So Long, and Thanks for All the Drugs12 Nov 2008
So here I am, thinking about the Starbucks business model, and how they could see a 97% fall in gross profit. Let's take a look:
Starbucks doesn't sell that much coffee, really. They sell milkshakes and cream and other high-sugar, high-fat substitutes. Like all drug-dealers, they eventually weaned their customers onto the hard stuff. Except that black(crack) coffee doesn't require the glitz and glamor of going to Starbucks. Most offices give it away for free. Hell, pretend you're going to buy a Prius and they'll give you a cup of coffee at the dealership for free.
Starbucks was a part of the golden days of of the Coffee-Rush. People were excited that what was once a bitter, uncomfortable drink could be made delicious with just a few dozen grams of fat and sugar. So an entire generation on the verge of giving up coffee for energy drinks and caffeine pills came swarming back.
But then they went black, and you know what they say. "Once you go black, you never go back." True enough, people could get their fix anywhere, and suddenly the Starbucks empire crumbled around the bleach-tipped heads of its Baristas. Why go to Starbucks for long lines and bad music when you can get your coffee (even your iced vanilla late) at McDonalds or Jack-in-the-Box for half as much? And sure, throw on an egg and a muffin, too.
Starbucks was a victim of its own success. Coffee became so popular that you could get it anywhere. Technology (paid for, in many cases, by Starbucks) improved to the point where a strung out monkey with no thumbs could brew you a perfect double-soy, half-caff latte with sugar-free caramel and non-fat foam. Even low-end delis became "coffee bars", and in doing so people sought alternatives.
As consumer choice multiplied, flaws (real or imagined) in Starbucks began to emerge. Everyone became coffee snobs, and Starbucks, once a healthy margin above Folgers Crystals was now dropped to the level of the 4pm re-heated pot at Denny's. People discussed how the region didn't have a good rainy season this year, or how they roasted it a little to warm, or not long enough, or too long, or ground it too finely, or any number of other minutia to justify going someplace besides Starbucks. Anyplace, really.
And that, my friends, is how Starbucks was lost. The built a market, and rather than growing with it, acted like they were still wooing customers away from boiling water at home and mixing in a sand-colored powder to get a "cuppichino", and failing to realize that once you can get a "Starbucks-quality" cup of coffee everywhere, it becomes a commodity. Smug satisfaction is gone, as is the sense that it's somehow "worth" $3.75.
You know what they could do to fix it? Re-brand. Turn 1 in 10 Starbucks into a "Starbucks Experience". Lower the light levels. Put in all-leather furniture. Kill the pop music, and stick with low volume ambinet jazz. Carpet everything, and make the machines quieter. Make Starbucks what it used to be, a destination, not merely a vendor. Charge 20% more for the coffee, but use "higher end" beans, for every drink. Use organic milk. Use syrups that aren't just Tornai's, or if you do, hide it by putting them in curved pitchers. Limit the crowd size, limit seating. Use soft, overhead lighting above each table and chair. Only let natural light in through diffused curtains, and use double-pane windows to block street noise. Serve coffee at the tables. Allow people to run a tab (even if it's done thorugh a Starbucks credit-card). Create the impression that this is somehow "above" merely Starbucks, this is a Starbucks Experience. This is a place to be away from crowds, better than the common man. Somewhere that only a certain "class" of customer comes. A sanctuary. Over time, convert all your stores. Enjoy another 10-15 years of astronomic profits, then call me again.
Or just watch your stock price fall until you're bought out by Proctor & Gamble. Whichever.