business news in context, analysis with attitude

Lots of reaction to yesterday’s announcement that Starbucks is closing some 600 stores as it attempts to get its coffee house in order. But since it is a holiday weekend and you probably have a lot to do, let me just offer two of them:

MNB user Glen Terbeek wrote:

Like every large retailer, Starbucks started off with a very successful local offering. They then wanted to leverage their success by rolling out the concept across the country and world, and by making it more efficient. So they did things like go public, automate the barista activities, add additional products, and make central decisions about everything from furniture to a standard blend of coffee.

The problem is that there is nothing more local than the coffee house experience and coffee tastes. Has Starbucks made the same mistake that Sears, Kmart, and others have made? I would guess that a Starbucks at a university is much different then one at a surfing beach, or downtown location.

Maybe it is time to reorganize into many small logical marketing units, each with the authority to anticipate what that customer set desires. History shows that a centralized retailer can often grow fast, but then reaches a point of declining returns, that are difficult to stop, because the centralized, functional organization cannot respond to the market needs.

As a coffee lover, I hope that isn't the case for Starbucks.

One of the great things about Glen’s email is that it isn’t just about Starbucks. It is about something far greater. We need to pay attention.

MNB user Bob McMath wrote:

I am reminded of the "icon" which developed over Krispy Kreme donuts. Everyone went crazy for them, and the stock rose to unbelievable heights before the bubble burst. Part of their trouble was the over expansion. Particularly the loss of the charm of going into one of their stores and picking up a package of hot, fresh donuts and digging into the box right then and there.

They placed them in supermarket cabinets and on shelves, where the chances are you might take home a box of yesterday's or even the day before's donuts -- no longer the really great experience of the individual stores. Down went the stock, and down went the image. They are still around, but who ever talks about them with the same reverence these days.

One must remember that no product, not even Coke or any other icon lasts forever, unchallenged. Even the "charm" of effervescent drinks has challenged Coke and Pepsi to continue to introduce new beverage types which no long have bubbles! Look at Sears stores, which used to be the leading retail chain in the US. Or General Motors, which was the leading car manufacturer/seller in the world. Or Volkswagen as the undisputed leader in the small car category.

Our population is fickle, and goes from one trend or fad to another as the winds blow. Remember some of the various diet fads that took the market with a storm, only to fade away.

Starbucks has an unusual flavor which most people who have ever tried it could recognize. It is due, I am told, by actually over roasting the beans. So their various coffee variations all taste different from others because they are "burned." Anyway, other chains like McDonalds and Yum Yum and other operations have developed their own "tastes." and many people like them -- for a greatly reduced price I might add. With the economy in the mess it is right now, people may even be exchanging that $4.00 cup of coffee for an extra gallon of gas to get to work or to go shopping or to go to the doctors, etc!

Nothing lasts forever as the unchallenged leader which can go ever upwards.

It is, I think, the ability to surmount challenges such as these that distinguishes great retailers from the rest. We’re about to find out which category Starbucks falls into.

KC's View: