Great post John. Interestingly, you warned on this exact outcome during our AMP-169 session in Fall of 2005. Should have sold short after the class!

steve

It is doubtful Starbucks could ever downsize themselves back to the level of exclusivity they enjoyed 10 years ago. However, significant downsizing is the right strategy at this stage. The point about private ownership is spot on when it comes to exclusivity. Starbuck's growth strategy as a public company virtually ensured it would not maintain its select position in the premium coffee space.

Troy
AMP-169

John, I agree with you viewpoint. I live in Shanghai, China, during the recent 2 or 3 years, the number of the Starbucks's store have been raised dramatically in my city. But the price hasn't been declined at all. The price of the coffee is really expensive to a normal Chinese, and that I think it's correct, Starbucks has its own market positon which should focused on the middle or higher levels in China. But with the increase, you can see a store within sereval corners in the downtown, the feeling of luxury has been diminished, and the brand loyalty might also be tested because of this.

i also agree on your viewpoint, why does it happen so fast for starbucks to close 600 stores in the US? Mc Donalds is a great older than Starbucks and you see it is still moving on in the market worldwide. Yes that is true, their products already become saturated along with the opening many new store outlets without emphasizing the true branding of their products and moreover backing up a higher price that seems unmatched to the quality it offered.

Hi,
This maintanence of the integrity of the brand as THE vital component of the value proposition to the consumer is basic marketing 101. Starbucks when they started knew this, and practised this as if their life depended on it, as it did!
However, it is the easiest thing to compromise when the driver becomes numbers, and short term financials, as tends to happen after an IPO, as brand integrity and the relationship consumers have with a brand is not easily quantifiable, so is less visible, easily ignored by (often) new management under the pump for results who have not "lived" the brand.

There are many Starbucks followers around the world. One in Australia (Gloria Jeans) did a good job for a while, they moved quickly before Starbucks had the market position here that they enjoy elsewhere, and established a worthwhile "first mover" position, and they have continued to duplicate the Starbucks playbook to the point where I (and many like me I suspect) will cross the road to go to a competitor where the experience matches the promise.
Maybe we are about to see GJ's closures in Sydney??

Allen

Hi Prof.John,
Starbucks is now currently into the damage control gear which they should have exercised nearly a decade ago and should have prioritized while creating a strategy for their expansion plans. They seem to have laid back the ideology that while u create new customers, every effort should be made to retain the old ones and we should not deviate from our original focus.
We will be seeing more stores being closed and lets hope that Starbucks is able to retain their original charm and flavor which seems unlikely.

Manish

Friends,
Lets try to create a consolidation strategy for Starbucks.The real idea is to recreate the lost value and bring the essence for which it was established. Any takers for this question?

Starbucks is an example of having a plenty. Starbucks had money and they kept growing. The commercial space is limited, Starbucks ended up created too many stores too close.

This move is a good move and it will help Starbucks to consolidate and grow.

Moral of the story is if you have money you need not invest it. Look at some of the Indian IT companies who have cash lying on the balance sheet but refused to acquire other companies.

Prof Jantikar, I will be glad to work with you on strategy.

Hi,

Being a publicly traded company should not be an excuse for strategy mess up. It is evident that the management wanted to lure Wall Street with growth charts going through the roof. Starbucks could have stayed public and maintained its exclusivity.

LVMH (which is also a publicly traded company) has been able to maintain its exclusivity and is taking it seriously. It recently won compensation from eBay over counterfeits and the court "also ruled that eBay was guilty of unauthorized sales of certain authentic LVMH perfumes. This means that perfumes under the brands of Kenzo, Guerlain, Dior and Givenchy were being sold outside the approved distribution channels for these companies, which are high-end department stores and perfume stores."

Bassam

Interesting dilema presented. Stay private and limit growth, but extract the price premium for exclusivity or go public and extract value for initial investors with the risk that downstream investors may suffer brand value degradation. Is this a prardox that can be overcome? Maybe, what has been suggested is that the substitution effect, really is at work here, in that the once thought of exclusive product is now a generic product which loses its premium and therefore, those customers who want exclusivity substitute out.

Very predictable! It all begins with a good initiative, which is well received. Then it becomes the industry benchmark. The promoters want to cash on the opportunity and decide to go public (which is only human). Succumbing to the pressure of being public, the focus shifts from the experience to the share value.
Then some bright financial guy on the board, impresses that the immediate gain is more promising than the long term focus that the organisation started with.
Result, the customer is confused, and chooses to shift...the stickiness that was getting repeat customers, no longer exists..

A product targeted at the experience level should not be diluted by the mixing of experience.

What Starbucks need to do, is to return to the essentials and co-locate a customise-your-coffee-grab-and-go brand.

E.g. Toyota makes the Lexus, but is not associated with Toyota.Pizza Hut also home delivers, but the in-house dining experience is their prime USP.Can you imagine, a Boss store, holding the same range of clothing as a Target?

Hi,

Starbucks introduced the concept of third space, which I think it has maybe lost out on especially with its new growth strategies.As mentioned in the above article - Starbucks increasingly appealed to grab and go customers for whom service meant speed of order delivery (new store formats like Express).

Ishan

John, great post. I do think that certain products and services become representative or emblematic of an economic paradigm, and Starbucks is certainly one of these. The added value on top of a commodity that used to sell for 20c a kilo at the farm gate and by the time it gets to a Milano espresso bar is $20 a kilo - I do not know the prices now but maybe they have dipped at the apex end. The fortunes of a brand like this is linked directly to the feel rich factor. One feels rich enough to spend money on nothing but the sense of worthiness of the service and product, rather than on an actual calculation of its real value. In the depression and recession periods people work within the product-price paradigm. Hence in Japan before the 1990's bubble, consumers went for brands and extras/gadgets - after the bubble the 100 yen stores boomed and people started to think of price over value. Now in the case of Starbucks they tried to add value
to a sector in which their competitors worked mostly with price.
Although the fastfood sector added value to their discount products they knew from long experience, if you want to stay in business you must maintain a core low price and cost cut service, this means that they can ride a recession. Starbucks can not do this, because if it did, that would seriously dilute its brand which is associated with added value.

---
None of this need have happened if Starbucks had stayed private and grown at a more controlled pace. To continue to be a premium-priced brand while trading as a public company is very challenging.
---

Is this really a private company vs. a public company issue ? Private company executives are also under pressure to deliver growth. If a company can maintain profitability and manage growth while staying premium-priced brand then the wall street will love the company.

Starbucks is seeing the fall out of the growth strategy that set extremely high growth targets and focused on "more and more stores" instead of "more revenue & profit from same stores through innovations".

-
Devang

Sorry, boss. I hate to tell you I told you so.

I left Starbucks in May of '06. Even then, the partners (by that I mean middle management) were more interested in drinking the (purified) water that their higher-ups were feeding them. Trying to capitalize on new markets, instead of sticking with their core principles, left them with too many balls in the air and not enough trained hands to catch them. Managment's focus was on growing same store sales and opening new stores. In so doing, they failed to promote their most valuable asset. Not coffee, not their brand, not even their convenience; the partners who wanted to serve their customers.

Starbucks was sitting on a gold mine and thought that it would be easier to find another mineral in some one else's yard than develop the tools neccessary to mine what they already owned.

It might seem easier to find another way than to buckle down and practice what you already do, it just may not end where you wanted to go.

600 stores is just the begining. Starbucks, you have lost the talent you needed to be "the worlds leading purveor of coffee" by telling your partners and your customers they no longer matter.

It is hard to provide an uplifting experience in everyone's daily life while asking, "would you like to get 50% more for only 50 cents?"

No longer a beacon for good business and customer satisfaction, Starbucks, you are now nothing but a siren for shareholders wanting to crash on the cliffs.

YOU HAVE ONLY YOUR MIDDLE MANAGEMENT, WHICH HAS STRANGLED YOUR VALUE IN SEARCH OF MAXIMIZING YOUR FLOW THROUGH, TO BLAME FOR YOUR FALLING SHARE PRICE AND VALUE OF YOUR BRAND.

Howard, you need new blood because the oxygen you had has already left your body.

Although there is an element of brand-value destruction at play in the closing of 600 stores, that isn't the real story here. The real insight is that it is impossible to maintain a premium price while targeting a mass market. Also, if you open stores in bad locations that cannabalize nearby stores' revenues and profits, those stores will eventually be closed.

Why? Has nothing to do with brand-value. The problem is that as soon as the market niche you have developed becomes big enough, it becomes attractive to mainstream providers who are optimized for lower price points, and in Starbucks case, they became vulnerable to low-end market disruption by industry giants (McDonalds, Dunkin Donuts and others) who were already more convenient, faster and operationally more efficient meaning profitable at a lower price. By simply installing automatic espresso machines and upgrading the quality of their overall coffee service they became "good enough" for a large percentage of Starbucks marginal customers -- the ones who wanted better coffee, but didn't really like paying such a high price for it.

So it's a double whammy to Starbucks core, which they haven't adequately addressed. The fanatics who should be the strongest advocates have seen a steady brand diminution (conversion of hand-extracted espresso machines to automatic removing control from the barista and sacrificing quality for speed, conversion of stores from 3rd places into retail spaces, pre-bagging beans for efficiency but losing the smells and theater of a real coffee shop, and brand extensions galore -- are they a coffee house or a grunge t-shirt and retro music selling emporium?) as well as loss of exclusiveness (although this is much less important than the other brand damage). To the big middle market, they became an over-priced alternative that was too slow and lacked any differentiating service quality to justify the price difference between them and McDonalds.

So, as you suggest, they could retreat to the high end of the market, undoing the last 10 years of "innovations" in order to maintain their high price, but if that's the answer, they already have 2 to 3 times as many store locations as that market will sustain, and in the process they will cede the mainstream (majority) of the market that they created to low-end disruptors. Investors won't stand for this because it means absolutely ginormous restructuring costs that result in much lower earnings potential -- why would anyone agree to that strategy? Or alternatively, they could further optimize efficiencies and retail options to be more price competitive and generate more same store sales to the mainstream, but completely alienate the original Starbucks enthusiasts. This would put them on the McDonalds path - just another plateaued blue chip stop with limited growth potential (and therefore lower valuation), but solid profits.

The real mistake here was the arrogance that said Starbucks could forever dramatically overcharge for a commodity product while growing to be the "world's leading purveyor of coffee". Those two things are inconsistent. If this was the goal, then the brand value was always an illusion.

This is also evidenced by the difficulty Starbucks is having in generating overseas growth in markets where the coffee culture is much more established. Most of their new store openings are now outside the US, so those markets are indeed growing, but the margins overseas are averaging only 3%. In those markets, Starbucks is seen for what it is -- an international chain that has a predictable middle-of-the-road product. It is saleable, but not for the price premium Starbucks has been able to extract in the US.

Staying private and maintaining a slower rate of growth would not have solved this problem (although it would have held the brand value for longer, it wouldn't have generated the profits that Starbucks can today either). Even with a slower controlled growth rate, they would have eventually reached a point where a low-end competitive response was triggered at McDonalds and Dunkin. But as a private company with fewer stores, they'd have fewer resources to wage that battle.

There is a third strategy, which restores the brand value, but still defends against low-end disruption through creation of another brand which is differently positioned, and I think that right now, that is Starbucks only alternative for the long term. Not easy, and not intuitive, but necessary.

Bottom line again: It's impossible to maintain a premium price while targeting a mass market.

I do agree with much of your analysis however. Just not the conclusion. My take on this is fully explored on my blog at: http://www.anti-marketer.com/2008/07/has-starbucks-g.html

Starbucks. They should indeed go back to that initial "magical experience" of serving a great coffee while creating/maintaining a special welcoming environment.
I think that openness and transparency from the management towards the customers (as well as their employees) regarding the downfall of the brand is essential.
This is the right moment for them to recognize that they've made a mistake (which they already did), and more than that, to emphasize the decision to fight on. And the objectives of this little "war" (against itself, but also competition) should mainly be focused on the satisfaction of the clients (including here the relation between the coffee and the client' emotions), and secondly on the brand, without undermining its crucial importance.
Finally, Starbucks has lost its "legend" status. Recovering that is a tough task, which could possibly be the quintessence of regaining its market share.
The uniqueness of Starbucks will be regained only if it won't follow the market' trend of booming and unhealthy expansion of "everywhere-to-be-found" coffee shops. Natural growth requires the maintaining of certain principles that the initial success (some of which were mentioned in Prof. John's article).

Starbucks needs to remain a star not a mere/banal light-bulb.

Much as surgeons believe every medical problem requires cutting, marketing professionals believe core business problems arise from customer psychology.

Starbucks' core problem is that it takes high quality green (unroasted) specialty coffees and commoditizes them by overroasting them to the point that their individual characteristics are lost, and then brews them in fully automated espresso machines that guarantee a bitter cup of coffee. Starbucks then invites its customers to make the nasty brew palatable by adding syrups, foam, whipped cream and sweeteners.

This is a commodity product that McDonalds and Dunkin Donuts can roughly duplicate at a lower price.

At the quality end of the business, independents are eating Starbucks' lunch by using skilled baristas to produce a non-commodity product that customers can enjoy without turning their coffee into hot milk shakes. Starbucks cannot compete with them on quality or price.

"To dialogue"?

I believe the truly great independently owned and operated coffeehouses have been saying this for years. They aren't competing with Starbucks. Starbucks is competing with Starbucks, and now it's losing its own battle.
There's nothing unique about a Starbucks. For someone who wants a unique and personal experience, they will head to an independent over a chain. Starbucks has become the McDonald's of coffee, which I think cheapens their brand.

John,

Good article.

Starbucks dug themselves into a hole when they veered away from a premium made product by baristas to coffee out of a machine which was also then pre-ground. This put them almost head to head with MacDonalds and others - but not on price !!

The baristas were their main strength and this was then automated for volume & less quality....

Greetings!

My personal observation is that employee turnover contributes to the problem.

I was not a coffee drinker until I "discovered" Starbucks while working on my MBA (using Starbuck's WiFI access). During the next several months / years, Starbucks became the study spot for me. Staff became friends. A strong personal relationship was built.

Then there was turnover...and as staff left, they took their customer relationships with them.

Quite frankly, the new staff were not as interested in developing relationships as the previous ones. They looked more busy then the previous group. They had less time.

My frequency of visits has dropped at least 75%. The atmosphere / experience is not the same as it was before.

Just my $0.02.

Ed.

Interesting article and good points raised. Reminds me of a quote by the famous consultant Peter Drucker, "There is only one valid definition of business purpose, to create a customer." Starbuck's seems to have lost the focus on why they are in business. Greed has taken precedence. Schultx and company tried to provide services and products to clients that did not want them.

Second, employees have lost their passion. I arrived at a Starbucks this AM to order my regular Venti. Not only did the barista not even care that I was alive, it was the fourth new person in only a week.
Starbucks needs revisit their culture and re-energize staff. As a former employee told me, "This should not be rocket science it is only a coffee house."

Alas, all good things come to an end. Perhaps Starbucks can refurbish its image. A smaller company, aligned with customer values is not such a bad thing.

As I have been saying for years, the trouble didn't necessarily begin when Starbuck's went public. Like many very successful new products or new buisnesses Starbuck's, as a brand, started out being 'fewer things to fewer people'. You either enjoyed that dark roasted flavor of you did not. It was a love hate, take it or leave it proposition. The beginning of the end, regardless of over expansion (via stores or new products) began when Starbuck's first started becominh 'more things to more people'. I always harp on the launch of 'milder dimensions' belends for people that did not enjoy dark roasts. To this day I still talk to baristas about why they sell milder dimensions saying, "Had I wanted a cup of Maxwell House I would have gone to the grocery store." They look at me in a tired way and explain that many customers like milder coffees and they have to please them. Left unsaid is the word "too." Trying to become more things to more people is always the kiss of death for a brand's equity. What should Starbucks do? Well, the saying goes, "There isn't a problem in any company that can't be fixed by a great new product." There is also a saying that, "to promote new growth you have to trim the tree." Just sell a great cup of dark roast coffee. Like the Honda Civic when first introduced, you can have any color you like as long as it is black or white. Eliminate all the fru fru drinks, the plethora of munchables, etc. Slim down and start again. And for the stores that remain - keep the restrooms clean and fresh. Many are starting to look like restrooms at truck stops.

The first sign that a good company is going bad is when they start "expanding". Which also closely coincides with a company's transformation from "rapid growth" to "mature earnings" phase. This ends the stock ride of rise and split rise and split as well. I want to see Starbucks returned to that rapid growth and wild popularity phase again.

My husband and I own a small chain of coffeeshops. We roast our coffees five days per week, have freshly made pastries and our drinks are very unique and change seasonally - everything that Starbucks cannot offer. In our travels we visit and talk to many independants like ourselves - devoted to the craft and perfection of great coffees. There are small, one of kind coffee operators proliferating in every town and city in the US - it verges on a phenomenon. Owning one's own coffeeshop has become a way for first time operators to enter into business. Many fail,but many more are succeeding.
Coffee is transcending the big business level and going back to the streets as a grassroots independant movement. For many I have met, it is a way of proving that local businesses can and will survive and prosper. For all of us little guys, we CAN do it better. We stopped competing with Starbucks long ago and instead have concentrated on getting to know our customers, focusing on top quality products, service and ambiance. So far, so good - we will be building four more shops in the next 16 months. However, don't expect us to enter China in this century. Less is more in our opinion.
Starbucks cannot go home again - they have lost the faith of the customers who propelled their growth. They are a quick stop for caffeinated fuel on the roadside - no longer a destination eagerly sought for premium coffees and community. Let them continue to build drive-thrus in over priced real estate. Every time they build another one, we welcome it - they dilute their brand further!!

John, greatly enjoyed your Starbucks piece. Seems to me that a great analogy for the problem you describe is a really fine restaurant trying to "turn its tables" three times per night. In other words, there is some natural limit to the revenues you can generate by delivering any particular level of service/ambiance.

The challenge for Starbucks is to find its optimal balance between service/ambiance and volume. At one extreme, it makes no sense to cater only to the most service-intensive segment (the bearded guys who like to hang out with the baristas, and at the other extreme it makes no sense to compete with McDonald's and Dunkin Donuts for the express crowd. As far as I know, this optimal balance can only be discovered through trial and error.

I also agree that Tiffany faces a similar problem, and that it hasn't decided yet whether it is a retailer or a jeweler. If you read their materials, it seems that they are currently run by people in the former camp.

I'm not sure if I buy this argument. A brand is only useful inasmuch as it can be monetized. It may well be that the correct strategy for Starbucks was to fully extend its brand in order to generate cash while it still had a solid competitive advantage.

A quick thought experiment tends to reinforce this conclusion. Coffee is not new, but gourmet coffee in the mass market is. Coffee is also relatively simple to produce and there are few if any means to protect a purely product-centered innovation. Trends have a limited lifespan; competitive products will either arise (and they have) or customer preferences will shift (and they do).

Given these facts, it's hard to argue that Starbucks should have done something other than expanding and leveraging the brand identity. Luxury consumer goods are driven by marketing, not product innovation; to stay small and forgo the advantages of scale would be to give up the game entirely.

This is exactly what happens to the companies which forget the basics of marketing & managing a business, consumer research, value addition, differentiating, positioning etc..I can see a similar end result of one of leading cafes in my country (India) too..Cafe Coffee Day (CCD), an Amalgamated Coffee Beans Co. brand..The way they are expanding, can be compared to the last decade expansion of Starbucks'..Same strategies..cross selling..internet connected outlets..selling own coffee brands..but then there is no difference between a Barista or a CCD...ther difference is only in the price..& that too is very little..

But I would like to know as to why none of the consultants could help Starbucks' avoid such a dead end?..Why is there always a postmortem about company strategy?..

This is exactly what happens to the companies which forget the basics of marketing & managing a business, consumer research, value addition, differentiating, positioning etc..I can see a similar end result of one of leading cafes in my country (India) too..Cafe Coffee Day (CCD), an Amalgamated Coffee Beans Co. brand..The way they are expanding, can be compared to the last decade expansion of Starbucks'..Same strategies..cross selling..internet connected outlets..selling own coffee brands..but then there is no difference between a Barista or a CCD...ther difference is only in the price..& that too is very little..

But I would like to know as to why none of the consultants could help Starbucks' avoid such a dead end?..Why is there always a postmortem about company strategy?..

This is a very interesting debate, particularly its marketing aspects. I saw Scott Bedbury once and he was talking of his time at Starbucks and he used a quote that stuck with me; he said something like 'we made a huge amount of progress after we realised we weren't a coffee business serving people, we were a people business serving coffee'.

This sentiment would clearly strike a chord with the founder Howard Schultz. I just wonder at what point did being a public company change Starbucks back to being a coffee business serving people? Was it when they started wanting to be 'the world's leading purveyor of coffee'?

A bigger question is whether a shift back to the fundamental strategy would now do anything to turn the business around?

Hi

I agree with your suggestion on downsizing & cannibalising of the stores just to maintain quarterly results. But it is not necessary to loose the exclusivity.
I am from India, there are few restaurant & ready to snacks joints which have maintained there brand image & exclusivity, even though they have shops & restaurants on all India basis & some are even exporting large quantities to many countries including USA.

Just like cars, consumer goods, you need to maintain different level of comfort & product at different price in order to mass market any product. Star bucks need to differentiate coffee on the go shops & shops with full service [music, internet] & obviously there should be different pricing. More appropriate example would be an aircraft, serving to First class, Business class & economy class!!

Exclusivity & comfort is once perception & they need to address that urgently.

Pavan

The successful stores are the one where the customer relationship has developed and the stores links with cutomer. What has changes is the life style of the customer. The customeris looking for quality and bargain. He has easy has easy access to information about the price and quality of the product. But it should be appreciated that even today the family wants to make shopping an experience and fun. Hence, the personal relationship and easy conversation of the past has to continue if stores need to succeed.

Interesting work, Prof Q.

I never was one to sit down in a Starbucks and sip their product whilst chatting with a barista. When I was a coffee drinker, I usually bought my Starbucks in the company cafeteria, for daily sustenance. My weekend sources -- for my favorite coffees -- were Panera Bread (the St. Louis Bread Company here in St. Louis) and Einstein Bros. McDonald's was also perfectly acceptable in a pinch. Four years ago, though, I gave up caffeine for health reasons.

As an agnostic, then, what I've noticed in recent years is that Starbucks aplenty have been springing up in the north St. Louis suburbs -- always on the right sides of feeder roads to the highways. It is as if Starbucks locally has been following the McDonald's real-estate model in that regard. Chat with a barista in the "third place"? Hardly: The most prominent feature of these stores is the drive-through. Small wonder that they've lost contact with what they perceived as their original mission.

Hy You:
Nobody knows how to make a good coffe better than my Grandmother and she did it with wood. Perhaps this old preparation method adds some exclusiv arom to the product. The Starbucks problem is how to add value and reduce costs at the same time, and its a very difficult challenge.
What if keeping two lines of coffee with different prices. A commom line to keep the veteran customers and a premium line to keep best customers may be with some promotion like distributing prizes from time to time.
Best of everithing

Starbucks was history when they stopped brewing in store. It then became a commodity and not an experience.

Luxury is luxury, and fast-food or fast-coffee is another thing. When management saw there were 2 types of customers, the original customer who liked the feel of a local bar - recognition by and conversation with a barista - & the second, who wanted fast-coffee which still had the “Starbucks allure”, they should have spun off another division – Starbucks Express (smaller space) positioned for the Wall-Street type of customer who wanted speed, but was still willing to pay the price of a Starbucks coffee.

The mistake was trying to combine the two.

Luxury is luxury, and fast-food or fast-coffee is another thing. When management saw there were 2 types of customers, the original customer who liked the feel of a local bar - recognition by and conversation with a barista - & the second, who wanted fast-coffee which still had the “Starbucks allure”, they should have spun off another division – Starbucks Express (smaller space) positioned for the Wall-Street type of customer who wanted speed, but was still willing to pay the price of a Starbucks coffee.

The mistake was trying to combine the two.

I agree with the main idea: Strategy become focus-less.
They forgot one of the most immportant basis of strategic management: what not to do.
So, the future for this giant brand must be based in the "customer equity" recovery...if it could be done.

I wonder what converting operations to franchised network would do?

Excellent article with very valid points!

The faithful must find and drive to new temples and churches or convert... depends upon which way their addiction/dedication is driven.

Interesting paradox presented about private and limited growth (exclusivity) vs go public/large and be more (or an attempt to be more) to all people. A backlash of the cool.

At the end of the day, market forces take control and redirect the flow.

Enjoyed the level headed article.

The problem was Starbucks was too concerned with adaptation to meet customers needs and wants and not enough about the creation of consumption behaviours in non consumers. This needs and wants approach picks up the low hanging fruit but not the higher and more difficult.

The fallacy of needs and wants marketing! The reason for increasing marketing irrelevency and non-delivery of the marketing function for business operations.

How long can marketers stick their collective heads in the sand.

The beauty of Starbucks is that it has a time-less vision statement.Having said that, the ongoing challenge is to ensure that all decisions right from launching new products,decision on a new location, selection of baristas, making the stores more contemporary etc. have to be done with as much forethought when it was a small company. Starbucks should continue to cater to the needs of its discerning segment of consumers who like the "Unique Starbucks" experience.The expectations of the primary consumers must be continually met and any new enhancement of the "Starbucks Experience" must not alienate the core segment of loyal Starbucks consumers.While it is important to gain new customers the loyal franchise must still be able to connect to the changing "Starbucks storyline".

Living in Australia and coming across countless books and articles about the classic "Starbucks experience" I kept scratching my head because I had NEVER had a great, or even good experience anywhere, here, or other countries outside America, particularly Asia. Maintaining that balance between the original concept and the pressure for growth is a tough one, and growth for growths sake often tears down very quickly that which you have laboured to build!!

I think Starbucks is a run away success in BRANDING ! Think about coffee and most people will say Starbucks - lets meet and have a brew at Starbucks. ( Same can be said about burgers most think McDonalds ) This is in most countries where the culture is "grab and go coffee". Starbucks is a flop in Australia where the coffee culture is quite broad based and less "grab and go" !

In Shanghai (emerging market) its an American brand and the more affluent frequent them as a lifestyle choice. Sautration point is still a long way compared to the US.

My take is that the 600 stores maybe, amongst other factors, in "bad' locations and with the shrinking of the household disposable income coupled with higher fuel prices, job security etc...accelerated its demise. It's unlikely that its Branding has taking a beating due to its own success.

Have we reached the zenith of Organisation study to delve upon " Strategic Planning" as a concept to evaluate as to what really works eternally for an organisation or as to whether anything can strategy can work eternally. Can value for a company arise out of " Product leadership- Operational effeciency or customer intimacy (courtesy - Value Discipline- Michael Treacy- Fred Wiresema) or all of it. What can help organisation to sustain competitive advantage all throughout ? Can sheer scale - deter organisation in acheiving consistent growth. Is it time to bring out management concepts which makes company to move away form their knitting or stop knitting or make others do your knitting? How has been the case of starbucks stirring with the heart no more appealing to the masses anymore the way it was , requires a lot of soul searching with all available tools of managment - revisting the Taylorian era from 1850's onwards.

John, this was a wonderful article.
I agree with your viewpoint that exclusivity is lost when any company attempts to provide its services to the mass public. If the company chooses to make such a move it should begin to create the impression that it will no longer be serving the exclusive market. But guess what! Such a move would undermine the company's initial attraction. The move would also produce disbelief in the company's motives. This would cause a downward momentum for the company.

The best move would be to regain public perception as an exclusive company serving the "third home" (as many referred to the place) and then create an almost always welcomed image: innovative.

The green giant has almost packed its bags and left the Australian market this week announcing the closure of 60 of its 80 stores. Shultz in his announcement this week says that the store closures were related to conditions peculiar to the Australian market and by implication that the issues the brand faced in Australia do not pose risk for its operations elsewhere. I'm not so sure.

The Australian market is one charactersied by a rich coffee culture brought here by italian immigrants at the turn of the century. Drinking espresso coffee beverages for Australians is not a luxury - it is a part of daily life and here espresso beverages have been commoditised for quite some time. I don't use the word commoditised in a bad way. I'm simply saying that absolutely fantastic espresso beverage purveyors are widely available at very competitive prices.

Unlike N.America and perhaps some emerging markets like China Starbucks was not the pioneer here that it was there where it actually introduced and popularised the concept of latte and cappucinno made by baristas from a fancy looking machine. Starbucks enjoyed the margins that come with any player who reinvents a commodity product with new points of value-add; in the US I guess that the "commodity" offer before Starbucks was the refillable 60 cents a cup of diner brew coffee. Their strive for brand extensions into everything from music and chewing gum probably came from a recognition within that this "window" to extract a premium from being a first mover on the reinvention game would not last. The field of players when the product was a commodity (ie. every roadhouse diner and restaurant and fast food player) was huge. If the barriers to entry for them to then upgrade their commodity offer (brew coffee) to the new benchmark commodity position (espresso / specialty coffees) are low (which they are at the product level) then it is inevitable that at some point they are going to make that shift and make the specialty expresso beverage the new commodity level playing field - which it has fast become. That then leaves Starbucks with only two options - become a price / value leader (tough given it has geared its whole organisation around a premium positioning) and compete on the same terms as McD's or Dunkins OR fine new points of real value which is where the real tough stuff like service excellence becomes more a greens-fee for success.

This is the core of the threat to Starbucks' bottom-line performance and shareholder value globally. The brand generated a loss of some $70M in Australia over just the last 2 financial years from only 80 stores. What Starbucks got a taste of in Auatralia is exactly what it needs to be wary of globally and on its home turf. Rather than explaining away the Australian experience as some kind of abberation related to "uniquely Australian market conditions" (quote from Shultz) it should be actively learning from it. The Australian market which Starbucks seems to be saying poses a unique incompatibility for the success of its offer is simply where the espresso beverage retailing market will be in only a matter of years in most markets around the world and will already be a cancer eating away at its value in markets where it already has a foothold. The Australian experience for Starbucks is in fact a unique lesson on the future for the wider brand even it its heartland of North America if it does ont engage in some pretty radical reinvention of its core proposition.

Statements from Starbucks this week also hint that the 600 closures in the US relate to issues unique to the North American business and they talk optimistically about international growth. It is true that there are many emerging markets where Starbucks will in the years ahead be able to continue to extract margin from the enjoyable ride up the early part of the life cycle. It is however interesting to look at those international markets where Starbucks has already had some decent time on the ground and see how they are faring. Starbucks has had a strategy of partnering, JV's and licensing in most of its international markets smartly recognising that local partners provide local knowledge and expertise and pose a greater chance for the brand's success. Australia was even one such market. The original local partner here abandoned ship in 2003 and handed back the keys to Starbucks. The same has now happened in Singapore, Thailand and more recently I believe with at least one of their JV's China. I would not want to be overly speculative but there's a core old fashioned reason why JV partners in any industry might give up the game - the venture simply ain't paying its way.

I do hope Howard and his team have success in their current efforts. It would be a true shame to see one of the world's great brands suffer a catastrophic demise. The road to a turnaround won't be easy but the positive is that for those leading the change the lessons of past mistakes are there on the table and should be a useful feed into their strategic renewal efforts.

Spot on.

You have provided the one of most concise and accurate summary of Starbucks I have encountered anywhere.

Kudos.

Hey guys...

I do agree with the fact that in some cities the number of Starbucks Stores is just too high and the management team needs to close the outlets in order to reduce the cannibalization of sales.

But was Starbuck´s strategy really a total failure???
Just think about it... how many other company´s would have wanted to enter a segment where you can make easily a 500% profit margin? If the company wouldn´t have been so aggressive with it´s expansion, someone else might have entered the game and negatively affected Starbuck´s growth potential.

Another doubt that I have is wether the two alternatives (cut price or cut distribution) are a). MECE (McKinsey term for mutually exclusive | collectively exhaustive) and b). effective...

I believe that there are still many people who are willing to pay between 3-4 USD for a cup of coffee... reducing price would eliminate an attractive amount of profits.

Hence, I propose a gradual shift by expanding Starbuck´s brand portfolio. By adding an additional brand (or two) to their portfolio (i.e. Starbucks Express and/or Starbucks Relax) the company would clearly communicate its specific value proposition to the customer of the respective coffee shop (=form adequate expectations) and avoid eliminating an interesting profit margin. Moreover, the company could adapt it´s operations and investment in infrastructure according to the market segments the company wants to attract to a specific location.

Moreover, I do think that Starbuck´s should invite world class Design Thinkers and Experience Designers (example IDEO) who will help the with the identification of current customer expectations in both of the proposed segments and develop new store concepts that will refresh the brand and fight this disgusting trend of VALUE ELIMINATION (cutting costs and reducing prices) and go back to it´s roots of being the place that make the customer feel special and welcome.

Finally, I think that Starbucks should explore the high leverage points in it´s business model to explore new "blue oceans". i am sure that the company has the resources to recruit the best talent and hire the best consulting companies that will help the company find it´s way out of the misery and blindness.

For further information please feel free to contact me under pandza@itesm.mx.

Hey guys...

I do agree with the fact that in some cities the number of Starbucks Stores is just too high and the management team needs to close the outlets in order to reduce the cannibalization of sales.

But was Starbuck´s strategy really a total failure???
Just think about it... how many other company´s would have wanted to enter a segment where you can make easily a 500% profit margin? If the company wouldn´t have been so aggressive with it´s expansion, someone else might have entered the game and negatively affected Starbuck´s growth potential.

Another doubt that I have is wether the two alternatives (cut price or cut distribution) are a). MECE (McKinsey term for mutually exclusive | collectively exhaustive) and b). effective...

I believe that there are still many people who are willing to pay between 3-4 USD for a cup of coffee... reducing price would eliminate an attractive amount of profits.

Hence, I propose a gradual shift by expanding Starbuck´s brand portfolio. By adding an additional brand (or two) to their portfolio (i.e. Starbucks Express and/or Starbucks Relax) the company would clearly communicate its specific value proposition to the customer of the respective coffee shop (=form adequate expectations) and avoid eliminating an interesting profit margin. Moreover, the company could adapt it´s operations and investment in infrastructure according to the market segments the company wants to attract to a specific location.

Moreover, I do think that Starbuck´s should invite world class Design Thinkers and Experience Designers (example IDEO) who will help the with the identification of current customer expectations in both of the proposed segments and develop new store concepts that will refresh the brand and fight this disgusting trend of VALUE ELIMINATION (cutting costs and reducing prices) and go back to it´s roots of being the place that make the customer feel special and welcome.

Finally, I think that Starbucks should explore the high leverage points in it´s business model to explore new "blue oceans". i am sure that the company has the resources to recruit the best talent and hire the best consulting companies that will help the company find it´s way out of the misery and blindness.

For further information please feel free to contact me under pandza@itesm.mx.

John,

Excellent post. An additional area worth noting that I believe has attributed to the closing of 600 Starbucks locations is the general state of the economy. All consumers are feeling the "pinch" of the economic downturn and one of the first areas people tend to cut back on is "frivolous" spending.

While Dunkin Donuts offers their products at more aggressive pricing, they too are experiencing their "challenges". I recently talked with a Regional Manager for Dunkin Donuts who said they have been able to track the decline with in store sales inversely with the rise in gas prices. This chain has also cannabalized itself with way too many stores and no customer service.

My humble opinion on how Starbucks should approach this:

Split into two "coffee houses" - The original Starbucks Coffee and extention: Starbucks Highstreet.

The original brand - as it was in terms of quality, price and purist exclusivity. Highstreet could get a starbucks brand makeover, have a similar look and feel, but be positioned for the majority market.

Both houses could have express chains for the grab and go customers.

That would cover several areas, markets and keep the brand size, without cannibalising each other.

On a sad note, I noticed this weekend in my local Starbucks in Borders they don't do White Chocolate Mocha anymore. Its a White Caffe Mocha now. Bring back the chocolate.

Janey

Interesting topic. Can anyone suggest where to find more information on this topic, doesn't have to be Starbucks specific. Thanks.

You have brought out some very valid points. It would seem to me that before a company changes their marketing program to expand markets to a different type of customer that proper research is done before hand. When Starbucks was expanding their markets geographically, everything was going great. This changed when Starbucks changed the target market demographics.

Research with something as simple as the Intractive Tool by Scott Antony posted on HBR yesterday would have provided provided a fundamental catylist to at least question if the new marketing approach by Starbucks poised any concerns.

John,
You make interesting points, but I think the fundamental problem was much simpler: The hip strong colors and harsh angularity of the expensive interiors dated quickly and showed dirt and wear too fast. The concrete and too much furniture looked forbidding. The stores began to show such neglect that customers cared less and employees cleaned less. However, Starbucks had expanded so fast and so far that blanket renovation was out of the question.

Innovations such as offering wi-fi service and creating and selling music did exactly what they were supposed to do and encouraged customers to linger for hours. Unfortunately the stores were not designed to stand up to that sort of wear and tear without more than a quick mop. Suddenly one realized that the dominant colors reminded one of something shabby from long ago: harvest gold and avocado. They were hip once too.

A good post.
Starbucks seems to have failed to protect and project it's brand and values throughout their network.

In the area of Sydney (Australia) where one Starbucks outlet was located, it probably offered the worst coffee quality and the worst in-store experience of the ~50 nearby competitors within a 2 block radius.

Starbucks has now announced it's closing most of it's Australian stores and retreating to the three major cities with a reduced footprint. It still has to address the fundamentals to compete in a cluttered marketplace offering far better.

This is just one interpretation of the present situation of Starbucks. What would have happened if Starbucks would have continued with their original trail, original pace? We would have seen another analysis - possibly several months earlier - on what Starbucks could have done to prevent its natural death!

We are in a period of history where the price plays a bigger role than product differenciation.

The 3 reasons mentioned are not because of the expansion - because not sticking to the basics!

My view:
1. "First, the early adopters who valued the club-like atmosphere of relaxing over a quality cup of coffee found themselves in a minority"
The new service line (express) is not seperated out from the existing ones! The existing service lines are compromized to include new service lines
2. "baristas hired for their social skills and passion for coffee, no longer had time to dialogue with customers"
This is again the issue with the execution of the plan - todays business demand more from each participant. Carefully designed role play of baristas followed by appropriate enabling program can fix this.
3. "Eventually, the point of saturation is reached and cannibalization of existing store sales undermines not just brand health but also manager morale."
Competition demorale managers? You hace the wrong person on board!
Also, the idea of expansion is to attract more customers, not share existing base, right?

I see it as a positive change - probably overdone, which will be corrected as situation demands. Any transformation will pose new challenges, some of it might be unexpected, but can always be handled.

The declined of profit is due to the cost of operation - expecially the rental.

Retail admirer thinks to ride on starbuck chain stores in open up the market, and starbuck thinks this will create the value added service to its stakeholders

Unfortunately, this mixture doesn't us a good cup of coffee.

Size doens't matter; even a small is better.

Aangezien jij in Starbucks bent geinteresseerd.

Very intresting case for Marketing professionals. Depth of the market versus width of the market. It is important to realise that the a balanced growth in depth & width is very important.
Organisations do take risks in their desire to grow fast. But that's what is business all about isn't it?
If fundamentals are brought back in the revenue model of Starbucks - there will be another story on STARBUCKS come back.

I live in Sydney, Australia and over the past few years could not discern any difference (other than higher unit price and too many offerings to confuse!) with the Startbucks product vis-a-vis Gloria Jeans and other local brands here.

Sure a place to sit and wireless access were great to have in earlier years but these are no more an advantage when iPhones and wireless access are so pervasive.

Further, Sydneysiders always had a good coffee culture with the 'best' coffee that still comes from those baristas who operate every day from small kiosks spread all over the city.

Academics are always very good (and I do respect them!) with their after-the-event analysis! Starbucks was the darling, like Enron was at one time, but no advantage is permanent.

Good theory they say is built from observing past successes and failures. I am afraid in practice, it may not hold true anymore. There can be only one advice for the future: don't give one!

Cheenu Srinivasan

John is Spot on, StarBucks made 2 primary mistakes,

1. Premium items demand a slow progression in penetration of the market, i think by going public, company lost the vision in zest to make profit

2. Brand Dilution, by launching new products in the market.

i will like to see a good thing.

The imperative for growth in a public company stems from the way that the market bets on growth. Premium market valuations reflect the market's expectations for growth. The strategy is inherently limiting at some point -- as Starbucks has most recently found. The growth bias of the market is hard for any public company to resist. Satisfying customer expectations for consistent quality and service and investor expectations for growth simultaneously is possible in the early natural growth stage when a new market space is opened. However, the demand for continued compound growth over the long run is illogical at its core.

I knew John Quelch when global marketing was international business. He was brilliant then and he continues to identify and challenge global business development through forward thinking and developing the great minds of the future. Bravo.

Jean Mahoney
Former Executive Director
The Reebok Foundation

Thanks for a great analysis John,

One thing I'd focus on and you alluded to it in your article. I live in Canberra, Australia and, similar to other cities here, the overall standard of (expresso) coffee in our city has always been great. We benefitted from a huge migration of Italians after WW2 who thankfully introduced Australia to their food and good expresso coffee as far back as the 50's and 60's.

This means that basically, the competition has always been strong for Starbucks and while they improved and set the standard for the "experience" for a long time here, they've now been equalled by many other Australian chains and independant coffee houses.

I'd expect this would be the case in Europe as well.

Hi, i wrote a piece called "the curse of the pyramid" which broadens what John is saying. I believe companies like Apple/ Nokia are also extending their reach in order to gain volume market share.... and will soon face the same challenges as Starbucks.
--------------

The curse of the pyramid:
Should companies target value market share or volume market share?
No, “the curse of the pyramid” is not the proposed titled for a fourth Brendon Frazer “Mummy” movie. The genesis of this note comes from discussions I have had on the grounds that I believe a company searching for ”premium prices” and profitability should not search for market share as well, without defining very carefully its ”market”.

In the history of marketing, I claim, no company has been able to be a volume market share leader while maintaining premium pricing. (Market share of a leader and premium pricing are both relative to the industry, but as a generalisation, this always holds true.)

Example: Leather carry bags. Louis Vuitton is a “premium” player in the market. But has possibly les than 1% of global leather bag sales. (including non branded goods sold in open market places around the world). Does LVMH set itself volume market share goals?

While contemplating these ideas, I came across an article in the HBR by Vijay Vishwanath and Jonathan Mark called “Your Brand’s Best Strategy”.

One of the key points I understood in this article is that a company’s ambitions must be judged in line with the commoditisation of the industry it is in. Eg: mobile phones- dominated by 7 manufacturers that add to more than 70% of the market and are all focused on innovation and profitability. Each company focused on justifying a price premium. Till the emergence of the “cheap phones” market in India and China, this model was working very well. Now everyone wants to put a mobile phone in every Indian’s hand. So the average cost of phones in India has dropped quickly towards the USD 35-40 mark. Sure Nokia has gained market share. But what has happened to its average price per phone and average profitability.
Its innovations are no longer “technology innovation” but more design innovations that involve integrating a flashlight and radio in every phone. Easy to copy.

Apple in the mp3 market is another example. Apple stands out through innovation in an industry where there are a number of low priced options. A decrease in the prices of Apple will mean a decrease in its capacity to spend on R&D and hence innovate. Immediately product differentiation will suffer.

Compare this to the tyre business. Consumers are neither “wowed“ by innovation, nor seem too concerned by lower priced products. No real innovation has come to the market in the last 30 years. Is there any surprise that all companies in this business use “raw material price increase” as the crutches on which they increase their own pricing? (I use the word “crutches” since if these decisions were indeed genuine, we would all remember examples of companies that decreased prices in an era where raw material costs were coming down).

I want to continue with the Nokia example. Today Nokia has defined the category- with products from $30 to more than $1000. So far, they have gotten market share as well as profitability.

Now, lets say that the market of the “low cost” $30 phones grows 5 times more than the overall market for cell phones. Nokia will be forced to sell more in this segment. Unless it is then able to find a cost structure that allows it to have the same profitability as for its more “upmarket phones”, its profitability will fall. (not overall profits, but profit per phone).

However, as the mobile phone gets more and more “commoditised”, it is likely that cheaper manufacturers in China will be able to deliver phones at $25 without having a high cost structure due to lower investment in R&D, manufacturing costs etc.

Would Nokia be able to match this? Should it?

Or should it then refocus on businesses that value its innovations and allow it to continuously charge premiums and reinvest profits into its innovations.

As an industry matures, many consumer segments emerge. Satisfying each segment well requires specific business models. Working and synchronising among these different models different skills in a company and eventually proves impossible.

Today Nokia and Apple are masters at their game because their respective industries are still relatively new. Customer segmentation is still relatively narrow. But it will not be the same 5 years from now. Where should these companies create competencies in their business models?

Perhaps it is for this reason that in a mature industry, there has never been a “premium”, innovator that has consistently maintained strong prices and continued to gain market share.

Now let me bring in the concept of the pyramid, and the curse.

The segmentation of consumers in most countries is shaped as a pyramid, with a broad base at the bottom (signifying a mass market) and a narrow top signifying a smaller set of consumers at the premium end.

Products can be launched at both ends of the pyramid. At the top end, they are more exclusive, with cutting edge features that justify the premium pricing. The bottom end products (in the same category) tend to be cheaper, and with less technological differentiation.

In developed economies, the base of the pyramid is not as wide as in developing economies. Indeed I may argue that the height difference of the pyramid (difference in the spending power of the top end of the population compared to the bottom) is also lower compared to developing markets like India and China.

Consequently, in developed economies, servicing the bottom end does not drain resources of the company to the extant that it does in India or China. I.E to reach the bottom end of the pyramid in India requires a distribution network spanning the country. It requires a service network and a product range that is both cheap as well as innovative. With prices ensuring that the returns are much lower.

The top end by contrast, can be serviced at the top 20 cities of the country with limited investments in sales, distribution and service. By definition, targeting the top end implies reaching fewer consumers, but those that can pay high value for products. Hence higher profits per customer.

Sure, the base of the pyramid is where volume market share is built. Its where the volumes are.

But in my experience, the capabilities required to satisfy both ends of the pyramid are so different that few companies have come close to mastering them. Perhaps none in the Indian market. For example, customer support and service networks are designed to satisfy the entire customer universe. A one size fits all dominates. In fact it is the expectations of the “mass market” customer that then determine the infrastructure. What does this mean for a customer who pays 10 times the price? Should he not expect 10 times the service?

This is where the brand experience at the top end starts getting impacted. And customers become open to newer propositions.

In India, companies will have to choose which end of the market they want to target. The two ends of the pyramid are seducing in terms of the business and market share potential, but require enterprise competencies that have so far not been demonstrated.

Companies that enter the Indian market today without a clear idea of which segment they want to play in, risk losing their brand value and customer loyalty.

This is the curse of the pyramid.

John this is very good article. I agree with some of the views posted here that Volume and premium price do not go hand in hand. People will only pay a premium if there is Scarcity. The moment you try and mix those up, you begin to loose brand value.

In my opinion if they try and go backwards it could be their biggest mistake. As a Starbucks old timer (who thinks that it is now commoditised and has lost its premium value), is their decision to decrease the number of stores going to have any effect on my willingness to pay a premium? I certainly doubt if it will. For a customer if the premium brand has lost value, not sure by decreasing the number of stores and creating a scarcity is going to have a positive effect at all.

They are no longer in the product differentiation and premium price segment but they have entered price sensitive (mass market) and availability convenience segment.

They should rather use the investment they have made in creating these stores by increasing their product offering.

As someone has pointed out, there is a culture of Grab and go. I suggest that they attempt to change this.

A few suggestions I have is

-They should create a culture where executives can hold their business meetings during the day time.

- For Evenings they may want to transform themselves into a new kind of pub like setup but not really a pub (Blue Ocean:)) which serves alcohol but not the same way or the same ones as a pub.

To conclude in my opinion going backwards i.e. closing stores is probably not the best strategy for Starbucks.

I found this well-written article was bang on. Starbucks has admitted they are selling a commodity and now they lack differentiation.

Unfortunately Starbucks is struggling with proper expansion strategy from beginning base on company history. I believe that closing 600 stores is kind of move to increase effectives and bring possibilities to release finance resources. Successful expansion model from US market can't be easily transfer to international platform, seems to be similar to Wall-Mart case. I observed very slow expansion in Central Europe, Starbucks starting in my opinion few years too late missed opportunities to be in good locations. Being late and having competitors well establish strategy for expansion should be redesigned...Starbucks should evaluate for example option of acquire some local players.

Starbucks' dilemma is a case study in leadership not being a large public company. From an outsiders perspective it appears the leadership team became infatuated with themselves and their success and lost a connection with their customers.

In so many ways the leadership team asked their customers to carry the weight, through higher prices, of their lack of management skill.

The suggestion that it is problematic to use the public market to capitalize a company's growth makes little sense. Managing a public company takes a different leadership team competency.

On a related note, so many people have an opinion about the diagnostic, but few offer reasonable solutions to the challenges facing Starbucks.

When recently polled by Starbucks I neglected to mention a relationship to Great coffee and Great shopping.
Long- gone are the comfortable chairs where one (or ones spouse), could sit and wait or chat while shopping. Also long- gone are "lobbies" in Department stores or sitting areas in "ladies-lounges".

I find that when I "shop until I drop" I seek a place to SIT DOWN and have a cup of coffee and chat with friends who I am shopping with. No need for lunch mid day/afternoon.. just a place to recoop before moving on. Starbucks has filled that niche. With it dropping comfortable seating in its stores the opportunity is gone.

Much of the commentary posted since this article was published in July would have been non-existent several years ago when growth was good and investors were happy.

Hindsight is always 20/20.

The world needs fewer post-mortem analyses and more people with the ability to see these situations coming. Starbucks situation is not a new one.

I use to love Starbucks, but the closest one to my house was like 20 minutes away. Unless I was going that way I had to make a special trip. The starbucks was like a special trest. Now I live in the same place and work in the same office and I pass 4 starbucks just on my way to work. Its nothing special anymore. I think we have less Mcdonalds here than starbucks

Basically, the current problem with starbucks is CSR issue. Many multinationals uses this CSR not from the sustainable point of view, they use this CSR as a weapon to attack consumers sentiment. It is true that they did some CSR works but the question is what was their notion? Its notion was to making more money by creating brand image with the name of CSR. Charging ridiculous price is not CSR and getting the product from Java is also not CSR.They could use local product, reduce energy, less colour and many other things.

Aliar Hossain
Lecturer & Consultant
a.hossain@guildhall.ac

I think the other thing that slipped through the grinds was service. The get-n-go crowd does not want to wait 10 minutes for a drink to be made. I think they need to focus on getting as many people through the register as possible in a short amount of time. I have seen too many people stand in line only to turn and walk away. They need to teach their workforce to speed things up.

The caffeinated beverage market is a broad one and Starbuck's original concept served a sliver of it. Segmenting the broader market with different store formats makes sense, but in Starbuck's case, should have been done with forethought, not as a knee-jerk reaction.

"Good coffee served fast" is an appealing proposition to many. My local Starbucks is not much on atmosphere or experience but drives loads of volume (and it is not on the list to be closed). To brand this location a "Starbucks Express" or a like, would not hurt the master brand. At this point, the pressure to drive volume is too great for dramatic downsizing, otherwise, why would they not close my very bland location? Addressing the "fast and good" segment via sub branding is one of the ways for Starbucks to go.

Hi,
After reading your articles about the troubles Starburks ran into, I just wondering why it creat some new brands to share different brand positions in the brand portfolio, like a brand for bottles retailing in the shop. Or it can create different brands aiming at different types of customers so that it can avoid some of the conflicts about opening too much stores.