Starbucks’ chief executive will be stepping down, replaced by the company’s chairman Howard Schulz. This announcement comes in the midst of concern about Starbucks’ declining stock price, which has taken a hit over the last year. Of course, with a Starbucks on virtually every corner and in many major stores, it seems hard to imagine that Starbucks isn’t or won’t always be king of the mountain. Indeed, Starbucks managed to make a lot of money not just by responding to the previously untapped market of consumers desiring to pay more for “good” coffee, but also by encouraging a market for various gourmet coffees and drinks from caffé mochas to chai tea. So what seems to be the problem?
One of the issues is the very fact that there is a Starbucks on virtually every corner, a strategy that may have been too aggressive. In fact, Starbucks is planning to slow down the number of new stores being opened and close some poorly performing stores. Another problem is one related to its brand. Even Schulz has acknowledged that part of the reason for Starbucks’ decline has been things liked bagged coffee and automatic espresso machines which may have served to water down the Starbucks’ brand and the Starbucks’ experience.
But perhaps the biggest problem may be the increase in competition from companies, like Dunkin’ Donuts and McDonald’s, offering low cost alternatives. The Wall Street Journal just reported that McDonald’s is installing coffee bars with “baristas” serving cappuccinos, lattes and similar drinks in nearly 14,000 of its US locations. While these alternatives may not satisfy the most discerning coffee drinker (who incidentally may scorn even Starbucks), such alternatives may be perfectly suited to the consumer who wants the Starbucks-like experience without the price tag. To be sure, the changes at the helm of Starbucks do not reflect the end of Starbucks, but they do suggest a weakening of the company’s influence. Such weakening, in turn, suggests a need to re-evaluate the company’s business plan.
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1. Posted by Thomas Pindelski on January 8, 2008 @ 16:12 | Permalink
SBUX is a bubble market stock - only during such markets will consumers pay as much for a cup of coffee as the price of a half pound of beans.
Neither Schultz (not Schulz) nor anyone else can resurrect it in the coming multi-quarter recession. The bubble has burst.
Witness this conversation I had with the clerk at a local McDonald's yesterday.
"So how are your specialty coffees doing?"
"Just great. People keep telling us that they cannot tell the difference from Starbucks's coffee. And ours is much cheaper".
Just wait until the world's best run food business rolls out coffee lounges in all 14,000 of its US locations.
Plus there's one thing you can get at MCD you cannot get at SBUX - a decent, inexpensive meal.
And the one thing you will never get at MCD is an arrogant attitude.
2. Posted by Thomas Pindelski on January 8, 2008 @ 16:13 | Permalink
SBUX is a bubble market stock - only during such markets will consumers pay as much for a cup of coffee as the price of a half pound of beans.
Neither Schultz (not Schulz) nor anyone else can resurrect it in the coming multi-quarter recession. The bubble has burst.
Witness this conversation I had with the clerk at a local McDonald's yesterday.
"So how are your specialty coffees doing?"
"Just great. People keep telling us that they cannot tell the difference from Starbucks's coffee. And ours is much cheaper".
Just wait until the world's best run food business rolls out coffee lounges in all 14,000 of its US locations.
Plus there's one thing you can get at MCD you cannot get at SBUX - a decent, inexpensive meal.
And the one thing you will never get at MCD is an arrogant attitude.
3. Posted by Sam B. on January 9, 2008 @ 8:14 | Permalink
Thomas,
Two issues with your assertions:
1) You can get an inexpensive meal at McDonald's, but not a decent meal.
2) Have you ever been to McDonald's in New York? You certainly can get an arrogant attituted (the one on 95th and Broadway took down their sign that your meal was free if the cashier didn't smile at you, but nobody ever had the guts to complain for the sake of a free meal).
FWIW.
4. Posted by Kristin on January 11, 2008 @ 10:38 | Permalink
I, for one, will not abandon my brand loyalty to Starbucks. Especially with the new roll-out of the skinny latte. At Starbucks, I get what I want: a grande vanilla latte with sugar-free syrup, no whip, skim and an extra shot of expresso. For me, that is worth paying more for, rather than getting a generic coffee experience at an even more generic chain. At least Starbucks tries to practice social responsibility.
5. Posted by Boston Bob on February 20, 2008 @ 8:19 | Permalink
Dunkin' Donuts is eating BUX lunch, watch for its IPO. You can get that same skinny vanila latte with and extra shot, but you don't have to pay an extra 50 cents for the vanilla, extra milk, etc, etc. It's better than McD's and chaper than BUX by far.
People in New England already know this. The rest of the coffee drinking public will undoubtedly catch on to this.
6. Posted by Boston Bob on February 20, 2008 @ 8:22 | Permalink
Also, BUX is NOT socially respnsible; it just says that it is. 100% of Dunkin' Donuts beans in youir latte are fair trade certified; onlky 37% of BUX are.
DD franchisees pay for health insurance for their franchisees, too.
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