Coffee Retail: Starbucks: The Brand We Love to Hate

Marketing, April 2, 2008 | Go to article overview

Coffee Retail: Starbucks: The Brand We Love to Hate


Once regarded as an unstoppable juggernaut, the coffee chain has seen its share price almost halve since 2006, amid signs that its growth in the US is slowing. Nicola Clark asks whether the brand can revive its fortunes.

Starbucks is a polarising brand; consumers either embrace its ethos completely, or see it as a symbol of the worst excesses of American capitalism. There is no doubt that it has an exceptionally high profile, not least in the pages of gossip magazines, where skinny US stars are rarely pictured without their skinny Starbucks lattes. Branding experts believe that it is this profile - combined with the company's Stateside origins - that places Starbucks in the firing line of the burgeoning anti-capitalist movement.

The first Starbucks outlet outside the US opened in Tokyo in 1996. Since then, the company has launched in more than 40 other countries. The brand even has a presence in Paris, the birthplace of cafe culture. Next month, Starbucks will celebrate 10 years of operations in the UK, where it has transformed coffee from breakfast staple to lifestyle accessory - a process supported by its much-publicised partnership with Apple, its Starbucks Entertainment division, and the Hear Music brand, through which the company markets books, music and film.

Rita Clifton, chief executive of Interbrand, says that while Starbucks has faced fierce criticism from anti-capitalist groups and is suffering from slowing growth in the US, the global brand should not be written off prematurely. 'Starbucks has really succeeded in creating a third space between the office and home, and consumers feel an emotional connection to it,' she adds.

However, the signs of strain in the US are undeniable, and analysts have voiced concerns that Starbucks has over-stretched itself with its plans to reach 40,000 stores worldwide. In the three months to the end of September last year, the company's US outlets posted a 1% fall in transactions.

One leading retail analyst draws parallels with McDonald's. 'Starbucks is another brand setting its sights on the international market for growth because it is feeling the competitive pressure in its home market,' he says.

The brand's bottom line has been hit by the rising costs of raw materials, particularly in the US, where consumers have traditionally got their caffeine kick much more cheaply than their UK counterparts While a tall skinny latte will set you back pounds 2.05 in a British Starbucks, premium coffee retails at a fraction of the price in the US. Starbucks has also struggled to compete with cut-price rivals such as McDonald's and Dunkin' Donuts in the States, as these traditionally food-focused outlets have begun to introduce their own premium coffee offer. This led to Starbucks rolling out an 8oz brewed coffee for just dollars 1 (50p) in January, following the launch of its first ad campaign on US TV in November.

Back to basics

Starbucks chairman Howard Schultz is leading the attempted fightback. He resumed his role as chief executive in January, replacing Jim Donald, who succeeded him in 2000. Cliff Burrows, formerly Starbucks president for Europe, the Middle East and Africa, and the driving force behind its growth in the UK, became president of Starbucks Coffee US last month.

The company has declared a desire to 'reignite its emotional engagement with customers'. This coincides with a back-to-basics programme involving the closure of more than 7000 of its company-operated stores in the US while 135,000 of its baristas have received 'retraining' in the art of coffee-making.

Following disappointing first-quarter results in the US, the group is slowing store openings in the region, aiming to launch 1175 in 2008, compared with 1788 in 2007. Yet the number of non-US openings is rising, with 975 stores planned for this financial year, compared with 788 in 2007. …

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