Starbucks Slows U.S. Growth

WHAT
Net income for Q2 2008 at Starbucks fell by $42-million compared to the same quarter last year. (Ouch.) Additionally, Starbucks is drastically reducing the number of new store openings in the U.S. Starbucks opened nearly 1,800 locations in 2007. For 2008 the company will open only 1,175 new locations — that’s a 35% reduction in new store openings from the prior year. And, beginning in 2009 through 2011, Starbucks will limit new store openings to only 400 per year.

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SO WHAT
Clearly the company is experiencing growth troubles in the U.S. However, Starbucks is hoping to offset the slower domestic growth with greater international growth. Starbucks is set to open up anywhere from 1,050 to 1,300 new international locations each year through 2011.

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WHAT NOW
Have a listen to this interesting story on Starbucks from NPR’s Morning Edition. (Skip to the 3:10 mark in the story for a surprise.)

Comments

[Boring Market]

You rather have Starbucks become more convenient and ubiquitous, then go back to the roots of quality and excellence the company was based on?

Yes, I understand that you have marketing experience within Starbucks' and that 'quality and excellence' or 'back to the roots' are business buzz words that some individuals view as meaningless. I disagree. I honestly believe that Starbucks has potential to turn it around, being predictable and ubiquitous is not the way to go.

If Starbucks' business practices were a house sure they knocked down walls and put on a fresh coat of paint, but its still the same broken house with a cracked foundation.

[john moore (from Brand Autopsy)]

Boring Market... that sound-bite where I said "There is nothing wrong with becoming the next McDonald's" was a snippet within a 30-minute conversation. I was talking about how McDonald's has been a very successful company competing on "convenience" and that there is nothing wrong with a company modeling itself after McDonald's.

In many ways, Starbucks competes more on convenience than they do quality coffee. The various steps the company has taken (automated espresso machines, pre-packaged ground coffee filter packs, flavorlock packaging, etc.) have taken it down the competing on convenience path rather than the quality pathway.

As I noted in the other snippet, I applaud Starbucks for injecting some quality back into their business. Changing the hold times for brewed coffee from 60-minutes to 30-minutes is a quality improvement as is the decision to upgrade their espresso machines and to bring in the Clover brewer.

I didn't say Starbucks should become more McDonald's-like. The actions the company had been doing were talking it down the path of becoming more McDonald's like. Howard has even said the Starbucks Experience has become commoditized. This "Transformational Agenda" the company is undertaking recognizing this commoditization trap and thus, Starbucks is taking diffeent steps to not go the McDonald's way.

Given the enduring success of McDonald's, competing on convenience and not quality is a viable path for growth. Probably not the right path for Starbucks though.

[Jay Ehret]

Growth will almost always kill a brand. A company trades its soul for a higher stock price. In this case, Starbucks cashed in its brand and sacrificed the customer experience. Now it is reaping a negative dividend.

[BIG Kahuna]

John, please put Starbucks on your next "would you miss them" post. I for one would not. I agree that their expansion has killed them. You can find Starbucks at every grocery store in the country. What made them special was the mysterious, hard to find, customer experience. Now you have multiple Starbucks on the same block. It's no longer a "lifestyle" brand as Starbucks has turned their own brandf into a commodity.

[Paul (from Idea Sandbox)]

You lucky bastard!

Let me get this straight... For March you had a quote in Time magazine...

And in April, you provided an audio quote for NPR?

Nice work, johnmoore.

[David]

This is in response to the "Would you miss them?" comment. The beauty of Starbucks is that no matter what part of town you are in or city for that matter, you know can find a Starbucks, you know what is available to order and that convenience is something that I really enjoy. Their is a consistency and familiarity that is unparalleled in the coffee industry. Although some of the "mystique" may have been taken away as a result, the overall Starbucks experience is still good and convenience can not be beat.

[Eric Prince]

I just wanted to drop you a line and say I love your blog. As someone who posts about Starbucks everyday, I find your blog pretty insightful. Thanks for the good work!