You may remember earlier this year when Starbucks closed over 600 stores. Many were shocked when this happened because Starbucks had been one of the most successful business stories of the century. Granted, they didn't go bankrupt and they are not going out of business. But why exactly were they in a position whereas they had to close hundreds of underperforming storefronts?
Here's my opinion about what went wrong: Aside from the bad habit of building franchises right across the street from each other, Starbucks also made the costly mistake of over charging customers for premium coffee that was too easy to be duplicated.
It was just a matter of time before local gas stations and other major restaurants like McDonald's started offering the same coffee for half the price.
Funny enough, McDonald's is now promoting their new line of espresso with a taunting billboard ad that reads "Four bucks is dumb." The campaign is targeted at Starbucks, and one of the billboards is right outside of Starbucks' headquarters in Seattle.
Check out this recent article in USA Today:
www.usatoday.com/money/advertising/adtrack/2008-12-14-ad-briefs_N.htm
What's your opinion? Why do you think Starbucks is hurting? Is it the bad economy or are they just making bad decisions?
I used to be one of those sitting in Starbucks with others drinking their different drinks. Their used to be just something about going. After awhile the something just appeared to be $4. Then their was Tim Hortons, then McDonald's the Panera Breads had free WiFi. There was just no reason to go to Starbucks after wondering why we went in the first place. There was no draw and too much competition. This was all Before the economy got bad.
ReplyDeleteThey just built a new Starbucks in my neighborhood a few months ago. No lines in their new drive in. Taco Bell opened 1 month ago directly across the street, there is never NOT a line. Go figure! Cheap taco food, $4 coffee!
:-)
Like McDonald's can talk! They overcharge for the 'low' quality menu that they sell to billions of people everyday. By the way their so-called premium coffee sucks!
ReplyDeleteYou know...Starbucks might have hit a couple of bad breaks by serving coffee that could easily be duplicated, but one thing McDonald's can't touch is there atmosphere...That's why I went there. I mean you could just relax...,and, though the coffee might have been $4.00, it was worth it to be able to read your favorite book in peace!
ReplyDeleteStarbucks did not add more value when economic times got tough. I do not think they should have lowered their prices however, there could have been more perks, frequent visitor reward cards and stuff like that. They did business as usual.
ReplyDeleteThat is a fail.
Dr. Wright
The WRight Place TV Show
www.wrightplacetv.com
www.twitter.com/drwright1
The problem was that they saturated their own market. These 600 store closings was simply due to the over-saturation of their own market. It isn't the pricing or the rivals that undermine it. When you have less starbucks around, there is more scarcity, and hence the brand has status, but when its everywhere, its own business got commodified by its own business.
ReplyDeleteI do no drink coffee, and have only gone to Starbucks in the airport for a quick snack. So, I cannot speak of the ambiance of the environment, although I hear it's meant to duplicate the feeling of the cafes in Europe.
ReplyDeleteWhat went wrong with Starbucks?
I agree that the market was oversaturated and it undermined their brand.
As far as price, the $4 coffee was supported because Starbucks presents themselves as an eco-friendly business. It is said that they pay their coffee farmers the fair trade value or above instead of undercutting them as other organizations do to gain a higher profit. But whether this amount is paid directly to the farmer or to the importer, I do not know.
Regardless of the reason, these days consumers are hurting and $4 just is not cutting it.
Starbucks caters to the upper class while McDonalds caters to the middle and lower class buyer. With the economy continually changing in favor of the McDonalds buyer, Starbucks is having a tougher time holding on to the true Buck Buyers. Coffee drinkers that are on the cusp of no longer being a part of the suburban classification are finding that McDonalds and maybe even Speedway cappuchinos and coffees will suffice for at least 50% of what Starbucks charges. Trust me, 50%-75% cheaper doesn't have a different taste at all!!!
ReplyDeleteMcDonald's cold espresso coffee drink tastes carbonated and ewwww. Don't bother. Stick with what you know and love, you get what you pay for!
ReplyDelete