Nov 18, 2008

Economic woes brewing for Starbucks

by Katy Palmer

Seattle-based Starbucks announced on Nov. 10 its profits dropped during the fourth quarter. Within the past year, Starbucks also closed multiple stores and over 1,000 jobs were lost.

An obvious cause for the drop of coffee sales is the suffering economy. Even though prices of Starbucks products have remained the same, they have seemed a little steeper as the country entered recession. Starbucks recognized its appeal declined due to the shaky economy. However, instead of tinkering with stores prices, the company tried another tactic.

On top of closing stores and laying-off employees, the company introduced new products like smoothies and pastries. I assume that with this addition, Starbucks was attempting to attract more customers than just the average coffee drinker.

Amidst the drop in profit, Starbucks executives do not seem too concerned. Right now they are focused on the number of people to come through the stores, no matter what they purchased. For example, on election day, anyone that voted received a “tall” coffee.
The reasoning behind this advocacy is simple. Starbucks wants people to walk into its store, people that would not necessarily stop in, to experience the Starbucks atmosphere.

“We appear to be more resilient than many other premium brands … we are encouraged by our ability to drive increased traffic at relatively low cost…” former Chief Executive Howard Schultz claimed, according to a New York Times article.

Yet, the numbers reflect this campaign’s inefficiency. I will be the first to admit that my coffee habits have changed over the past year. Once a Starbucks regular, I have spent more time in the coffee aisle at Wal-Mart, debating between which flavored drip coffee I wanted to try.

But, I do splurge every now and then. Sometimes I just need the little extra kick that comes from ground espresso. When I want a cup of coffee, I also want a relaxing atmosphere in which I can enjoy it. So, if I have the choice, I tend to choose some place other than Starbucks. Here’s why:

One big change about the newer Starbucks stores is the implementation of the drive-thru. Similar to any fast food joint, customers can order, pay and receive their food or drink without having to get out of their car. This change to the store implies that Starbucks catered to the businessman, a person looking for in-and-out convenience.

However, this campaign is leaving out an entire group of coffee drinkers: those who value the ability to sit and enjoy their cup of Joe in the coffee shop itself. The “dine-in” aspect of coffee shops gives them appeal.

It is safe to assume that the shaky economy led too much of Starbucks’ profit loss. But, I would argue that its attempt to combat the lost sales could also be a cause. The shift away from a personal, dine-in experience makes the coffee shop resemble a chain fast food joint.

I believe that Starbucks still has the customer in mind; yet, I feel that the company focuses on getting the customer out as fast as possible, instead of allowing him/her to savor the taste of fresh brew.

 


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