Starbucks Stirs Things Up
To stop McDonald's and other rivals from siphoning away even more customers, the company begins testing $1 cups of coffee.
What are Americans willing to pay for a good cup of coffee? Apparently less than they were a few years ago. Facing a slumping economy that threatens to cut into its customers' coffee budgets and increased competition from McDonald's and Dunkin Donuts, Starbucks is test marketing a bottomless eight-ounce cup of joe priced at just $1.
Don't try ordering it at your corner Starbucks quite yet. The company is only offering the deal at a handful of stores near Starbucks's Seattle headquarters. "This is a very limited test," says Starbucks spokesman Wanda Herndon, adding that it's too early to tell whether the company will expand the offering nationwide. For now, the cheapest brew available at all Starbucks locations is the $1.50 eight-ounce "short," which isn't refillable.
By switching to an offer-more-for-less strategy, the company hopes it can revive its stagnating stock price and prevent the competition from siphoning away more of its customers. Shares of Starbucks (SBUX) closed Thursday at $20.39, far below the stock's 52-week high of $37.40. Earlier this month, Starbucks chairman Howard Schultz, who took the brand from a handful of stores to a global beverage empire of now more than 15,000 stores, came back as CEO, intent on reviving the "emotional connection" that he says customers have with their steaming cups of Starbucks brew.
But consumers seem less willing to pay venti-sized prices for that emotional connection. Oakbrook, Ill.-based McDonald's, which saw sales of coffee jump when it introduced a new darker roast in its restaurants, recently announced it would begin a nationwide rollout of its own brand of gourmet lattes and cappuccinos, priced a bit lower than Starbucks's regular offerings. A spokesman for McDonald's had no comment about Starbucks's $1 test, saying only, "We will continue to bring our customers what they ask for." Dunkin Donuts also has increased its coffee offerings in the last few years and says it plans to introduce additional menu items at competitive prices.
Starbucks's need to compete with lower-priced rivals is clear, but is it selling itself too cheaply at $1? Robert Toomey, an analyst with E.K. Riley Advisors, says discounts can be dangerous. "My initial reaction is that a price reduction could dilute their gross margins," he said, adding, however, that the move may well drive valuable traffic into the stores. "This is all kind of speculation, but maybe it will cause people to come in and then upgrade from basic drip coffee" to more expensive lattes and cappuccinos. Baristas, on your mark.
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Member Comments
Posted By: shawhallock @ 02/05/2008 6:10:52 PM
Comment: how much is two much . I remember when a gallon of milk cost 1.00 now its 3.50 and in some places its 4.00 . when are you people going to wake up ? if you keep paying these inflated prices they are going to keep inflating them . my father used to work and my mother used to stay home try that now and you will live out in the streets . they are driving you like cattle . learn to say mooo .
Posted By: emilycarlson123 @ 01/29/2008 2:38:57 PM
Comment: At select Starbucks stores in Seattle, you can buy a cup of joe for a buck.
Ssssshhhh.
It's a new initive by ex-CEO-just-recently-unretired-because-of-falling-stock-prices Howard Schultz. Starbucks is hurting, and something needs to be done.
But who goes to Starbucks because of it's "cheap" prices??
A year ago, Schultz wrote a bitter memo to his executives about what he calls "the watering down of the Starbucks experience." He complained that the soul of Starbucks was gone, and urged the higher ups to bring back customer service.
So he's back in action, determined to change the coffee giant's luck.
There's no question Starbucks is in trouble. In the past year and a half, stock prices have fallen nearly 50%, from a high of $39.63 in May 2006, to closing at $19.66 today. Schultz blames the company's out of control growth. Also ailing are skyrocketing milk prices, the troubling economy, and pressure from McDonald's.
But why dollar coffee?
Isn't that the turf of McDonald's?
But the answer is...not really.
Mickey D's recently announced plans to open "McCafe's." In other words, coffee bars featuring cappuccinos, lattes, and mochas whipped up by baristas, a la Starbucks.
This, after Starbucks added drive-thru windows and hot breakfast sandwiches.
It seems the two mega chains are going after each other... by coping each other.
McDonald's is upgrading, while Starbucks seems to be.. well, downgrading.
The dollar cupajoe seems to be an effort to get crowds in the door, but in the move Starbucks is moving away from it's brand.
Starbucks is the king of $6 cups of coffee. They survived the economic downturn of 2001, when analysts feared the worst for a company who prides itself on hoity-hoity coffee. Starbucks customers LIKE that they shelled out bug bucks for their latte. The well known siren laden white cup is almost a status symbol, recognized in all corners of the world.
Starbucks needs to go back to the "third place." Howard, get rid of the drive-thrus, the expensive merchandise, and the cookie cutter stores. You don't need to sell your coffee for a dollar.
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http://eacarlson3.bravejournal.com/
Posted By: SharedThought @ 01/29/2008 1:33:11 PM
Comment: I never thought that upscale Starbucks would ever sell coffee for such a "cheap" price. ...Maybe the question now is: WHICH product that we've been enjoying all of our adult lives for a reasonable price, will be the NEXT to be made "upscale"? (Will some new business try to sell us an order of fries for $5?)