Thursday, March 27, 2008

Starbucks Steps Up Their Game

NY Times / Stuart Isett

Retail coffee sales is big business. We all know that. Until recently, Starbucks had a lock on the premier coffee market, then along came strong, local independents, like La Colombe in Philadelphia, and from the other side, big boys Dunkin' Donuts and McDonalds.

If you think Starbucks is going to sit back on their laurels and lose market share without a fight, think again. Starbucks' first interest in green is not the environment (sorry, bad dad analogy).

Today, I read a story of their first response to this competition, and the criticism that their coffee is no longer the best.

Starbucks has purchased a company called the Coffee Equipment Company of Seattle (CECS). CECS makes a coffee brewing machine that brews one cup at a time with freshly ground beans, adjustments can be made according to the kind of coffee. It was being sold to non-Starbucks specialty, coffee-bars at the cost of $11,000. Starbucks is now testing the machine in select Boston, Massachusetts Starbucks stores. They are, according to their CEO, committed to making a better cup of coffee.

The problem Starbucks has is a little more complicated than making a better cup of coffee. They have diffused their business to the point of slightly losing their identity. Their initial appeal, to coffee lovers who will pay for a good cup of coffee was expanded to the casual buyer who wants the flavored coffee drinks and who doesn't care about the finer details of coffee flavor. Starbucks in the last few years has made a fortune off the latter. Add to that music, mugs, t-shirts, machinery, chocolate and lunch and you start to have an identity crisis. If you lose the real coffee-lovers, eventually you lose the others. It's the problem of time, meteoric-style growth, profitability, and a diffused vision.

Starbucks has lost 45% of their market value in the last two years. The Dow gained 10%, the NASDAQ stayed even. That's really bad news for Starbucks. But, they are still very profitable, they are sitting on a billion in cash, and I think, on the offensive again. Honestly, I look to see a Starbucks resurgence.

(Jeromey, still there? Your turn.)

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Rambler said...

The bank at Rosedale and 8th Ave. is now a Starbucks, which is interesting, which is obviously a play for the Medical District, but not set right for a morning drive in. But there's not a competitor anywhere close.

And my favorite coffee remains 7-11. I know, de classe.

Father Nelson said...

It would be really cool if Panther City in Fort Worth and Buon Giorno in Grapevine could get the Clover - it's really cool.

Francis Shivone said...

Nothing wrong with fresh 7-11 brew and I like Buon Giorno, Padre, but Panther City is not my favorite. Does anyone know of a Clover in the area?