Sunday, June 21, 2009

The Starbucks Factor

Starbucks profit falls 77% on store closure charges

Some nuggets:
  • This year Starbucks has taken additional steps to lure consumers to its stores. It unveiled a combination food-and-drink pairing menu priced at $3.95 and instant-coffee packets called Via. Much to his chagrin, CEO Howard Schultz has said Starbucks has become the "poster child for excess" and he wants to shake that image.
  • Starbucks has been facing declining store traffic for more than one year, jolted by weak consumer spending, especially in California and Florida, states accounting for 30% of U.S. retail sales.
  • Based on these figures, restructuring at Starbucks is showing some positive signs. In the quarter that ended Dec. 28, U.S. comparable store sales slid 10%, while the number of transactions fell 6% and the average value fell 5%.

And a reader’s comment:
Instead of closing stores Starbucks should have lowered their prices. Lattes are the first thing financial advisors advise clients to cut out of their daily budgets to save money. Compare Starbucks earnings results to McD's or any other fast food joint. Fortune500Earnings ( is a good venue to do that. Lower your prices $0.50 and retain more customers.

And my thoughts (a bit rambly, it's Sunday, sorry)

Maybe I’m crazy, but isn’t the reason why anyone would buy Starbucks because it IS a premium brand? Starbucks’s entire value rests on its image – its snobby, bourgeois, yuppy image…the image is what drew customers in the first place, not the coffee. Why would you want to de-value that? When Dunkin Donuts rolled out with their cheaper version of lattes, they designed it to look like high-end coffee to attract those customers. The DD coffees were no longer the construction workers' coffee, suddenly you see BMWs rolling up to DD Drive-Thrus. DD brought themselves up to Starbucks's level by offering premium coffees, I don't get why Starbucks would then want to undercut their own brand. Like Prada isn't lowering their prices just because Steve Madden made a shoe that looks exactly like theirs. I don't get why Schultz has a problem with this Starbucks brand image, it does represent excess, it does represent luxury--what's wrong with that? Starbucks IS seen as elitist, but so are all the other luxury brands. Hermes farms their own alligators -- I don't know how much more elitist you can get -- yet demand for their product is still through the roof. Not comparing a Starbucks latte to a Birkin, but in their own respective industries, both are seen as luxurious, unnecessary brands, and it is because of that that both companies have made money. And yeah it's a recession, and yeah financial advisors advise clients to stop drinking coffee, but 1. coffee is physically addictive, and 2. for a habitual Starbucks drinker to stop drinking Starbucks is really hard. It is, because that means they must admit to the world that they can't afford Starbucks coffee anymore, which, to a habitual Starbucks drinker (yuppy, middle-upper class, snobby), is REALLY HARD TO DO. So I think, personally, that Starbucks should emphasize their premium-ness, instead of lowering it, because that is their money maker. When it comes down to the bottom of it all, Starbucks is simply not a cheap brand.

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