Q&A: Why Starbucks got dunked!
Starbucks' announcement that it is shuttering 600 stores marks the end of what seemed to be the company's continual upward climb and invincibility in the retail coffee shop industry. Robert K. Passikoff, founder and president of Brand Keys Inc., a Manhattan-based market-research firm, spoke Wednesday about the world-famous company with Newsday Staff Writer James Bernstein.
What happened to Starbucks?
There were a few things. They had been really profitable, and they were the darlings of Wall Street, and they wanted to continue to be profitable. But you can expand so much.
What else went wrong?
They tried to migrate the coffee brand into a lifestyle brand. They came out with the movies and the books in the stores. There's nothing wrong with that aspiration. But as part of this, they essentially took a step away from the core quality of the brand, which was the coffee house experience, which they imported from Europe and turned into an American experience. For awhile, no one was grinding beans. The place didn't sound like the coffee house and didn't smell like the coffee house anymore.
So, some bad marketing decisions?
Yes. They also said their places were getting too crowded with furniture. So in a lot of them, they took out the couches. What essentially they did overall was re-engineer the experience right out of the stores. So customers were standing on line, and there was no experience anymore. They were too much like everyone else.
They still look a little different, right?
Yes, but for awhile, they were offering breakfast sandwiches. If you close your eyes and order coffee and someone offers you a breakfast sandwich, where are you? You could be anywhere. People even complained about it. (Founder and chief executive Howard) Schultz even said Starbucks traded away its brand for vacuum-packed beans.
How much of Starbucks' decline is related to the economy?
Not that much, because coffee is near and dear to people. Over a year ago, we saw erosion in loyalty. In our tests last year, they came out No. 2 to Dunkin' Donuts. We thought we would see the effect in the marketplace, and lo and behold, we have. This year, Dunkin' is No. 1, McDonald's is No. 2 and Starbucks No. 3 in our market surveys.
What has McDonald's done right?
Well, they had sold salads, but they were crappy. But not anymore. They started a better coffee program six or seven years ago. It took them that long to get it right. Now, their premium coffee is top-notch. And it's 99 cents, a third of the price of Starbucks' lattes.
Should Starbucks have stuck with its original strategy of being just a coffee house?
I think so. You don't walk away from a successful brand strategy, not when you're making money.
Can Starbucks come back to what it was?
No, I don't think so. Customer values have shifted so dramatically. They are what they are.
Pretty much sums it up nicely 