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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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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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