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by Online Editor | Scotland

on Aug 6

The results are in ... and the future for Starbucks isn't bright

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The announcement by Starbucks recently that they would be closing 61 out of 84 stores across Australia received plenty of coverage in the mainstream press and also in the blogosphere - if you don't believe me (and were, perhaps hiding under a rock last week) just take a look at the list of articles below.

There's been quite a bit of speculation around what Starbucks' long-term plan for coffee in Australia is, especially considering their strategy up to this point has seen the company in Austraslia run at a loss of nearly $63 million in the two years to last October.

So in the interests of democratic debate, we posed the poll question last week:

With a different marketing strategy, do you think Starbucks will be able to survive in the Australian market?

The Australian marketing community has been busy voting, and there's no question how they see the future for the global coffee company - and it's not good.

86 percent of you are happy to proclaim "Good riddance to bad, ahem, coffee", while only 14 percent of you voted that Starbucks would "be back stronger than ever"

As a coffee lover myself, I can't say I was devastated to hear about the Starbucks announcement, although I am not convinced that we've heard the last of them over here in Australia.

Trimming the fat

Starbucks' US founder and chairman Howard Schultz was quoted in various sources as saying that the Australian closures would "help support the continued growth of our international business", which leads you to believe that this is a global corporate decision to cut the fat before launching even more aggressively into the Chinese market, a strategy the company has openly discussed.

But I would argue this doesn't mean that Starbucks is gone for good from our landscape. I actually think they may be ready at some point in the future to reenter the marketplace here, but in a form we won't necessarily recognise.

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3 Comments

oscar
  • Wrote on 7 Aug, at 09:29PM
While I agree with most of the article, I take exception to this: "It's a dangerous route to take - to tread the thin line between mass product commodity and premium brand experience."

I sell advertising in a coupon/discount publication and for the most part, it makes commercial sense for ALL my clients to advertise. The CPM is low, and if the offer is right, the Cost per sale can decrease dramatically. It makes business sense to run with these campaigns. It's been proven with so many Quick Serve Restaurants/coffee houses in my publication. with the economic climate as it is, people NEED to save somewhere.

I did have a conversation with Starbucks two weeks prior to the closures (I knew about the coupons in the US at this time) and the comment was, "everything is staying the same, we have no need to close any of the stores." So I gave them a follow up call this morning to see if they'll go down the coupon route, the comment was a big emphatic no!

Personally I think this argument about Starbucks being a premium brand is absolute crap....maybe in the early days, yes, but now???? And I think it's reflected in the graph shown in the article.

Thanks and adios amoigos!

I'm off to De Graves for my coffee!
Editor | Scotland
  • Wrote on 7 Aug, at 10:03PM
Hey oscar,

couldn't agree more with pretty much everything you said actually. Can't see a much better way to track marketing spend to the last penny than by going down the coupon route, and you're right, as we head into slightly less sure economic waters (we'll save the argument as to whether we're going to use the 'R' word or not for another post) that level of accountability is probably only going to get more attractive for marketers.

Niche Media (the publishing company behind Marketing and marketingmag.com.au) put out a discount coupon book called MoneySaver, which seems to do amazingly well all the time, so it's clear that coupon booklets aren't just for times when the money is a bit tight.

I take your point about the coupon route maybe not being the path that Starbucks Australia will take. Considering what they said to you this morning I guess they've decided on another strategy. But I wouldn't be surprised if they decided to change their price point in some other way, maybe by doing meal-deal style offers in-store or something like that.

Ultimately, the point I made stands though. Starbucks has priced itself as a premium product in the coffee market for mainstream consumers. Sure, if you like some more exotic tastes you might be buying in a kilo of Kopi Luwak (also known as cat sh1t coffee - google it and you'll see why!), but for the average coffee punter, a long black is pretty much anywhere between $2.50-$3.50 around Melbourne.

Compare that to some of Starbucks' Frappuccino drinks, which are nearer the $5-$7 mark (and which are such distant relatives to the coffee I know and love they may as well be foreign to each other) and you see what I mean by Starbucks pitching itself as a premium spend for the average consumer.

So with this in mind I stand by my intial statement. Starbucks positioned itself as a premium coffee product for the mainstream, and so pursuing a price-sensitive promotional strategy in the future will be a hard blend to get right.

But for the most part, as I said, I totally agree.

But forget De Graves. If you want a truly great coffee experience, check out Brother Baba Budan in the city, or if you're around the offices here in South Melbourne, drop by and I'll shout you a long black at St Ali. Now that's coffee.
Editor | Scotland
  • Wrote on 10 Aug, at 11:53AM
I've been a regular reader of John Moore's blog Brand Autopsy for over a year now, and its excellent, so you should go and check it out.

But the plug isn't the point of this comment. The point is that John used to be retail marketing manager at Starbucks and has a long history of posting about the brand. In relation to this whole debate, it's well worth checking out his most recent post on the beleaguered brand, and checking out his Starbucks manifesto:
  • Two buck 'Bucks - Johns most recent piece on Starbucks, which challenges a price-promotional strategy from Starbucks as a terrible move, and one that will further commoditise the brand.

  • What must Starbucks do? - John's provocative manifesto for change at Starbucks from April 2007
It's a long read, but it's a fascinating way of generating feedback, and the presentation of the feedback from the Board of Customers - Johns blog readers - is excellent.

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