Sunday, August 3, 2008

Starbucks - No Longer Innovative

In early June I posted under the title, Starbucks Is Dead. In that post I explored how, for me as a consumer, the experience had changed, and I was walking away from my favorite coffee. I expressed some hope that they would return to innovative greatness under the newly resumed leadership of Howard Schultz, the original founder. Well, things have taken a decided turn for the worse; Starbucks posted its first ever loss last week, and announced the closing of over 600 American stores, and nearly all its Australian ones. Don’t Aussies like coffee?

The closings might be a smart move in the long run. Schultz undoubtedly has gotten that advice from the bean counters (no pun intended). Starbucks has grown awful fast, and the stand-up joke about their locations holds some truth, that’s why it’s funny (”did you hear where the new Starbucks is gonna be…in Starbucks”). Former CEO Jim Donald was a bit growth crazy and has been quoted as saying his big mistake was not growing fast enough in the international market — because it would have balanced the USA slowdown. Perhaps, but for me that kind of thinking is exactly what slow-roasted their quality, their biggest asset.

What bothers me, and what I think bodes ill for them moving forward, is that Schultz says “the experience hasn’t changed.” He blames things on the recession which is having people pinch pennies and not buy expensive coffee. I’m sure his market research department is telling him this is true, and, I would say the research is missing something, is asking the wrong questions of consumers. Small indulgences are what people can afford when times are tough, so, blaming the recession doesn’t ring true to me. I suppose Schultz has to say that for the benefit of the street — admitting they’ve lost their way in providing a great coffee experience would send their stock even lower. Still, how about some transparency, how about returning to the style of game that got them to the level of success they enjoyed for so long. That style was all about really great coffee. Believe it or not, you can go into a Starbucks in the afternoon and not be able to get a fresh brewed cup of bold flavored coffee. It is sometimes a special order, which they will do, but hey guys, the reason people go to Starbucks is for Strong Coffee. If I wanted the middle of the road stuff I could go anywhere.

I also question all the closings. Why not get creative about making those shops more profitable? It would be innovative for them to create a new model for site profitability instead of slam dunking the marginal locations in the poop can. All those shuttered stores are a real black eye for their image as a corporate good guy. Even granting the impact of the recession on stores, I don’t believe they’ve done enough to create new profit centers. If they had been more creative in new product development, if they had worked harder at keeping the experience fresh, fun, and enjoyable, they wouldn’t be in the spot they are now.

Starbucks is not going to slash its way back to the top; the way they win is to re-invent the experience, re-create something surprising and cool. The market isn’t going to reward them with a better stock price until they do. Time to wake up and smell the coffee Starbucks — and make it a bold brew — time to start innovating fearlessly.

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