Is Starbucks a brand in declination and a failing business? Has the reality of paying $8.00 for a latte finally hit bean bottom of a pitless pocketbook as people realize they can no longer afford fancy coffees if they can’t first pay their mortgages and mounting credit card bills?

Recently, Starbucks closed all their stores for three hours to retrain all their baristas. During that retraining, Dunkin’ Donuts offered free coffee for those who craved the bean and that move offered a smart counter-promotion to bring new people into Dunkin’ for a sip and swallow.

Why Starbucks had to “close” all of its stores for three hours for training was a strange happening because it indicated — intended or not — a public revelation that there could be trouble, and not just coffee, brewing on the Starbucks horizon.

Yesterday, that brand implosion was confessed in the public square:

Chief Executive Howard Schultz told the company’s annual meeting there was no “silver bullet” for fixing Starbucks, whose stock has dropped 40 percent over the last 12 months.

Can Starbucks, with 15,011 stores in 42 countries compete and survive against the monolith that is McDonald’s with 35,000 stores in 120 countries and its plan to sell premium coffee? A year ago, Consumer Reports did a taste test and preferred McDonald’s coffee over Starbucks:

We compared the rivals with Starbucks, all in basic black–no flavors, milk, or sugar–and you know what? McDonald’s beat the rest.

When McDonald’s beats you in your own niche — that’s A Bad Thing.

Emboldened by rave reviews for the relaunch of its coffee business 18 months ago, McDonald’s is planning to roll out premium coffee drinks — including smoothies, frappes and bottled beverages — priced just below that of Starbucks. The goal: to gain a bigger share of the $60 billion U.S. coffee business, of which the burger chain now says it holds about $6 billion.

Is “grinding beans in stores to create aroma” enough to spark a Starbucks comeback?

Can Starbucks survive this financial tailspin using brand allegiance, increased quality of product and a continued effort to create a relaxing environment — or must more brutal changes be made? How would you save the stores and resurrect the Starbucks brand?

35 Comments

  1. Karvain!
    You know “I’m lovin’ it” is McDonald’s slogan, right? :mrgreen:
    Yes, Starbucks is a great safe-haven and meeting place for all the reasons you mention — yet you didn’t mention coffee or food as reasons why you love it.

  2. Who can afford coffee at Starbucks. Really they should charge for atmosphere and comfortable sitting all day. Some people plop at a table and stay there and never move. They aren’t buying they’re just hanging.

  3. I think that’s the problem, Karvain. Starbucks doesn’t stand for coffee any longer. It stands for an abstract idea of fun and harmony — but that doesn’t pay the light bill.
    They’re closing a lot of stores in New York. A couple of our favorite spots around NYU closed. That was a shocker — but I suppose students and faculty are the ultimate table moochers that won’t spend a dime unless they have to…

  4. Start charging for sitting in a chair by the hour. For free if you buy something. That would make a lot of money. Tired people would have a place to sit after paying on their coffee mortgage.

  5. They would do well to do more than coffee or food. They have a long way to go to make up the mindshare they’ve lost. McDonald’s must have a great cup of coffee if the Starbucks snobs find it just as good as the higher priced stuff.

  6. The Clover could be one of the things that brings Starbucks back from the brink. Imagine being able to walk in, ask for a cup of your favorite bean – Arabia Mocha Sunnani, for example – and having it three or four minutes, freshly ground and brewed.
    Killing the breakfast sandwich is also an excellent idea.

  7. MacDonalds did it right by removing the individual from the process of creating the coffee. It is a process where there is no room for individual input, no room for anything but the corporate manual from the request to the coffee being presented. MacDonalds is anonymous and the coffee it sells will always be surrounded by the garish lights and bright colours that seek to make a ‘burger’ look appetising.
    If Starbucks want to win, they need to make the coffee-making process more staff-proof. They need to work on precisely what they want to sell and then just sell that and not a grain more or less. When they are doing and consistently selling the right coffee then they can then look at the stores, the ambience, the price and all the other factors that they can win on.
    Karvain said “You need a toilet? Place to sit? Hide from the rain? Starbucks.” and that is a good thing – because we know they are not bad, we know they will not throw us out. That is not a bad foundation.

  8. Hi Gordon!
    New Yorkers would never wait four minutes for a single cup of coffee! 😀 4 seconds is too long, really.
    While I love the idea of having a Clover at home:


    I don’t think they will be very successful in metropolitan areas where people are on the go go GO! They’re just too slow to be useful and that giant cowpattie you end up with in the end makes one repulse with semiotic recognition as it emerges from the bowels of the machine to be wiped away down the bowl.
    Why do you think killing breakfast is a good idea? I think that makes you more competitive with McDonald’s.
    Is Starbucks just coffee? Or is it something greater that can stand the application to french fries, clothing, cars and football stadia?

  9. Starbucks needs to focus on what they do best : making a good cup of coffee. They were distracted by the constant need to rush back and forth between the “warming” ovens and the espresso machines – not to mention the horrific stench that filled the store every time someone ordered a ham sandwich.
    Also, the clover will be only an optional – the immediate drip will still be there for those that aren’t choosy 🙂

  10. Mark!
    You’re right that McDonald’s is dumbing down the entire fast food process, but boy — they’re doing it so well for their investors:

    OAK BROOK, Illinois (AP) — McDonald’s Corp. said Monday that February sales at restaurants open more than a year jumped a better-than-expected 11.7 percent, boosted by growth in Europe, the weak dollar and the benefit of an extra selling day this year.
    Growth in Europe has helped drive McDonald’s profits.
    Two straight months of solid results to start the year have reassured investors worried about the impact of the economic slowdown on the world’s largest fast-food chain, among other restaurant companies.

    http://edition.cnn.com/2008/BUSINESS/03/10/mcdonalds.profits.ap/index.html
    They’re also smart to smash Starbucks right into the nose to make their bottom line bleed: “We can sell the same coffee you do for a lesser price, the same taste, and get it to our customer faster. Plus, we’ll throw in free WiFi.”
    http://www.marketwatch.com/news/story/mcdonalds-offers-free-wi-fi-internet/story.aspx?guid=%7B0DB5E66F-CA04-496F-98FC-A7A54C5D6FA7%7D
    The staff does seem to be the key at Starbucks. I guess they plan to give you “endless extras” for free that you can add to your basic black coffee and they claim that won’t slow down your order one bit or add much cost to doing business. That, I doubt all around.
    Now having a Starbucks App for your iPhone is just the sort of genius that will drive the right customer to line up at Starbucks:
    http://www.genoco.com/link/interactive_quickOrder.html
    That App makes everything faster because the part of the process that takes the most time — the ordering and the paying — is handled by the customer on the iPhone before queuing.
    I agree with Karvain that Starbucks is known in NYC for being a great place to lollygag without spending your lolly. Sometimes my wife takes over a corner table for an hour to teach an ASL lesson with her private students and the store welcomes her and gives her free coffee because they like the vibe she brings to the store.
    The problem, however, are the campers. They come early in the morning and stay until closing and they have their laptops and their WiFi and they take all the good window seats and they run their home business from Starbucks. They never buy anything. They always give you dirty looks if you’re too loud, or too close — they need to be cut away as fat from the Starbucks experience.
    Oh, and if you need a restroom in NYC — Seinfeld has a great episode on the art of finding a free toilet in NYC — the best places to go are Starbucks, Barnes and Noble, Gap and Old Navy. Those stores are everywhere and you can ask someone on the street to help you find one if you’re new in town.
    The Old Navy bathrooms are hidden in the stores but they’re huge and pristine. The Gap bathrooms are a little dirtier but they get cleaned on a regular basis. Barnes and Noble bathrooms are totally filthy and sticky. Starbucks bathrooms are okay, but they’re small, and always really crowded.

  11. “We can sell the same coffee you do for a lesser price, the same taste, and get it to our customer faster. Plus, we’ll throw in free WiFi.”
    First, if I’m not staying in to drink the coffee then I’m not usually as fussy about where I’ll get it. And if I’m not staying in, free wifi matters not. I guess others are the same.
    Second, if I am staying in and if I am going to make use of free wifi then where I am is extremely important. I certainly do not want to sit in any sort of McD environment. I want to enjoy my coffee and be productive. I really do not think I can do either in a McD’s.
    So McD just want your money, any money. They will sell as many products to appeal to the whole family to try and get them in. Starbucks can never hit that lowpoint because they really have only one product. And in these cases you just have to do it well, very well.
    The freeloaders? Train managers, do not use a rulebook. A rulebook would not make any allowances and they are always necessary.
    As for the McD investors – are their corporate practices and staff rules as … generous … as those of Starbucks? It makes a huge difference to the bottom line when you neither ask your staff or care even less about them.

  12. Mark —
    You’re right on all points about McDonald’s. They’re a child’s brand created for the convenience of the parents.
    I do think, though, with it’s massive brand power and locations across the world, McDonald’s could begin to be a world-changer and do good. They’ve tried with their McVeggie burger — but it is sparsely available and not a regular menu item in all stores:
    http://www.mcdonaldsindia.com/ourfood/veg/mcveggie.html
    I’m with you on not wanting to sit or stay in a McDonald’s. I think free WiFi is a false lure of adding value because no one would want to sit in a McDonald’s and do a moments worth of worthwhile work.
    I’m not sure what you mean by Train managers. Do you mean tables at Starbucks should be metered for pay?

  13. Sorry for my lack of clarity – I agree that the people who permanently occupy space are a Bad Thing overall. But they also do have a use – who wants to go into an empty shop? And there are also the useful customers who do bring character and life to a room. So instead of creating a rule book for managers which dictates who can stay, for how long and other such details, they should train their managers and give them the skills to be confident to move these people on. These people will move because they have no option, but they are relying on there being no confrontation to do so, they are living on the “It has always been this way” but they are actually in no position to negotiate. So the manager needs to intervene, the manager needs to reclaim the shop not just for the company but also for the other customers.
    A manager who can do that will also be excellent with the staff and that passes through to the clientele. Creating a rule book just causes friction, resentment and headlines in some newspaper eventually.

  14. The thing with free wifi is that you have to have it in the right atmosphere. As has been mentioned, McDonalds is not it – when I think free wi-fi I think of people sitting down with their MacBooks to get some work done in an indie coffee shop, not the land of McNuggets and Corn Syrup tainted everything. 🙂 It’s a little too blue collar for wifi.

  15. Thanks for that analysis, Mark!
    I wonder, though, about the “techie” camper who sits there all day blogging and complaining about everything online — touch him with a polite elbow out the door and he’ll be bad-mouthing you all day every day on blogs across the world even though he doesn’t deposit a dime toward the rent.
    It’s a hard call — the homeless are probably the easiest to evict because they have the least power — but they’re also the ones that need the safe place to sit awhile. Unfortunately, in the USA, many of the homeless are drug-addicted or mentally ill so any sort of easy asking quickly becomes a confrontation of epic proportion because they have nothing to lose is pressing back the insult.
    I’d hate to be a manager in that position deciding who is worthy of camping and who gets the door — but I agree it’s a job that must be mastered to keep the paying core happy.

  16. Oh, and Mark…
    That’s why I thought “metered” tables might be a bright idea. It’s fair in that you have to pay to play. It’s free-market and “democratic” in its issuance of space. You don’t have to charge much — a dollar an hour seems fair… you might even be able to reserve a table online for future use…

  17. Gordons!
    I think free WiFi depends on your device. I agree laptop wouldn’t not work on a sticky McDonald’s table — but an iPhone would drink up free WiFi and it adds enough speed that it makes it worthwhile to use even in the street outside the McDonald’s. The new “here’s where you are” feature relies on WiFi to find you on the Google iPhone Map — so having accessible WiFi gives you a reason to use it all the time instead of pingponging between WiFi and the EDGE network.

  18. That leads us to a question – out of all the iphone users in the world, what percent would say they would choose McDonalds 9 times out of 10 versus how many would choose Starbucks 9 times out of 10? An iphone user is someone that quite possibly lined up to pay $600 in one go for a device – doesn’t sound like the typical “Dollar Menunaire” who relies on $1 high fat / cholesterol / simple carb food to keep his belly full while not going broke 🙂

  19. Gordon!
    Unlike food — you can “eat” WiFi from the street outside the venue — and iPhone users are wild to find the strongest signal and they don’t care who or what is providing the piggyback as long as it’s free. 😀

  20. From their web site :

    Our local service providers provide high-quality Wi-Fi service through several convenient connection options: on-line credit card payment, subscriptions, prepaid cards, or (sometimes) promotional coupons.

    Alas! Not free yet. Perhaps soon?

  21. The Starbucks I would choose to use is almost underneath the McD’s above. So I’d get the best deal 🙂
    While I agree about the homeless, the geek who blogs it and the confrontations, Starbuks itself has a choice to make – a choice McD’s already has. Is it a business with social responsibilities elsewhere, or does it class itself as someone to be seen doing good by letting people in for free?
    McD’s caters for the family so no drunks, homeless or anyone deemed to be not good for their image. At least here in the UK there are signs saying they can throw you out if they wish.
    Starbucks caters for the drunks, homeless? I doubt it, but they are arguably hurting the bottom line.
    So there is banning them which makes for headlines and no flexibility, or giving more power to the managers locally to let them choose.
    In the end though what Starbucks need to do is to look at what they do well and make that better.

  22. Ah! You have the best of both worlds, Mark! 😀
    Here in the USA the local homeless shelter in big cities is McDonald’s. You can generally stay if you bought something and the store isn’t busy. You can’t just come in and sit, though, and once the store starts to fill, you’re sort of given a free burger and shown the door.
    I agree Starbucks has a hard time of it — and it doesn’t help they’re totally anti-union in the USA — and they created a lot of bad will in the street because of it and so now that they’re floundering a bit there’s a race to bury them by those who hoped to have a vested interest in their success.

  23. I never understood the allure of Starbucks anyway, David. I think their coffee is way too strong and bitter. Give me Dunkin Donuts coffee any old day! The idea of creating a “meeting place” however was brilliant! But as everyone else pointed out that novel concept is coming back to bite them as folks come in and sit on their tooshie for hours and hours sometimes without spending a dime.
    If I could add, there are several upscale McD’s in our suburban area that are quite pleasant to sit around and spend some time and money. The McD premium salads are delicioso served with Newman’s Own dressings. The new hazelnut iced coffee at 1.69 is heavenly as well!!
    The bottomline is that folks have simply wised up. With the rising price of gas and food, who can justify $5.00 for a latte or frap these days?
    But certainly the Starbucks name will continue to have value and they’ll need to somehow reinvent themselves while their cleaning house.
    I like how they interwined music into their business more recently. They sold some music that was exclusive to Starbucks. So I’m thinking that should be their shtick. Art, music, books that tie in to the Starbuck’s name. Maybe even live music. Upscale desserts. Something other than the coffee and conversation. Just a few thoughts. . .

  24. Excellent analysis, dmtessi!
    I agree people are wiser now. They’re paying extra for ambiance with a Starbucks purchase and when people can’t pay their mortgage, they can skip the expensive latte-with-frills, too.
    You’re right that in suburban areas McDonald’s restaurants can be clean and absolutely charming for families.
    I think Starbucks will not last as a coffee shop chain. I think it is a strong brand, though, and that they’ll get into trying to be the new “Folgers” where they focus on worldwide distribution and leave the stores to rot. “Starbucks coffee at McDonald’s” has a nice ring to it. 😀
    Then they’ll expand into other brandings to keep the name alive in the minds of those who were once able to share in their former glory.

  25. What do you all think about Starbucks acquisition of Clover? It doesn’t sound like a smart move to me especially in this economy.
    But I’m no expert on the coffee business.
    Gordon, is any cup of coffee worth $20 or more?
    I guess I would need to taste the coffee before making an assessment on that.
    What’s the most anyone here has ever paid for a pound of coffee? I once paid 16.99 a p0und at a local gourmet shop. My 81 year old father who was visiting from New York thought I was crazy. He’s a loyal Lipton tea man and Maxwell House is good enough for him. . . I’m a spoiled brat! When I want to save some money I buy Millstone coffee at around 6.99 a pound. Otherwise it’s Earthfare, the Fresh Market, or the Extra Ingredient for the good stuff!

  26. You’re years ahead of me, David. LOL at the thought of you swiping someone’s cup of nasty coffee. But I will reheat old coffee that’s been sitting in the carafe. Yummy! I don’t like to waste coffee or any sort of food for that matter.
    I’m married to a math major who understands numbers and finances inside out. No “man math” in our house. Though he pulls the “time” thing all the time. I’m leaving in 15 minutes and then no telling when he gets home from the golf course in Osh Kosh, North Carolina.
    You had a different set of posters back then. You seemed to have a nice connection with them.
    How will I ever catch up here? How will I ever find a topic that you haven’t already covered?

  27. dmtessi —
    I, too, can’t stand to see good coffee go to waste. It’s always better to save it in your stomach than toss it down the drain.
    Your husband needs to learn the New Man Math! He doesn’t know what he’s missing! :mrgreen:
    It is interesting to watch people pendulum in and out. It can be disorienting, sometimes, as regulars move along and new people arrive. It teaches you to live in the moment and not yearn for the past or hope for the future. You get focused on, “Who’s here now, and what are they saying?”
    You’ll catch up! We have covered many topics multiple times, so don’t sweat writing about the something presented here before. All viewpoints are different and each deserves its own publication.