Did Starbucks stop being cool?

We think something more than recession led to Starbucks announcing it will shutter 600 stores in the U.S. Two years ago Starbucks was the darling of Wall Street, with management-guru books out almost every day, expansion into music and DVDs, a stock pumped to $39.63 per share (up from a split-adjusted $0.53 back in 1992), and brand partnerships with everyone from Apple to Jim Beam.

Today, Starbucks’ stock is off more than 60% from the height, like the cresting bell curve of a consumer fad. Some have criticized Starbucks for over-expanding stores, or stretching its products too far into dishware, CDs and breakfast sandwiches, or even rethinking its logo.

We think competitors caught up. Starbucks shook an entire industry by making the consumer experience part of the food buy. But soon McDonald’s launched gourmet Newman’s coffee and redesigned its stores. Dunkin’ Donuts added wood paneling and gas fireplaces. Heck, our local Stop & Shop grocery now has oak floors.

It’s a puzzle for competitive design: You can copyright a logo, but how do you copyright a customer experience? The sensory delight of the fragrant, earthy, green point-of-purchase environment became just another commodity. Sort of like a cup of coffee.

Photo: Dan LaMee. Via Bill Green.

5 thoughts on “Did Starbucks stop being cool?

  1. Starbucks didn’t just over-expand beyond the sustainability limits of their target market; they over-expanded beyond the sustainability limits of their own corporate infrastructure. As they opened more and more stores, their product became less and less consistent.

    Without a consistent product, how could they possibly maintain consistently high levels of customer satisfaction? They can’t — and I believe that’s what hurt Starbucks more than anything else.

    At least that’s my take on it. I travel quite a bit, so I’ve been a witness to that inconsistency for quite some time – one store at a time.

  2. Michael Porter agrees, noting in Competitive Advantage that there is a common trap for niche businesses that grow rapidly. He calls it becoming “stuck in the middle” — you aspire to reach masses and expand, and walk away from the niche focus that gave you initial success. By trying to appeal to everyone with many products, you lose what made you appeal to the few.

  3. Starbucks became too much of a slave to what public investors wanted – growth. I believe they sealed their fate when Howard took them public. He wanted to have his latte and drink it too. Too bad. You also make a great point about how the Starbucks “experience” got commoditized, on top of everything else. Now let’s see what Howard does – should be interesting. Thanks, great blog, and all the best.

  4. Thanks, Terry. BTW I’m in northern Maine this week, took the kids to a McDonald’s … and damn if the place didn’t look exactly like a Starbucks. Something about green, brown, wood and steel makes me feel like I’m getting more for my money.

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