Starbucks once had an amazing business: it mixed water and beans and made money.
At least, it did. Now it is closing 600 stores. Why?
Starbucks decided to take the world’s most charming business, a cafe, and McDonaldize it. One does not settle into a comfortable seat a wait for waitress. In short, Paris’ cafe des artistes is not threatened by the competition.
The food is cafeteria-quality and there is no wine. Sandwhiches are stale. Bagels are sold, but the stores do not have toasters. The so-called pastries are straight from 7-11.
But like fast food, Starbucks enjoyed good margins. A dollar’s worth of water, beans, and labor equals a five dollar cup of coffee. And hundreds of those cups are sold every hour.
Then came competition and higher gasoline prices. This Chicago Tribune piece nicely captures both, by interviewing ordinary people happily buying the improved coffee at Dunkin’ Donuts:
I was saved by a gracious lady, Rosemary O’Brien of La Grange. She’s no Starbucksista.
“That other stuff is expensive,” she said. “Here, you can have a doughnut. Or two and the paper and coffee—and it won’t cost you $5. And that’s important, especially today, with things being so expensive.”
What about being associated with Starbucks? Isn’t there value in having the Starbucks cup in your hand as you proclaim your sensitivity to the environment while driving one of those new green mini-Hummers?
“Oh, so you can walk around with a Starbucks cup? You’ll pay extra money for that? How nice. No thanks,” Mrs. O’Brien said.
Unfortunately for Starbucks shareholders, more and more people are agreeing with Mrs. O’Brien. Economists would say the “price-value relationship” is imbalanced. Real people, recognizing that the general quality of American coffee has risen while the cost of living has tightened, will say “Starbucks is too expensive.”
The chain either has to give more or charge less. Or be prepared to close a lot more stories.
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2 Comments
Charles:I work online these days. I just spent a month on the north shore of oahu. the internet reception there seemed better than inside the beltway where I live. I spent most of the day working in a <a href=”http://www.roastmaster.com/”coffee shop in haleiwa. Their working area was pleasant. When you didn’t care to chat online it was easy to chat with someone at the next table. The coffee was good. But I’m partial to kona.
Anyone know of more coffee shops like this?
Anywhere.
Jul 19, 2008 - 10:28 am j green:Starbucks is a lefty company taking full advantage of capitalism when it comes to their exorbitant pricing on what can be called, at best, “rail quality coffee”. Starbucks is the embodiement of liberalism and all the contradictions thereof. From charging $5 for bad-tasting burnt coffee and then saying “we donate 10% of our profits to charity” (and there is no guarantee printed on that same cup that certifies they will even have any profit anyway), to selling bottled water called “Ethical”, to saying their coffee is fairly traded (as though the competitors are the pirates of the coffee world extracting each bean one-by-one at the tip of a saber, but ethical Starbucks wants you and their shareholders to believe they overpay).
Why is Starbucks hurting? Sir, you made the argument in your book “The Myth of Market Share” that organic growth on a good business model is the key to success (as opposed to mergers which do not force the company to improve its business model, the company inherits the competitor’s flaws, and several other points). You are very right.
Starbuck’s action of taking every single hole-in-the-wall to prevent a competitor (Caribou) from taking it is, in effect, the same as merging with competitors rather than driving them out of business with superior business tactics. Starbucks should try to gain customers by seving a good cup of coffee and providing good service–not convinving people they are a charity outlet or they trade fairly and ensuring there are no other choices by taking all the third-rate locations in already well-served territories. Many of the countries that Starbucks claims we are screwing are happy to be selling us the coffee since they get jobs and money. After all, we aren’t giving them simlpy a kiss on the cheek in exchange for the coffee–they do get paid.
In Starbuck’s situation with numerous horrible locations, they end up competing with themselves, splitting that same dollar of revenue over numerous overheads, and they are not forced to beat their competitors on the merits. No longer is quality the top priority. After all, they don’t want to be forced to divert their attention from their grand agenda to look at dumb things like “price”.
Another problem that arises form this type of business mentality is the loss of focus on the core product–coffee. Now they think they are bartenders with shakers, blenders, 2% soy mocha latte with no milk and a mile of fat free whipped cream on top with a dab of caramel, and when you receive this overpriced cup of whatever it is, they don’t double cup it–they have to convince you that they are ecological so they burn it into your memory by burning your hand and forcing you to put an ethical cardboard sleeve on it–shame on you for wanting a second cup because you’re lucky we dno’t pour it into your cupped hands to achieve the ultimate environmentalist recognition.
The levels of phoneyness associated with this company are incredible. Frankly, I’m happy to see Starbuck’s nose-in-the-air phoney morality in financial trouble. They are con artists. They should put half as much energy into serving their customers with quality and service as they do in finding ways of tricking their customers into thinking they are ethical–its like a fetish or fixation with them that their customers must acknowledge the level of “ethics” they are brainwashed into believing Starbucks exerts. And this “acknowledgement” is desired in the same spirit as when you point to something red and tell the child its green and laugh with cruel satisfaction everytime the innocent child says its green.
Is Starbucks trying to make a living or a political statement? They have to decide whats more important.
Jul 21, 2008 - 9:11 am