Sometimes the headline gives all the spin you need to know. Our spin here is on the same story published yesterday in the NY Times Business section: Starbucks Prospers by Keeping Pace With the Coffee Snobs – The New York Times. Except we’d like to think our spin has a slightly different, less investor-relations-for-PR take.
The good news for Starbucks is that they’ve returned to financial growth after years of stagnation. But make no mistake about Starbucks’ brand extension failure after failure in getting here. They’ve failed at virtually all of their major market expansion attempts beyond coffee: movies and books, music, beer & wine, food (ZOMG, BBQ?). These failures are major blows to Starbucks’ continued growth plans. Because just like their mature fast food brethren, Starbucks has reached a saturation point with their core (coffee) products.
For example, let’s compare Starbucks with Taco Bell. Starbucks is expected to maintain same-store sales through the old marketing hack of continually introducing new products, such as cold brew coffee or the Chestnut Praline Latte. (Hence why the words “new” and “innovation” should never be associated with good coffee.) This is their equivalent of when Taco Bell introduces DareDevil Loaded Grillers in Mild Chipotle, Hot Habanero and Fiery Ghost Pepper flavors. But to truly grow their business, Starbucks needs to do more than just coffee. In Taco Bell terms, this is akin to their recent mad foray into breakfast menus.
Thus reading that “Starbucks Prospers by Keeping Pace With the Coffee Snobs” through their Starbucks Reserve program is akin to defeat. Eight years ago we pondered Starbucks introducing “Starbucks Select” concept stores as part of their eventual desire to claw their way back into the quality coffee market — the very market they so wantonly abandoned for the mass-market race to the bottom over a decade ago. This would be like Taco Bell saying that they are going to focus more on up-market tacos for growth.
Thus instead of expanding into new categories, Starbucks is retreating to its original basics. But with the commodity-quality coffee market already saturated and its growth stagnating, Starbucks is now seeking growth by going up-market and competing with smaller, more nimble, and ever-more established independents in a higher quality market they conceded long ago. Except since it is Starbucks we’re talking about, it is more likely aiming to compete with the indie-turned-corporate darlings of Stumptown or Intelligentsia.
Keep reading the NY Times piece, and you’ll encounter absurdities such as, “Starbucks’s size gives it an edge in securing the best beans. They can do what the smaller competitors can’t.” Oh really? As a bigger company, they are actually at a disadvantage at dealing with smaller family farms producing higher quality beans. For them, working with Starbucks is akin to trying to do business with NASA. And for Starbucks, dealing with such small, piddly providers is grossly inefficient and expensive compared to the supply chains they’ve optimized to supply tens of thousands of global coffee shops with near-identical products.
The piece even ends with an ode to mobile payments and delivery services — which have nothing to do with quality and everything to do with quantity, convenience, and transaction volume.
It just goes to show you how the same data can be interpreted so differently, depending on your perspective. Even if Jim Cramer would be proud.