Posted on May 5, 2008 by Dennis Snow
Starbucks announced last Wednesday that profits for the second quarter fell 28%, blaming the drop on the struggling economy. While I agree that the economy is struggling, I’m not convinced it’s the reason for Starbucks’ current woes.
The Starbucks story, of course, is the stuff of legends. Three books about the company have been published in the last twenty-four months alone. I’ve been a fan of the company for years. What they did was to take a commonplace drink, a cup of coffee, and make it something special. I love the quote; “Folgers saw coffee as a commodity; Starbucks saw coffee as an experience.”
Ironically, the Starbucks mega-growth strategy commoditized the experience they tried so hard to create. No matter where you are, there’s likely a Starbucks within a five-minute drive – or a five-minute walk. Nearly every hotel I stay in either has a Starbucks store or a coffee bar that announces, “We proudly brew Starbucks coffee.”
It's just not so special anymore. Indeed, it has almost become a parody. I heard a comedian recently joke, “It has finally happened. They accidentally opened a Starbucks inside of a Starbucks.”
The Starbucks by my house used to have long, long lines in the morning. But it was okay since those of us waiting in line knew each other personally or at least recognized each other from our morning Starbucks experience. The lines aren’t there anymore. People are either going to another location or are brewing their freshly ground premium roast at home, or maybe they’re stopping at McDonald’s or Dunkin Donuts as those companies try to woo Starbucks customers away.
So, coffee is a commodity again. And when your product is a commodity, price becomes very important. No longer can you charge a premium – customers will find a cheaper alternative. And with coffee, there is always a cheaper alternative. Starbucks has its work cut out as it tries to make the Starbucks experience special again. I hope they do – because although it may not sound like it, I’m still a fan.