Starbucks:Company May Be 'Commoditizing' Brand

Discussion in 'Wall St. News' started by S2007S, Feb 25, 2007.

  1. S2007S


    Starbucks Chairman Sees Danger to Brand
    Friday February 23, 5:12 pm ET
    Starbucks Chairman: Company May Be 'Commoditizing' Brand

    CHICAGO (AP) -- In a blunt memo to executives, Starbucks Corp. Chairman Howard Schultz warned that the fast-growing chain may be commoditizing its brand and becoming more vulnerable to competition from other coffee shops and fast-food chains.

    Schultz sent an e-mail to top Starbucks executives on Feb. 14. with the subject line "The Commoditization of the Starbucks Experience." It first appeared on the Web site A Starbucks spokeswoman confirmed the memo's authenticity.

    "Over the past ten years, in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand," Schultz wrote in the memo.

    "Many of these decisions were probably right at the time, and on their own merit would not have created the dilution of the experience; but in this case, the sum is much greater and, unfortunately, much more damaging than the individual pieces," he wrote.

    Schultz went on to write that when the company switched to automatic espresso machines -- which are now in thousands of its stores -- "we solved a major problem in terms of speed of service and efficiency," he wrote. "At the same time, we overlooked the fact that we would remove much of the romance and theatre." Starbucks used to have all its baristas pull espresso shots by hand.

    That move "became even more damaging" because the new automatic machines "blocked the visual sight line the customer previously had to watch the drink being made, and for the intimate experience with the barista," he wrote.

    Schultz wrote that Starbucks switched to a "flavor locked packaging" for its coffees that eliminated the task of scooping fresh coffee from bins in stores and grinding it in front of customers. "We achieved fresh roasted bagged coffee, but at what cost?" Schultz wrote. "The loss of aroma -- perhaps the most powerful non-verbal signal we had in our stores."

    Schultz also wrote that changes in the store design process had created "stores that no longer have the soul of the past ... Some people even call our stores sterile, cookie cutter," he wrote.

    "While the current state of affairs for the most part is self induced, that has lead to competitors of all kinds, small and large coffee companies, fast food operators, and mom and pops, to position themselves in a way that creates awareness, trial and loyalty of people who previously have been Starbucks customers. This must be eradicated," he wrote."

    "Let's be smarter about how we are spending our time, money and resources," Schultz wrote toward the end of the memo. "Let's get back to the core."

    Starbucks spokeswoman Valerie O'Neil said the memo is "a reminder of how success is not an entitlement. It has to be earned every day," she said. "We can't embrace the status quo."
  2. Great article. I absolutely knew this would happen eventually.

    Starbucks, in my very humble opinion, is going to come under tremendous pressure now.

    They will always have what they've always had - their core customer base in highly urban areas.

    But they have growth issues, and may even lose 'peripheral' customers.
  3. Surdo


    I go to a local coffee house across the street fom a Starbucks.
    It has better coffee, better food and FREE Wi-Fi.
    Oh, and the manager chic has a crush on me so I get free cookies a few times a week.

  4. S2007S


    Some of these companies think they can contain a loyal brand forever, you can only grow so much before you eventually saturate the market place. I actually laugh at the people who drink starbucks paying 3-5 bucks for a cup of coffee. I dont comprehend it. Starbucks only has a few competitors, Dunkin Donuts, Peets and Caribou. None of them have done much to compete with starbucks, however starbucks would have a really tough time if they met a real competitor in the next few years.
  5. Dunkin Donuts coffee tastes 1000% better than Starbucks, to my tastebuds.

    Starbucks tastes like it is burnt.

    I think Dunkin Donuts could really take market share away from Starbucks if they revamped their stores on a national basis and picked out better locations.
  6. S2007S


    I dont drink coffee but I do know many people who do like Dunkins coffee over starbucks. They would need to do a huge makeover for dunkin, dunkin is a get in and get out kind of place where starbucks has more of a relaxing environment.
  7. Have any of you guys tried Tim Hortons and Country Style coffee North of the border. If you think Dunkin Donuts/Starbucks coffee is good your in for a big surprise.:)
  8. We have Tim Horton's here in Michigan. I think their coffee is just okay - just my opinion. It's still better than Starbucks.

    Actually, I did try McDonald's new premium coffee, and it's very good.

    S2000 - You're right about DD. Most are run down.
  9. Hmmm... taste is obviously personal but I can't say I think that Tim's coffee is comparable to any of the 'specialty' coffee places.

    That said, I went out to rural Alberta last month and offered to go on a coffee run for the folks I was with. There was a newly opened SBUX in town, so I asked them which coffee they wanted. Majority opinion was for Tim's. People out there felt SBUX was too strong.

    btw... was everyone aware that dark coffee has less caffeine than lighter coffee? I was ordering 'mild' in SBUX because I wanted less caffeine until an employee told me that the 'bold' actually has less caffeine! Apparently 'mild' and 'bold' refer to taste only.

    Also btw... a cup of coffee in SBUX up here is $1.98 CDN, and that's a medium.
  10. I would be embarassed to go into an SBUX store. Yes I've had their coffee at hotels (who serve it) and a hot chocolate or 2 when someone wanted to meet me there. But I will never go in there of my own free will.

    At the airport I buy their scones from the outlet sometimes (cost is 1.85 or so and it's a good size).


    #10     Feb 25, 2007