Why Starbucks' $1 Coffee means much more than cheap caffeine

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.

Reader Comments

James R Burke

January 24, 2008 12:20 PM

Trouble with Howard is he is way too late to join the party. His best employees and managers have been run off.

Managers were told to stay in the back and forget about customers.

Pencil pushers now run the stores.

Sherman McCoy

January 24, 2008 2:23 PM

Starbux proves that W.C. Fields was right. There is a sucker born every minute. Grind up $0.20 worth of burnt coffee beans, run it through an automat machine just like they have at the Frequent Flyers loungs, add $0.10 worth of foamed milk,a plethora of sugar options, and Voila! you have a product caffeine junkies will snarf up.
Starbucks is a second rate McDonalds coffee shop clone. I'd suggest they sell.

Linda

January 24, 2008 3:34 PM

A bargain from Starbucks is on the way.

Brandon

January 24, 2008 4:14 PM

Jumping the shark? It's just a smaller cup. It's $1.00 worth of Starbucks coffee. This isn't a $1.00 cappuccino we're talking about. It's just a $1.00 cup of drip coffee ... no jumping the shark.

Rick

January 24, 2008 5:35 PM

This article is on the money. This is way off brand and if it is launched nationally will make Starbucks just another chain. The "third place" between home and work is now just another fastfood restaurant.

Tony

January 24, 2008 6:08 PM

Starbucks is not just another fast food restaurant. Starbucks is not "jumping the shark" by offering a short coffee for $1. A short coffee for $1 is a great way to reach a whole new customer base and enrich people's daily lives through quality and care. As a proud Starbucks Partner...who almost quit before Howard came back on board...I am excited to see where the company is going. The "third place" environment will only continue to get better and the quality will continue to be high. We are still seeing the result of marketing campaigns put into action by a team of people who are no longer with the company. For a while, it may seem off track...but trust that Howard will bring it back in line.

If you don't believe me, just keep watching the company re-invent itself over the next few years.

Scott E. Krajeski

January 24, 2008 8:31 PM

Correct, Brandon. This isn't the $4 or $5 latte that is being offered for $1. Do people really think you're going to get that for a buck? hahahahaha. Silly people.

Aaron

January 24, 2008 9:51 PM

This is idiotic, instead they should move up the market and lock-in the affluent die hard premium crowd, slow down growth and focus on quality both in the coffee and atmosphere - a price war with big MCDs isn't gonna fly.

Yoni Mac

January 25, 2008 5:26 PM

I dont think that the $1 coffee is going to keep them from focusing on the quality of coffee and the atmosphere. The more coffee they sell it seems the fresher the coffee will be.

David Sobotka

January 25, 2008 7:21 PM

And now for a "reality check" from the Heartland. Sorry folks, good coffee is currently a commodity. So is good service. Starbucks has positioned itself as the premier supplyer of high end java. It's about time the company realized that price and quality go hand-in-hand. Bravo to Howard for running the $1.00 test. Let's get real and offer the $1.00 coffee at all the Starbucks locations. How many $5.00 drinks are you going to sell along with the $1.00 coffee. This is retailing 101. Get the folks in the door and up-sell them to the high margin products. If you need more help understanding these concepts call me. Let's chat over a cup of great coffee.

Jamie

January 26, 2008 2:29 PM

Note from the street: As it relates to mere "execution" on the ground, Starbucks all over Bellevue (5 minutes outside of Seattle - considered essentially "Seattle area") didn't even know the promotion was going on. Baristas / managers fenagled w/ me over details: "where did you hear that? I didn't see that on the news" etc. One store honored it anyway, after chastising another employee for '...not getting the memo' right in front of me. Very uncomfortable. Point being, execution and basic tenets of company wide communication definitely not solid or in place. Beyond that, the overall feel of communication and interaction / vibe etc from the Starbucks employees has gone down hill.

Public Opinion Counts

January 26, 2008 4:55 PM

I was one of the original few hand-selected to test and then roll out the in-store Starbucks coffee bars. Once the initial phase was over and the contracts signed, these chains cut corners; you would not believe what went on behind the scenes! Canned whipped cream was substituted for genuine hand-whipped cream, low quality store-brand milk was substituted for high quality name-brand milk, etc. A few times when Starbucks drip coffees ran out or shipments did not come in on time, grocer coffee was pulled off the shelf and used instead without the customers knowledge, all the while charging premium Starbucks prices. Contrary to popular belief the Baristas in these grocery chains work for the grocer and not for Starbucks, even though they wear the Starbucks uniform. The Baristas keep quiet because they work for the grocer and their jobs depend on their complicant silence. In the short years since Starbucks instituted these faux Starbucks coffee bars, the quality and customer service Starbucks was loved for consistantly dropped. Is it any wonder that a fast food icon may now become one of it's fiercest competitors?

James

January 27, 2008 10:51 AM

Starbucks v. McDonalds = Blowout...The Golden Arches will destroy Starbucks should they enter the value realm...and devalue their brand reputation. Bad move.

Ellen Gunty

January 27, 2008 8:43 PM

David Sobatka 's got it right. Retailing 101. The $1 coffee as loss lead. Just watch the price on Starbuck's other offerings. A little bit more for that coffee cake or perhaps an across the board 25-50 cent hike on all pastries. Gotta have something to have with that "cheap coffee, right?
I'm no fan of Starbucks. The cofee is made to suit the lowest common denominator of coffee taste. For really strong coffee, the only coffee to drink is Peets. where do you think Howard learned his craft? From Alfred Peet himself. They have expanded too far too fast like so many other companies before them. Having said all of that, I like it when a CEO sees that change has to happen & goes about trying to make the right ones.

Bean Guy

January 28, 2008 7:13 AM

It's funny watching Starbucks become the corporate giant that it was founded not to be. St. Howard's ego fasttracked Starbucks to chain store purgatory. They jumped the shark way before this. Let's see-was it the exclusive CD's available only at Starbucks, the Starbucks record label, the private branded $700 home espresso machines, opening stores within 50 feet of each other or maybe the Starbucks VISA card? So many places to begin. Maybe the new slogan could be "Starbucks-Coffee This Good Must Be Worth $1"

Chris

March 18, 2009 5:46 PM

They jumped the shark for me when they opened a store right near some less than attractive bus stops downtown. I didn't mind $5 coffee when the experience included listening to nice music and gabbing Yalies, but to get hit up for change on my way in and deal with the smelly guy while I'm sipping my coffee. Yeah ... no.

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News, opinions, inflammatory meanderings and occasional ravings about the world of advertising, marketing and media. By marketing editor Burt Helm, Innovation Editor Helen Walters, and senior correspondent Michael Arndt.

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