who thinks of their daughter as a nine-year old ballerina princess even though she’s off to college, legally drinking, and taking birth control.
The facts are that over the past decade, with their shift to more automated machines to scale the availability of a (not so) trained workforce to keep the doors open on three new shops a day, Starbucks made many cultural and brand concessions to choose quantity over quality. Even you must admit that 15,000+ cafés is not a luxury or quality play. It’s a value and convenience play, despite your statement that “Starbucks was never selling value”.
In making this transformation, Starbucks invited competition from fast food giants who otherwise dominated this space. It’s a new game for them. So to say that “their premium coffee and McCafe’s have beaten the once venerable coffee brand Starbucks” is illusory. Starbucks redefined themselves as the fast food of coffee. This was the root of CEO Howard Schultz’s Valentine’s Day 2007 memo.
Ironically, the launch of their new VIA instant coffee to me represents the first time in about a decade that the company has shown some self-awareness of what they’ve become and the competitive market they’ve since adopted.
Further proof is that consumers who seek out affordable luxury beverages have moved on from Starbucks as their quality began to decline. We hear all sorts of unfounded stories that the macroeconomics of Starbucks are their problem, when their problems are internal. Meanwhile, competitors slinging $4 lattes such as Peet’s Coffee & Tea (who originally taught Starbucks their business in the 70s) increased their profits 21% last quarter:
http://www.forbes.com/feeds/ap/2009/02/12/ap6047653.html
Not only that, but the AP ran stories of how smaller neighborhood cafes are also pushing double-digit growth in this economy:
http://www.chron.com/disp/story.mpl/business/6263405.html
Affordable luxuries are still being bought up. It’s just that Starbucks is currently a sick company that is just now starting to realize the quantity-over-quality box they put themselves in, and that requires an entirely different set of tactics than the old days in the 1990s.
people might badmouth McDonald’s for a variety of reasons but, regardless, they keep coming up with new ways to sell more of their stuff… they’re marketing/product development is top notch
[...] tough for Starbucks, you may have read my post about their new “value meal” breakfast a few weeks ago. They are looking for the transition from coffee craze trend, to staying in business. [...]