Our beloved Brew.

Our beloved Brew.
R.I.P. Big guy.

Wednesday, December 2, 2009

Starbucks by any other name

Starbucks has begun opening coffee shops under different names. Each location has a different identity and and as I understand it different decor. The company is trying to appear to be a small local business in each community. The idea that Starbucks can reinvent itself as a collection of local coffee shop is plain dumb. The early sales results are confirming this. The new stores put in existing locations are generating significantly lower sales than the original Starbucks.

Be who you are. Starbucks is willing to pretend it is whatever they think the customer will buy. Naming each new location for the street on which it is located, but running it just like they do every other Starbucks is about as disingenuous as a company can get. At this rate, Dunkin Donuts, McDonald's, and even the local coffee house need only to stay the course, and wait for Starbucks to self- destruct. How long might that take? Ask Blockbuster Videos, KB Toys, Krispy Kreme, Wickes, and Sharper Image stores. Admittedly, all these major brands faced widely different and profound marketplace challenges before their demise, but in the end they all share one trait - they failed to be true to who they were while still innovating.

Starbucks is caught up in an expansion death spiral for the sake of their stock price. It’s a nonsensical grip that has many successful companies around the neck. How is it possible that every company can expect double digit growth forever? When did the definition of corporate success morph into share price above all else? When did profit through budget management succumb to growth at any price? Where is it written that companies can't have up AND down sales years and still be successful? Must every week be a 52-week sales and stock price high? Adding more stores to disguise declining year-over-year, same-store sales is what executives do at big companies to protect their bonuses, and stock options.

Starbucks stopped innovating and started replicating. Expansion trumped innovation. “More customers” does not always mean more business. One of the best exercises in the world is asking yourself, "If I didn't add a new customer for an extended period of time, what would it take for my existing customers to continue to do business with me at a rate and margin that would sustain me?" AND then, do that! It makes sense that which is authentic and encourages existing customers to do more business with you will also be an ingredient necessary to attract new customers.

Could Starbucks be a successful company if it focused on being a better company rather than a bigger company? I think so. Starbucks could be turned around but it is very doubtful it will be because the leadership is locked in to a compensation plan that is driven by a "case count" mentality rather than raving, satisfied customers.