Investors and rivals alike are keeping a close eye on Starbucks (Nasdaq: SBUX) these days. Caribou (Nasdaq: CBOU), a much smaller competitor, announced an aggressive jab last week, hoping to benefit from a recent Starbucks misstep.
Last week, Starbucks canceled an Internet-based promotional offer for a free iced coffee drink. The company had intended the email offer only for "friends and family" of Starbucks employees in the southeastern United States, but apparently it spiraled out of control. According to the company, the offer "has been redistributed beyond the original intent and modified beyond Starbucks' control." I even spotted a sign on my local Starbucks' counter stating that the coupons wouldn't be honored.
Capitalizing on Starbucks' snafu, Caribou now says that on Sept. 8, between noon and closing time, it will give patrons who present the canceled Starbucks coupons a free medium Cold Press iced coffee, iced Americano, or iced tea drink.
Starbucks' coupon situation surprised me, especially following an earnings report that made some investors wonder whether the coffee king is slowing down. Although I thought the ensuing panic was overblown, I found it bewildering that management would distribute such an Internet coupon in the first place. Didn't they know it would spread like wildfire? After all, many companies now deliberately try to cultivate such viral publicity. Starbucks' short-sightedness here, and its subsequent need to rescind the offer, isn't exactly a great PR move. Then again, investors likely realize that the promotion might have hurt Starbucks' monthly sales if its baristas had to sling exponentially more free drinks than the company had originally planned.
Meanwhile, Caribou is doing exactly what a smart competitor should: trying to lure bummed-out coupon recipients to its own stores to sample its wares. It probably won't change the coffee habits of diehard Starbucks loyalists, but it could very well lure less choosy caffeine addicts, heightening Caribou's brand awareness.
Starbucks reported a same-store sales increase of 5% last week; that number matched its long-term forecast, and thus didn't rattle investors like July's comps number did. Although I'm still comfortable with the company for the long term, I can't say I'm thrilled that the company has made itself appear a bit stingy -- and allowed a competitor to portray itself as more generous.
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Alyce Lomax
owns shares of Starbucks. The Fool has a disclosure policy.
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