Starbucks Slides Down Slithery Slope

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Starbucks just introduced their first instant coffee, called Via Ready Brew. This is a significant move for this once high flying company that is now struggling to get back on the growth path. Will Via rescue them? Is it the answer to their growth problems? I doubt it.

Starbucks started off as a company that brought specialty coffees with great flavors to many suburbs and neighborhoods, first in America and then to the entire world. It became synonymous not only with great tasting coffee but also for the great customer experience. They provided a tremendous variety of coffee based drinks made to order in a showbiz kind of way, their own lingo and a welcoming atmosphere and ambience that made Starbucks stores a gathering place for businessmen, professionals, homemakers and a networking hub for the unemployed.

My local Starbucks even became an informal office for a couple of web designers and construction contractors. Another distinctive feature of Starbucks were the baristas, who seemed to love coffee, were loyal employees who recognized regulars and remembered their drink preferences. Starbucks also projected a high degree of social responsibility and consciousness that endeared them to their upscale customer base. This made for loyal customers who were willing to pay significant premiums on what had hitherto been thought of as a commodity. Starbucks had a winning formula, helping the stock take flight and reach very desirable heights indeed.

Then greed took over. Talk about killing the golden goose. Starbucks certainly did that with a vengeance. In a bid to grow fast at all costs, they opened stores almost indiscriminately, sometimes within yards of each other. This included drive-ins and franchised stores in heavily trafficked areas like airports and discount stores like Target. They sometimes did not accept Starbucks cards (some still don’t). The employees were no different from the ones in the same terminal selling pizzas or fries. They probably did not even know they were “baristas”. Turnover suddenly increased, so baristas had no chance to tell who was a frequent customer leave alone how they liked their drink. Dunkin Donuts and McDonald’s started brewing and selling decent coffee at normal prices, chipping away at more cost conscious customers who wanted a good tasting cup of coffee but without the ambience and the experience. On the high end, specialty coffee houses like Caribou Coffee (www.cariboucoffee.com) successfully replicated Starbucks’ original formula and seemed to care more about their coffee and customer engagement. No wonder Starbucks got squeezed. Growth hit a wall, the stock slid and the founder had to come back to the rescue.

Starbucks did do a few things right. Mystarbucksidea.com was a successful effort to elicit customer feedback and suggestions as well as set right some of the problems that had cropped up. Starbucks Gold was an interesting loyalty program, although poorly executed. However, a significant amount of the mystique has been lost.

Which brings us back to instant coffee. Of course, they claim it is every bit as good as brewed coffee. However, that misses the point. Remember new Coke? I have to admit I am old enough to remember that fiasco. It was thoroughly taste tested and found to be superior to classic Coke. Well, customers wanted none of it. Via Ready Brew sounds like Starbucks is now taking the battle to McDonalds and Dunkin Donuts. Is that really the battleground they want to fight in? Do we know of any brands that have gone down market and thrived? I can’t think of any.

Yes, there might be a temporary bump in revenues, but once the novelty value wears off this will hurt the core brand and its equity. What next? Orange plastic seats to discourage customers who spend too much time lingering in the store? It is not just about the product, it is about the entire experience. Instant coffee will not help Starbucks regain its magic, re-engaging customers will.

Starbucks will continue to slide. Stay tuned for continued store closings and less friendly baristas. When you wake up, you may want to smell a different kind of coffee.

I expect there are many Starbucks fans out there who disagree. I would love to hear from you.

Naras Eechambadi, Ph.D
Dr. Naras Eechambadi is the founder and CEO of Quaero, a world-class data management and analytics platform empowering enterprises to integrate, discover and democratize their customer data. He is a life-long technologist and entrepreneur with over three decades in the software products and services industry. He has been awarded numerous distinctions as both a marketing executive and entrepreneur. Naras is also the author of a critically acclaimed book, High Performance Marketing: Bringing Method to the Madness of Marketing.

2 COMMENTS

  1. Naras

    I think you hit the nail on the head when you suggest that customers will decide Starbucks’ new ventures’ fate (even if you were talking about New Coke).

    Putting Starbucks’ over-aggresive expansion aside, I assume that they have done their homework, have looked at what customers’ want from coffee at home and have crafted a new product that fits their needs. There is no reason why a product extension of this type cannot do well in a market that they do not currently serve. Just look at the success of McDonalds extension to McCafe – my coffee house of choice today.

    And there is also no reason why a cheaper, no-frills product cannot do well either, particularly if the market is already heavily overserved with over-priced products. This type of disruptive innovation is the same strategy employed by Southwest Airlines all those years ago. Now they are worth more than all the US airline majors put together.

    The customer is ultimately the one who will decide if Starbucks’ new venture succeeds. If Starbucks has really understand customers’ needs and has created just the right product in response, there is no reason why they cannot be successful. That’s a lot of ifs. We will just have to wait and see.

    Graham Hill
    Customer-driven Innovator
    Follow me on Twitter

    Interested in Customer Driven Innovation? Join the Customer Driven Innovation groups on LinkedIn or Facebook to learn more.

  2. Graham,

    I agree with you that customer will decide. I am also willing to bet that Starbucks did their homework and this new instant coffee satisfies a significant need in the market place.

    I guess the bigger point I was making (probably not well articulated) was that Starbucks seems to have forgotten its roots and lost its way. In my view, there were always two important elements to their success. The quality of the coffee and the quality of the customer experience. I think they have sacrificed both in their quest for growth at any costs. the new coffee may help them stem the loss of customers, like you, to the likes of McDonalds. However, without a coherent strategy and uniqe positioniong, they will not regain their market leader position and those enviable margins.

    Naras V. Eechambadi, Ph.D.
    email: [email protected]

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