Apologies for not posting the last couple of days. I’ve been locked away at a “super secret” session with a client (he’ll probably laugh if he reads this!).
Anyway, following on from the last post, my fears have been confirmed and my local Starbucks store is closing. Not too surprising given the scale of the cutbacks announced by Starbucks Australia. In fact, in Sydney there will only be a handful of stores remaining, mainly in the City (there will be no stores at all on the North Shore, amazingly).
Couple of observations.
Firstly, the problems are not simply in Australia. The parent company recently announced major closures in North America. On the face of it, this is a tale of a successful company falling into the trap of overexpansion – too much, too soon.
In Australia, there were also some local problems. In contrast to North America, Australia was already well served with good coffee shops. Mainly small local shops, it’s true, but the competing major chain (“Gloria Jean’s”) also seemed to cause problems for Starbucks. There was also some suggestion that Starbucks had problems with costs that meant inadequate margins.
All of these problems might have been overcome but for one thing. The current economic contraction. Starbucks was very leveraged to economic good times. They are at the “premium” end of the market and very much a discretionary spend for most people. In good times, people will pay up for a “Frappucinno”. Not so much when times are tough.
There’s possibly a deeper message, too. In the “Dark Knight” post I touched on the topic of “Socionomics”. The folks over at Elliott Wave International are of the view that Starbucks was very much an icon of the great bull market and positive social mood that now appears to have come to an end. They’ve been bearish on the stock since mid 2006 and this is what they had to say in their June 2008 “Elliott Wave Financial Forecast”…
“Starbucks ‘blames its recent disappointing performance on a new unwillingness among coffee drinkers in California and South Florida to pay top dollar for stimulants.’ Socionomically this translates to: It’s time to wake up and not smell the coffee. It’s a bear market.”
I don’t want to get all “Doom and Gloom” on you, but marketers can’t ignore what’s going on around them. In difficult times, it’s more important then ever to get the fundamentals right and deliver value to customers.
There’s also a warning for anyone marketing premium products and to the “affluent” crowd. Make sure your customers really are wealthy! Yes, in hard times the truly wealthy will not be too badly affected. But there are an awful lot of people out there who appear wealthy but who, in reality, have been racking up big credit card bills.
So, a lot of “luxury” brands have expanded considerably in the good times by serving the “aspirational” market. In tough times, I’d suggest they are going to be badly hit (especially the second tier names).
Back to Starbucks. I’ll miss my local store! I know it’s somewhat fashionable to sneer at big chains like Starbucks. However, the staff at my local store were great and I’m the kind of person who likes a certain degree of predictability. I like the fact that I can pop into Starbucks anywhere and know what to expect. And, contrary to much sneering from coffee snobs, I liked the coffee (in preference, in fact, to some of the more fashionable smaller shops in the area).
UPDATE:
Thanks to Ben Hall over at the Socionomics Institute for bringing to my attention this article “The Global Coffee Craze” . It explains in more detail the social mood factors that originally drove the success of Starbucks and why the company now faces difficulties (plus why other “Big name” companies might have the same sort of problems).
UPDATE 2:
Even in adversity, Starbucks still manage to remember the basics! When I stopped in at my local store this morning, I was pleasantly surprised when my coffee was “On the house”. Smart move to look after regular customers and let them know they are appreciated. A big “Thank You” to all the team at Starbucks North Sydney. I’ll miss you!
Although Starbucks is widely derided as something of a “soulless mass market chain”, my experience has been that the smaller stores usually are friendly and have a “neighbourhood” feel to them, particularly when there’s a good manager. Of course, it’s different at places like airports and malls where the customers are simply passing through.