Starbucks' New Initiatives: Will They Help?

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Includes: MCD, SBUX
by: Todd Sullivan

Some initial thoughts on early reports on Starbucks' (NASDAQ:SBUX) "initiatives."

In an interview before the meeting, Starbucks executives said they want to bring back some of the romance and theater that's been missing from stores since the company switched to using sealed grounds years ago. Starbucks will quit using flavor-locked bags of pre-ground coffee next month and get back to grinding beans in most of its U.S. stores.

Starbucks' senior vice president of global strategy, Michelle Gass, says she expects the change will improve sales that have gone to rivals McDonald's (NYSE:MCD) and Dunkin' Donuts.

One quote by Howard Schultz struck me. "We have an economy in a tailspin . . . and a company whose performance has not met your expectations or mine." Earth to Howard, we have not even had one quarter of negative GDP; this not only does not qualify as a tailspin, it barely qualifies as a hiccup. This is alarming as Schultz seems to push the chain's poor results, which have been deteriorating for longer than the economy, on outside factors.

Has he seen the McDonald's results?

Rather than a return to what they do best, Starbucks seems intent, at least after initial reports, on running around in more directions. After begging them to get rid of the clutter in the stores, a report is out that they sell approximately 2 CDs per day per location. What is the point for forging ahead with this? The resource expenditure in terms of money, human time and stores space is tremendous for essentially zero return.

Here are the initiatives:

  • A proprietary and revolutionary in-store Clover® brewing system that delivers the best cup of brewed coffee available anywhere;
  • A complete reinvention of brewed coffee in-store, that will be brought to life by baristas across the U.S., who will scoop and grind a new unique coffee blend, connecting customers to the early days of Starbucks;
  • The introduction of a new state-of-the-art espresso system that provides the perfect shot every time and helps facilitate the critical connection between barista and customer;
  • The first phase of a Starbucks Card Rewards program, rewarding registered cardholders and providing unique new benefits when using their cards in Starbucks stores;
  • The launch of MyStarbucksIdea.com, Starbucks first online community, that takes the Starbucks Experience outside the store and enables customers to play a role in shaping the company’s future; and,
  • An expanded relationship with Conservation International.

A social networking site? Why? An expanded relationship with Conservation International? Nice, but, who really cares? Stocking your shelves with 100% organic products would have made a much larger difference with countless more folks. It seems as though Schultz is driving the company to be almost a social experiment and is ignoring his business's realities. When he started, he had almost no competition. Now the competition is fierce. A social networking site will be meaningless long term.

The initiatives set to "transform" the company simply fall flat and will perpetuate the current slide. As a casual Starbucks user, only one of the six actually will have any affect on me and any purchasing decision and even it is negligible. A new espresso machine and coffee brewer? So what. Are you telling me what is in there now is no good? The one that will actually matter? A rewards card, not a bad idea.

Schultz & Co. still have not addressed the chief complaints people have - Convenience, Price and Service. Until they do, do not expect any dramatic improvement.

Disclosure: No position