In the last recession and, certainly, during the Great Depression, a cup of coffee was cheap. During the Great Depression it was a nickel, and then, depending on what other recessions we are talking about, a cup of coffee was an inexpensive way to take a moment to yourself and nurse your thoughts on the tough economic times. You could sit and sip, maybe talk with other people, never thinking that cup of coffee was any kind of investment.
Then along comes the premium coffee. Not only was it a couple of bucks a cup, but chances were there was no one to talk to. The guy at the counter at the old Chock Full a’ Nuts, or the Horn and Hardot’s certainly didn’t mind exchanging some gossip about current events. Then he probably looked forward to it. There were no laptops and cell phones for distraction. There was only the sound of sipping and the opportunity for casual conversation. With a stranger.
Well, almost none talks to strangers anymore. People just sit there, barely looking around, almost afraid to mingle. And coffee was far from cheap. It was almost an investment. Regular coffee was a couple of bucks, but then call it mocha or latte, and you were really running up a bill. Amazingly, people stood in line waiting for the privilege of buying so called “premium” coffee at high prices.
But that was then and this is now. Now the granddaddy of the modern coffee shop, Starbucks, is suffering a 9% decline in sales. Starbucks is undergoing fierce competition. First from the Peete’s , Coffe Bean and Tea Leaf, and Seattle’s Best of the world, to name but a few. And now McDonald’s and the old standby, Dunkin’ Doughnuts, is making a run at the morning coffee set. They, too, are now offering premium coffee. They are selling it cheaper.
So now Starbucks must counter the offensive. They are not lowering prices but offering loyalty programs. They are offering a Gold Card Program that for $25.00, annually, gives you rewards and 10% off of most purchases. What it does not give is about 20 cups of offee that the $25.00 would buy at the other McDonald’s and Dunkin’ Doughnuts.
Al Ries, longtime marketing and branding maven, doesn’t necessarily agree with this strategy. He thinks all the deals and loyalty programs make the brand seem too expensive in the first place. Otherwise, why the deal? For reasons of my own, and since I am a reader of his books and a fan of his, I will have to go along with Al Ries on this one.
So what’s this all mean? It means, your business is just cruising along until conditions and times thrust a stick into the spokes of your bicycle wheels. Starbucks first response was to first market lower priced, plain old coffee. That didn’t work, really. Especially, since the economy got worst and people felt they could get plain old coffee anywhere. So now it’s the loyalty program. We shall see.
There are many reasons why Starbucks is faltering. As one soul who commented over a previous article about Starbucks, operational inefficiencies and other elements have to be factored into the overall equation. But the fact remains, whatever the reasons, there was lack of insight and recognition of the future threats and obstacles. Or the challenges and threats were ignored.
I don’t know who is marketing for Starbucks, but I agree that the loyalty program just won’t cut it. Some serious retrenching has to take place. For one thing, a customer has to feel they are benefiting from the experience. Standing in line for expensive coffee, may not offer the benefits for which people are striving. The same-same of the physical environment may be terrific for initial branding, comforting even, but after while, for me, anyway, it gets awfully boring.
If you have a business you can learn a lot from this example. The first thing is not to lock yourself into a box you may later find difficult to escape from. You should be sure your marketing department has the skill sets and sensitivity to be in touch with the times. To know what people really want, especially in an economic downturn. And you should figure out a way to give it to them.
Hire the right people. Background checks will reveal some aspects of behavior, but professional reference checks will reveal skill sets. Confront the problem. Recognize that it is a problem. Recognize that mere cosmetic repairs will not fix that problem in these economic times. You don’t want to totally revamp your business model, but you may want to do some serious tweaking. In all, don’t get caught with your proverbial pants down. It’s a harsh, cold economy. You could catch a draft.
2 replies on “Waking Up to Smell the Coffee”
You completely missed the mark on Starbucks.
It’s not because people are tiring of paying a lot for better coffee. It’s that Starbucks sold its soul to grow at all costs, replacing everything that made it an elite brand with everything that allowed them to hire lowest-common-denominator employees to keep the doors open. And they hired them with as little skill as possible, for as low a wage as possible, producing a weaker and weaker product until it became so factory-automated and ubiquitous that it was just fast food’s mutant answer to highbrow coffee.
Fast food isn’t elite. Fast food isn’t a good experience. Fast food is second-rate quality at best. And by becoming a fast food equivalent, Starbucks invited competition from all the fast food sharks who have been playing that corporate game for years and thriving at it.
Therein lies the lesson of this tale.
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