Starbucks Slides Down Slithery Slope

Starbucks just introduced their first instant coffee, called Via Ready Brew. This is a significant move for this once high flying company that is now struggling to get back on the growth path. Will Via rescue them? Is it the answer to their growth problems? I doubt it.

Starbucks started off as a company that brought specialty coffees with great flavors to many suburbs and neighborhoods, first in America and then to the entire world. It became synonymous not only with great tasting coffee but also for the great customer experience. They provided a tremendous variety of coffee based drinks made to order in a showbiz kind of way, their own lingo and a welcoming atmosphere and ambience that made Starbucks stores a gathering place for businessmen, professionals, homemakers and a networking hub for the unemployed.

My local Starbucks even became an informal office for a couple of web designers and construction contractors. Another distinctive feature of Starbucks were the baristas, who seemed to love coffee, were loyal employees who recognized regulars and remembered their drink preferences. Starbucks also projected a high degree of social responsibility and consciousness that endeared them to their upscale customer base. This made for loyal customers who were willing to pay significant premiums on what had hitherto been thought of as a commodity. Starbucks had a winning formula, helping the stock take flight and reach very desirable heights indeed.

Then greed took over. Talk about killing the golden goose. Starbucks certainly did that with a vengeance. In a bid to grow fast at all costs, they opened stores almost indiscriminately, sometimes within yards of each other. This included drive-ins and franchised stores in heavily trafficked areas like airports and discount stores like Target. They sometimes did not accept Starbucks cards (some still don’t). The employees were no different from the ones in the same terminal selling pizzas or fries. They probably did not even know they were “baristas”. Turnover suddenly increased, so baristas had no chance to tell who was a frequent customer leave alone how they liked their drink. Dunkin Donuts and McDonald’s started brewing and selling decent coffee at normal prices, chipping away at more cost conscious customers who wanted a good tasting cup of coffee but without the ambience and the experience. On the high end, specialty coffee houses like Caribou Coffee (www.cariboucoffee.com) successfully replicated Starbucks’ original formula and seemed to care more about their coffee and customer engagement. No wonder Starbucks got squeezed. Growth hit a wall, the stock slid and the founder had to come back to the rescue.

Starbucks did do a few things right. Mystarbucksidea.com was a successful effort to elicit customer feedback and suggestions as well as set right some of the problems that had cropped up. Starbucks Gold was an interesting loyalty program, although poorly executed. However, a significant amount of the mystique has been lost.

Which brings us back to instant coffee. Of course, they claim it is every bit as good as brewed coffee. However, that misses the point. Remember new Coke? I have to admit I am old enough to remember that fiasco. It was thoroughly taste tested and found to be superior to classic Coke. Well, customers wanted none of it. Via Ready Brew sounds like Starbucks is now taking the battle to McDonalds and Dunkin Donuts. Is that really the battleground they want to fight in? Do we know of any brands that have gone down market and thrived? I can’t think of any.

Yes, there might be a temporary bump in revenues, but once the novelty value wears off this will hurt the core brand and its equity. What next? Orange plastic seats to discourage customers who spend too much time lingering in the store? It is not just about the product, it is about the entire experience. Instant coffee will not help Starbucks regain its magic, re-engaging customers will.

Starbucks will continue to slide. Stay tuned for continued store closings and less friendly baristas. When you wake up, you may want to smell a different kind of coffee.

I expect there are many Starbucks fans out there who disagree. I would love to hear from you.