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How Starbucks lost its way to the bank
Ben Margot / AP Men play chess over a cup of Starbuck's coffee at an Alameda store. The company has removed furniture and altered the coffeehouse experience, a critic says.
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More from BusinessMELVILLE, N.Y. — Starbucks' announcement that it is shuttering 600 stores marks an end to what seemed to be the company's continual upward climb and invincibility in the retail coffee shop industry.
Two market-research experts spoke recently about the world-famous company.
Q. What happened to Starbucks?
A. Several things, said the analysts. For years, Starbucks has been exceptionally profitable and was a darling of Wall Street. But it expanded too rapidly: "You can expand so much," said Robert K. Passikoff, founder and president of Manhattan-based market-research firm Brand Keys Inc.
Q. Did the excitement wear off?
A. Pretty much, said Harry Balzer, a vice president of Port Washington, N.Y.-based market research NDP Group Inc. "They (Starbucks) certainly had a nice run," Balzer said. "I've been doing this for 30 years, and I don't think I've seen anybody do it better. But there's nothing like success to bring on competition. Nobody says you can have the whole market forever."
Q. What else went wrong?
A. Passikoff said Starbucks tried to migrate its coffee brand into a lifestyle brand. "They came out with the movies and the books in the stores. There's nothing wrong with that aspiration, but as part of this they essentially took a step away from the core quality of the brand, which was the coffeehouse experience, which they imported from Europe and turned into an American experience. For a while, no one was grinding beans. The place didn't sound like the coffeehouse and didn't smell like the coffeehouse anymore," Passikoff said.
Q. Bad marketing decisions?
A. Yes. The experts said their stores were getting too crowded with furniture, said Passikoff. The couches went. "What essentially they did overall was re-engineer the experience right out of the stores. So customers were standing in line, and there was no experience anymore. They were too much like everyone else," Passikoff said.
Q. They still looked a little different, right?
A. Yes, but for awhile, they were offering breakfast sandwiches. If you close your eyes and order coffee and someone offers you a breakfast sandwich, where are you? You could be anywhere, said Passikoff; people even complained about it.
Q. How much of Starbucks' decline is related to the economy?
A. Passikoff argues not that much, that Starbucks' market share began to decline a year ago. "In our tests last year, they came out No. 2 to Dunkin' Donuts. This year, Dunkin' is No. 1, McDonald's is No. 2 and Starbucks No. 3 in our market surveys." But Balzer said the entire restaurant industry has been negatively affected by the bad economy.
Q. Should Starbucks have stuck with its original strategy of being just a coffeehouse?
A. Yes, said Passikoff. "You don't walk away from a successful brand strategy, not when you're making money."
Q. Can Starbucks come back to what it was?
A. Passikoff doubts it. "Customer values have shifted so dramatically. They are what they are." Balzer said Starbucks still has a lot of marketing power left, however, "They have got to do new things."
— Distributed by McClatchy-Tribune Information Services.
Posted by hemlock1262 on July 5, 2008 at 7:14 a.m. (Suggest removal)
For Dr. Hemlock, it was the sandwiches. They stunk -- literally. Cooked in toaster ovens with no vents, they filled the place up with that nauseating, slightly burnt-toast smell. And then the racks of books, CDs, all the Starbucks ephemera. All Dr. Hemlock wanted was a place to drink coffee and read.
Posted by jeff93024 on July 5, 2008 at 8:37 a.m. (Suggest removal)
I remember driving through San Francisco on 101 and seeing two Starbucks kitty-corner from each other at an intersection. At Victoria & Telegraph in Ventura, there's a Starbucks outlet in the Von's market, and a free-standing Starbucks coffee shop at the northeast end of the same shopping center. I have seen similar positioning of Starbucks in other cities, and it always looks cheap and tacky to me. I can't think of a single other business that has practiced this kind of oversaturation of their market, and as far as I'm concerned they pretty much ruined their initial mystique. They became far more common than 7/11s and Circle K Markets.
I miss the days when Starbucks smelled of freshly ground coffee, and I truly hate the individual Starbucks that play their music so loud that you can't sit either inside or outside and have a conversation with a friend without yelling. The Starbucks in downtown Ventura has, in my experience, been one of the worst local offenders in this respect, and I won't get coffee there unless I'm going through serious caffeine withdrawal. The baked goods at many Starbucks can be real hit-or-miss, and if you buy something at the end of the day you might feel rather ripped off that you're paying the same thing for a dried-out scone, cookie, or pastry that you would have paid for a fresh moist one in the morning.
All of that said, I love that I've never gotten a cup of stale, acidic, overheated coffee at a Starbucks. I appreciate that the service is quick and that the help is always reasonably friendly. They still haven't jacked up their prices as much as some places have, and I've never poured lumpy half-and-half into my coffee at a Starbucks.
I'm glad that they won't be proliferating quite as much as they were, and glad that there will still be a place in this world for great privately-owned non-corporate coffee shops where the owners & the help remember your name and what you're likely to order.
Posted by CatInAHat on July 5, 2008 at 5:12 p.m. (Suggest removal)
The wheels came off the Starbucks marketing plan express when it was changed to included selling most everything under the Sun; to be all things to all people. And the writer is correct, the sandwiches especially stunk. Here in the Seattle area, many have gone back to the old format.
But now they have competition, especially from the many more drive throughs having popped up that just dispense a great cupa.
With the NW being the originator and home of the coffee drive through, Starbucks going in the crazy marketing directions that it went, gave the drive throughs a chance to prosper.
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