Things are less than hunky dory in Starbucks land. Sales are down in the US and the product has just come bottom in a UK taste test. For a dominant brand this is bad news, but the reasons for the decline are pretty easy to dissect,  and we can speculate with some confidence that questions will have been asked at boardroom level just how these problems were not picked up earlier. In this case the correction may well be significantly more problematic and costly than would have been a dash of prevention a couple of years ago

There are three obvious factors that have contributed to the decline, and they have nothing to do with recessions, crashes or other acts of god, the problems are homegrown and to a large degree self inflicted

Problem #1: Complacency
The concept of a funky hang out for trendy upmarket young things, with great coffee, may have been proven to be a great one, but it is also ridiculously easy to replicate and, frankly, to better

Problem #2: Greed
Starbucks has franchised too freely – got too greedy you could say – outlets are often so close to one another they end up doing each other more harm than the competition

Problem #3: Laziness
The concept outlined in #1 has disintegrated into down market homogeneity. Starbucks is no longer seen by anyone with half a brain as a trendy hang out and is now mentioned in the same breath as Burger King and McDonalds. Nothing inherently wrong with that, you could argue, but it does present a problem when you’re charging premium prices compared to fresher, funkier competition. It is now quite easy to find an equivalent or superior product, often up to 40% cheaper, for the sake of a 2 minute walk. This competition, in the form of smaller edgier brands with a bit of marketing savvy, (check out Bad Ass Coffee Co) has not sprung up overnight, it has been a steady stream over the last decade – a bit late for the post mortem, don’t you think?

Anyway, the situation puts Starbucks at a bit of a crossroads. Do they stick or twist? Is a defensive strategy even an option? What would an aggressive strategy look like? Well, it seems on March 19th we will find out, because on that day Starbucks Founder Howard Schultz will reveal to its shareholders at their annual meeting the “five bold innovations” that will resurrect the brand

Let’s wait and see. Respect the bean

This entry was posted on Friday, February 1st, 2008 at 12:13 pm and is filed under Customer Relationships, Quality Improvement.
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