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Business News - Morgan Bell discusses trends in business

Find out which products are getting recognition in Australia and across the globe, how the Government impacts on business, and which trends are leading to financial success - this is an open discussion about money making ventures in the news, all comments and opinions are welcome!

Starbucks losing customers - not special enough

April 25th 2008 17:27
Starbucks is struggling to maintain customer traffic due to the economic squeeze and competition undercutting. US customer visits to Starbucks's cafes have declined for two straight quarters.

Competitors have been nibbling away at different segments of the $US25 billion-plus US specialty coffee market that Starbucks carved out. McDonald's Corp has aggressively entered the drip coffee market and plans to roll out more expensive espresso drinks. In addition to McDonald's, Dunkin' Brands is undercutting Starbucks.

Starbucks CEO Mr Schultz in a memo last year that the chain had lost sight of the "romance and theatre" of coffee as it expanded. The brand has become such a part of mainstream life that some analysts say it is struggling to offer consumers something special.

Mr Schultz, 54, took Starbucks public in 1992 after buying a small Seattle chain named after the coffee-loving first mate in Herman Melville's Moby-Dick. Mr Schultz's first tenure as CEO ended in 2000 and he continued as chairman. On January 7 this year Mr Schultz returned as CEO to put in place a new turnaround plan which could offer solutions to "reaffirm our coffee authority" and make the chain feel less corporate. Schultz is promising to change what he had called the "commoditization" of the brand. Schultz also pledged to announce five new initiatives on March 19

Starbucks has said it will open 350 fewer stores than planned through September. Starbucks now has about 10,000 US stores and some 5,000 international locations. Schultz wants to increase traffic in the 15,000 stores of the world's largest coffee chain. Earlier this year, Schultz said Starbucks would close 100 underperforming stores and cut its 2008 new store plan in the United States to 1,175 from 1,600, while increasing the number of international store openings by 75 outlets to 975.

The Seattle-based company is facing unprecedented economic pressures, from lower consumer spending to high coffee and milk costs, and Schultz did not see profit margins improving for the balance of the year.

Starbucks has long said its coffee is an "affordable luxury," but that assumption is being challenged because consumers are spending less on everything, from dining out to buying clothing, as home prices fall and the cost of necessities such as gas and fuel continue to rise.

Starbucks aims to attract consumers, who are rethinking their spending amid a broad economic downturn, by rolling out a new coffee blend, delving into energy drinks and investing in espresso equipment and high-end French presses. It said it had bought 'Clover' French press maker Coffee Equipment Co.

Starbucks baristas will be able to see customers over new low machines to appear more friendly.They plan to stop selling warm breakfast sandwiches, partly because they overwhelmed the aroma of coffee. Starbucks wants to introduce a new premium range of coffee but are also trying out a budget cup of regular coffee with free refills in the Seattle area. A new coffee blend is scheduled for an April debut and a Web site, http://wonder-struck, will allow customers to submit ideas to the company and to vote on them.

For more information see:

SMH article

Business Spectator article

starbucks coffee

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9 Comments. [ Add A Comment ]

Comment by postmoderncritic

April 29th 2008 15:32
Hi Morgan,

Well, since I learnt that Gloria Jeans endorses Mercy Ministries I have switched over to Starbucks... I find their chocolate blended ice drink more creamy and less sugary than their GJ equivalent and while I miss the latter, I ain't goin' back.

The reason they won't be selling warm sandwiches anymore is intriguing, and shows that they pay a lot of attention to detail in presentation. Being able to see the customers over the machines is also an ingenious innovation- bring it on! Although sometimes impersonality is just what I need, lol. Not always, though, luckily!

Comment by Morgan Bell

April 29th 2008 15:52
hi epiphanie,

yay a comment on the business blog!
im trying to find the interesting side of business as a writing excercise so i appreciate any feedback!

i get the impression that in the USA Starbucks had the monopoly and really was erecting a new store on every corner . . . looks like the novelty has worn of a bit and the competition is out-shining them . . . they certainly are considering every little detail when considering solutions!

i heard more recently people are still continuing to buy big ticket items like computers and mobile phones during the economic squeeze but cutting back on daily luxuaries like flavoured coffee . . . people are strange creatures when it comes to money!

Comment by AmyHuang

May 1st 2008 00:05
Well - they are NOT special enough. I really don't like their coffee and being in Sydney (and live in 'Little Italy' Leichhardt) - I hardly drink 'fast' coffee anyway I think it works in the US but not anywhere that actually has some real coffee....

postmoderncritic - didn't they put out a statement that they have since (the scandal) pulled out of endorsing Mercy Ministries?

Comment by Morgan Bell

May 1st 2008 05:54
hi Amy,
i hear what youre saying about the quality of the coffee . . . apparently "fast" pizza (like pizza hut and dominos) doesnt fare as well in areas with Italian culture either

Comment by AmyHuang

May 1st 2008 06:33
Morgan - it's true. I LOVED the pizza I had when I was in Rome. Even in Leichhardt, the pizza is nothing compared to the real stuff in italy!

Comment by postmoderncritic

May 1st 2008 14:46
Hey Morgan,

It's a great blog, keep it up!
As the Orble admins and Cibby will tell you, it can take some time for a blog to find its audience, but if you keep at it it will happen...

Yeah, it's interesting what people see as expendible, isn't it?

Hi Amy,

After reading your comment I searched the net but all I could find was articles confirming the organisations' endorsement of each other. If you do see proof of this break-up somewhere let me know, as I would love to go back to my GJ iced chocolate...

Comment by Lord Waterfront Yuppie

June 12th 2008 22:19
They're possibly getting rid of the sandwiches on the advice of some prominent Atlanta consultants; Starbuck's focus on 'just coffee' was what brought them to the table, and their slide has coincided with catch-all marketing.

We'll know if this is right or not by whether Starbuck's continues to pare back its product range or instead introduces odourless sandwiches!

Comment by Morgan Bell

June 13th 2008 04:45
hello Lord Waterfront,
haha odourless sandwiches! i like how your mind works!
that is interesting that you point out the shift away from "just coffee" may be damaging their branding or reputation . . . perhaps an instance where diversifying wasnt for the best?
thanks for your input!

Comment by Anonymous

November 6th 2008 13:00

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