If you're betting on a traffic turnaround at Starbucks
McDonald's
Starbucks knows this is serious. It didn't have to wait for Sunday's newspaper circulars -- offering up coupons for free McCafe beverages -- to realize that it can't dismiss the threat. McDonald's is the country's largest restaurant chain, with drive-through convenience and mainstream pricing.
The Seattle-based premium java chain is taking out full-page ads in newspapers such as yesterday's The Wall Street Journal. The "It's not just coffee. It's Starbucks" ads make a lot of points that the company should have communicated sooner. For example:
- The company only buys the top 3% of available beans, and they're batch roasted until they pop twice.
- Starbucks buys more "Fair Trade" coffee than anyone on the planet.
- The chain offers full health-care benefits to all employees who work at least 20 hours a week.
- A "little bit" of the price also goes into creating the Starbucks experience, complete with comfy chairs and relaxed atmosphere.
Justifying the Starbucks premium is a strong marketing message, though it's an imperfect one. The chain is considered one of the best places to work, though that’s a hard sell at a time when the company has spent the past year closing stores and laying off thousands of baristas.
Selling the in-store experience is another gamble. If every Starbucks patron were to order a macchiato, fire up the laptop, and sink into a loveseat for an hour or two, there would clearly be either a lack of seating or a lack of customers. Justifying the cozy furnishings as an added expense also invites the question that Starbucks will never want to answer: Can I pay less for my Frappuccino if I have it to go?
Barnes & Noble
Nestle's (OTC BB: NSRGY.PK) Nespresso posted a 34% spike in sales last year. Closer to home, Green Mountain Coffee Roasters
Don't get me wrong. Starbucks is doing what it has to do. It is in a lose-lose situation, in which it either discounts to be competitive or retreats to a thinner slice of the loyal upscale market. It can't go back to the way it was before, when premium coffee was a premium-priced novelty for the masses.
"It's not just what you're buying," the Starbucks full-page ad begins. "It's what you're buying into."
Let's hope that is only a vindicating statement for customers and not a warning for shareholders.
How do you feel about Starbucks as a long-term investment?
- Are you still shaking your head about the instant coffee move?
- The company's latest quarterly report wasn't very aromatic.
- Do You Still Own This Garbage?