ValuePlays

This is a joke……. Not too long from now business school students will be doing case studies on the “destruction of the Starbucks (SBUX) brand”.

Remember this memo?

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.

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. For example, when we went to automatic espresso machines, we solved a major problem in terms of speed of service and efficiency. At the same time, we overlooked the fact that we would remove much of the romance and theatre that was in play with the use of the La Marzocca machines. This specific decision became even more damaging when the height of the machines, which are now in thousands of stores, blocked the visual sight line the customer previously had to watch the drink being made, and for the intimate experience with the barista. This, coupled with the need for fresh roasted coffee in every North America city and every international market, moved us toward the decision and the need for flavor locked packaging. Again, the right decision at the right time, and once again I believe we overlooked the cause and the affect of flavor lock in our stores. We achieved fresh roasted bagged coffee, but at what cost? The loss of aroma — perhaps the most powerful non-verbal signal we had in our stores; the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer, and once again stripping the store of tradition and our heritage? Then we moved to store design. Clearly we have had to streamline store design to gain efficiencies of scale and to make sure we had the ROI on sales to investment ratios that would satisfy the financial side of our business. However, one of the results has been stores that no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store. Some people even call our stores sterile, cookie cutter, no longer reflecting the passion our partners feel about our coffee. In fact, I am not sure people today even know we are roasting coffee. You certainly can’t get the message from being in our stores. The merchandise, more art than science, is far removed from being the merchant that I believe we can be and certainly at a minimum should support the foundation of our coffee heritage. Some stores don’t have coffee grinders, French presses from Bodum, or even coffee filters.

Now that I have provided you with a list of some of the underlying issues that I believe we need to solve, let me say at the outset that we have all been part of these decisions. I take full responsibility myself, but we desperately need to look into the mirror and realize it’s time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks experience. 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.

So, this was the “new” direction Howard Schultz was taking the company in March 2007.

Fast forward….

From the NY Times:

Starbucks is moving into the instant coffee market as it works to shake off its reputation as a seller of expensive coffee drinks.

The company, based in Seattle, plans to unveil Via instant coffee on Tuesday and make it available next month.

Starbucks says Via was in development for 20 years and replicates the taste of its coffee. Three single-serve Via packets will cost $2.95, and 12 packets will be $9.95.

The move pits the company, which already sells its coffee beans in grocery stores and in its own shops, against giant food sellers with established instant coffee brands, including Nestle, the maker of Nescafe, and Kraft Foods, the maker of Sanka.

Instant coffee, which Starbucks says has a $17 billion global market, was more popular decades ago in the United States and remains a staple in parts of Europe and Asia.

“Starbucks is trying to go where the customer is,” Tom Forte of the Telsey Advisory Group said.

Starbucks is “giving a customer an opportunity to experience the brand at a lower price point,” Mr. Forte said. “The company is being aggressive in trying to generate sales in an increasingly weak economic environment.”

Simple analysis is that Starbucks once again has no idea about its market. “20 somethings” do not “trade down” to instant because a Starbucks label is slapped on the package. Nor will your 80 year grandmother switch from her Folgers to pay 3 times as much for Starbucks instant. Mystifying…

This does not move the needle on people’s thought process from “expensive” to “value”. It moves it from “quality” to “crap”. Somewhere McDonalds (MCD) exects are laughing their asses off on this one

Nice job Howard….

Disclosure (“none” means no position):Long MCD, none

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