Friday, November 16, 2007

Starbucks Down the Drain

One of the best parts about being an iconoclast is enjoying the naysayers who dump on remarks that are grounded in truth. I can't help it. I enjoy watching lemmings in denial jumping on the popular media bandwagon, only to tumble when the wheels fall off.

Such is the case with our friends at Starbucks, whose fortunes of late have been anything but fortunate. In case you're just tuning in, "everyone's favorite cup of coffee" has been dumping its value down the drain. In the twelve months previous to this writing, the stock that everyone continues to pronounce as "one of the best brands in America" has lost close to half its value.

Hmm. Why could that be?

Clearly, Starbucks' ever-rising prices over the last decade couldn't be nickel-and-diming its income statement to death. After all, if you're willing to pay three or four bucks for a latté -- or if you're cheap like me, a buck and change for a tall drip -- another quarter isn't going to change your behavior. Starbucks has been charging premium prices for its brew since well into the last century. We're used to it. We don't mind it.

Of course, if you were paying attention back then, there were telltale signs that Starbucks' high-flying days were numbered. Not because they couldn't purchase enough premium beans. And not because they couldn't hire enough young, overly-caffeinated baristas to process your order.

It was because Starbucks has no genuine brand. Never did.

Ah, I can already hear the whining of marketing and advertising people objecting to that last sentence. Here I am, blastpheming what posers and pundits have worshipped as a "great example of branding," when in fact I warned Starbucks publicly years ago that their lack of brand would eventually do them in. Nobody listened then. And nobody will listen now. But the truth will always out.

Here's the deal on Starbucks and its brand:

What everyone likes to call branding is, especially in Starbucks' case, nothing more than identity. When it comes to knowing who Starbucks is, there's no problem. But that's not a brand's - a real brand's - true function. That's advertising's function. Advertising is the means for raising a brand's awareness. But no amount of marketing or advertising or public relations can sustain a brand's growth if they raise awareness without making people understand why the brand is "the only solution" to their problem.

To this day, there is not one person who can accurately and consistently articulate why Starbucks is preferable to other competing brands. Not the average yutz in the street . Not the Vice President of their ad agency. Not even the CEO of Starbucks himself. And you can bet that if they can't articulate why Starbucks is "the only solution," nobody else in this great land of ours can, either.

And if millions of caffeine addicts can't articulate it, do you think the financial geniuses of Wall Street can? Of course not. They just look at the numbers and panic.

Which means that no matter how fast Starbucks dances, the Titanic will keep sinking. Sure, they'll try all kinds of cross-merchandising with all kinds of products they hope and pray will add to their coffers. But until they've defined why Starbucks is the only solution to their prospects' problems, Starbucks will keep playing hit-and-miss. There are only so many unemployed writers that can occupy floorspace with their laptops before a store's per-square-foot revenue sinks like a proverbial stone. And single women reading novels in hopes of getting a date don't do much for improving the bottom line, either.

When you put it all together, the picture isn't all that rosy for Starbucks. McDonald's will be coming out with high-priced coffee soon enough. Dunkin Donuts is already massing its troops along the border. And both of those brands have more to offer than the only thing Starbucks ever did -- a good cup of coffee.

Where there's no brand articulation, there is no strategy. And where there's no strategy, there's little chance of growth. Which means that while Starbucks may continue to brew a hot cup of coffee, their future is more than likely leave its investors steaming.


Anonymous Anonymous said...

Just read this post after you linked to it on Twitter.

I totally agree with your reasons for Starbucks problems (I don't quite agree with your identity/branding distinction, but that's probably because I have a different understanding of brand identity).

Starbucks really failed to give people reasons why they're THE coffeeshop brand. That was really obvious when they entered the European market where they had to deal with totally different competition. And that's why McDonald's had such an easy time introducing McCafé.

1:22 PM  
Blogger Meg said...

As an occasional Starbucks customer, I go there because I want to feel like I'm indulging. I'm frugal, I know it's expensive, but I'll pay $6 to drink away my sorrows and escape to mocha frappucino land. And because I'm treating myself, chances are I'll buy a massive brownie, too, and goodness knows what else that I don't need.

The LAST thing I want is for them to remind me of my frugality and their expensive prices by touting ways that I can "save" money when they're not going to ever be the cheap brand. And if I wanted cheap, I'd just go to McD's.

What I want from Starbucks is more unique experiences, better quality goods, and enough reminders about their eco-friendly, fair-trade do-goodings that I can feel smug while sipping an overpriced coffee.

On a related note, I once tried a sandwich at a rest stop Starbucks. Big mistake! It just about destroyed all my Starbucks fantasies with it's stale, tasteless badness. Just another reminder, you have to focus on quality all the time if you're going to be a quality brand.

4:58 PM  
Blogger Pat R said...

interesting thoughts on branding versus identity, not sure if i agree with you tho

1:56 PM  
Blogger Rob Frankel said...

Well, as long as you don't have any stock in the company, my work here is done! On the other hand, if you're Howard Schultz in disguise, I do have a toll-free number! :D

2:09 PM  

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