Posted by: Burth Helm on January 23, 2008
Today it was reported that the chain is selling small (or in Starbucks lingo, “short”) cups of coffee for $1 apiece, as well as offering free refills. Yes, it’s just a test so far and the deal is currently only available in Seattle.
But in many ways, this is Starbucks jumping the shark.
Starbucks' marketing and merchandising dept. seems to be coming to the conclusion that Wall Street arrived at almost a year ago: At 15,000+ stores worldwide, Starbucks is no longer the cute chain of neighborhood coffee shops known for its high-priced lattes and breakneck growth. It's a large quick-service restaurant chain with a broad customer base and the macroeconomic sensitivities that comes with them. Hence the softer sales and margins due to higher gas and milk prices. Hence the 40% correction in its share price.
It has been struggling to boost sales in existing stores for several quarters now, and the ways it has attempted to fix it have threatened to erode the upscale brand (just ask Howard Schultz). You could have said Starbucks jumped the shark when it added drive-thrus, or launched its first national TV ad campaign. But for a chain known for its $5 cappuccinos, a $1 price promotion cuts to the quick. It smacks of McDonald's and Wendy's neon-bright dollar menus. It's probably the most off-brand move so far.
To be honest, I'm not sure at this point that there's anything wrong with that. Growth is still strong and compared with other retailers, Starbucks faired well this last quarter despite gas, milk, and the rest. But a positive move or no, this is clear: Starbucks' brand is changing. It's growing up into a different sort of company, and it will never be the same in the eyes of consumers or the Street.