Starbucks' 'Feel Good' Image Is Yesterday's Brew

Toyota’s (TM) Prius sales are dogging, Whole Foods (WFMI) is losing its cache, the solar panel business is hemorrhaging, and Starbucks (SBUX) is retrenching. Even The New York Times reported that Abercrombie & Fitch (ANF) is “Losing Its Cool at the Mall”. And now McDonald’s (MCD) and Wal-Mart (WMT) are the hot stocks. Holy organic, what’s happening? Has our green turned to mold? Has “club retailing” lost its in-crowd?

Abercrombie’s refusal to adapt to “austerity is cool” has certainly taken its toll on sales. They saw discounting as a sure path to brand degradation. But, the new austerity doesn’t have to mean cheap prices. It just means projecting an ostentatious image is out and pretending to sacrifice is in. The new feel good is sacrifice, whether the customer needs to or not.

Sacrifice is different than value. Getting a Coach (COH) bag cheaply is not today’s image. Being seen at McDonald’s instead of The Cheesecake Factory (CAKE) is, even though The Cheesecake Factory might actually be a far better value. No one ever said taking the family to McDonald’s was cheap.

The trick is finding something that you actually want buy at Kmart (SHLD), Wal-Mart or Target (TGT). Starbucks actually does have beverages that customers want to buy, but they haven’t found the level of comfortable austerity that their customers are seeking. The sophisticated consumers are becoming less metro and more manly or womanly. To get them to camp out at Starbucks will require an entirely new atmosphere. The faux loft store design is as yesterday as dialup internet.

Yet Starbucks won’t give up on their old formula. The third place, between home and office, ended with the real estate bust. Instead of creating an atmosphere where customers feel like they’re roughing it a bit while drinking their $4 coffee, Starbucks has introduced some mild discounting and a ridiculous advertising campaign.

McDonald’s is promoting value, Dunkin’ Donuts taste, and Starbucks 'feel good' in the coffee arena. I can’t speak for McDonald’s, but I think Dunkin’ Donuts' and Starbucks' regular coffee are equally good. The image of sacrifice is working for McDonald’s, not value as they would like to think. Dunkin’ Donuts' counter service has become cool in a retro kind of way. But the Starbucks 'feel good' is yesterday’s brew.

Starbucks’ message is that with your coffee you are buying healthcare for the baristas, fair trade coffee beans, and comfy chairs in a nice atmosphere. Starbucks is begging customers to be sympathetic for all the good they do their employees and the rest of the world. Trouble is their customers might no longer be getting healthcare themselves and lost their own fair trade wages. No matter how much advertising Starbucks pays for, their message is uselessly out of date. And to add to that, Starbucks has been completely silent on universal healthcare.

No one wants to drink $4 coffee amongst Wal-Mart’s complete austerity and lack of cleanliness, but Starbucks is encamping in the better Target stores. Starbucks will have a delicate balance in creating a cool kind of ruggedness, a sophisticated more warehouse – less loft look.

Even in this economic climate, Starbucks can maintain its prices if they create an atmosphere where customers can comfortably sacrifice. Too bad Starbucks is too smooth and packaged for its own good. As Starbucks begs for sympathy, customers just stopped caring. Starbucks is on the way to irrelevance.

Disclosures: None

Comments

[Roger Knights:]

They've just added a Starbuck's cafe to my local Safeway and it's doing well.

May 12 06:50 AM

[User 129456:]

Starbuck's coffee is not $4. I get a grande coffee with taxes for $2.00. It is far superior to McDonald's or Dunkin Donuts in my humble opinion.

May 12 08:36 AM

[wackyfunster:]

What was the purpose of this article? No offense, but I don't come here to read ranting diatribes. Where is the market insight? You claim Starbucks is "on the way to irrelevance," but I don't see any substantiation for this claim, just speculation and hyperbole. I want five minutes of my life back.

May 12 10:51 AM

[User 190720:]

I can't think of any place, where I can go to change my home office atmosphere, except for starbucks. Its a nice break during a hectic day. There are not many Dunkin in California and McDonals is no place to hang out. So Starbucks is the way to go

May 12 01:37 PM

[Windsun33:]

I think the authors point was that all those things and places that used to be "in" are now at the fringes of being "out" with the in crowd.

May 13 05:31 AM

[JimmyMacPMP:]

I think this article was annoying. I'd much rather see an analysis of the financials. One man's opinion of whether a Starbucks is cooler than McDonald's is useless.

May 14 07:24 PM

[swoody:]

A waste of time article.... this author should be taken off the site.

May 17 12:03 PM

[Et tu, Brute!:]

I still think there are a lot of Starbucks fans out there. I am one of them.

The few Dunkin Donuts where I'm from are in less salubrious parts of town and not where I'll go out of my way to get to. As for Walmart, yeah, it's cheap and I do still shop there, but NEVER on weekends and more and more I steer towards Target for a better overall shopping experience. The drawback for me with Target is I don't particularly care for the apparel and never have.

And finally, I am NOT, NO WAY, taking my coffee experience to -- gag choke spew -- McDonald's! With a hundred screaming kids running around the play area. And yes, I raised three on the Mickey D highway! Give me a break!

May 17 01:57 PM

[swoody:]

McDonald coffee will be a failure in McDonald product launch history. Mark my words.... COFFEE and Hamburger do not MIX!

Besides, people who works in Mcdonald are NOT the same quality as people who work at Starbucks!

May 20 10:45 AM

[swoody:]

I think the problem with starbucks was really too many stored built in the last few years. If they would had slow down their store growth, especially in the US, they would be fine.

May 20 10:47 AM

[JimmyMacPMP:]

I think McD's coffee will be successful because of the easy drive thru and good pricing. However, Sbux is here to stay. I would never meet a business colleague at McD's. I think Sbux could improve thier food lineup to increase revs - right now their food choices are WEAK.

May 21 11:27 AM

[Randall Fre...:]

Starbucks on their way to irrelevance? How is this possible when they single-handedly pioneered commercialized coffee? If nothing else, their company serves as a textbook example on how turn something common into something valuable.

May 21 12:29 PM

[Konrad:]

I think what the author neglects to mention or acknowledge here is that many upper scale retailers in general are currently experiencing the effects of product elasticity relevant to decreased CCI and decreased wage increase prognosis.

The Economy is only beginning to claw its way out of the tank into which it slipped in late 2008. Less young people have money to blow on the fancy frappes', and more old people are forgoing buying fancy coffee anywhere in favor of packing a travel mug.

The latter of which Starbucks' capitalized very well on by offering a 10% discount for those who bring their own mug.

Far as the price of coffee it seems that the author is either trying to write a de-marketing piece here, or simply doesn't know how much coffee actually costs at Starbucks. Buying a Venti at Starbucks sets you back by about $2.03 in Connecticut. When compared to a similar 20 oz. Dunkin Donuts cup Starbucks' is actually cheaper - and the coffee is both: higher grade (Arabica bean vs Robusto) and to the experienced coffee drinker, more tasty.

I doubt the brand is "out of chic" far from it.

What we are seeing is how recessions change customers' shopping habits based purely on confidence, and outlook. McDonalds is perceived to be cheaper, Wal Mart and Starbucks hardly serve to be compared considering they are in two different industries.

If you've ever heard of Maslow - people will nearly always secure their lower level needs, and by saving money on those, enable themselves to still afford higher level needs. That is why WMT and MCD are doing so well. Not because they are somehow suddenly the "In" thing.

May 21 01:41 PM

[coffeelover:]

Last commentator...please be little more brief...it's really too much after such a long article....love starbucks drinks but till the economy picks up...i'll be spending my money where i can get double's worth...

By the way, a venti in NY is actually well over $4 a cup...why not take a ride down here from CT and spend some of that money...you will not buy 1/2 of what you can buy in CT with your $2....you seem to be pretty good with numbers but your application is very subjective to one particular region.

May 27 10:20 PM